Economic Substance Annual Declaration
Guernsey companies earning income from specified relevant activities must file an annual economic substance declaration with the Revenue Service as part of their corporate tax return. The declaration demonstrates that the company meets the directed-and-managed, core income-generating activities, and adequacy tests.
Who this applies to
- Guernsey companies earning income from banking, insurance, fund management, finance and leasing, headquarters, shipping, holding company, intellectual property, or distribution and service centre activities
- International Business Entities (IBEs) earning relevant activity income
- Limited partnerships if they conduct relevant activities
What to file
Substance declaration as part of the company tax return, covering: confirmation of the relevant activity, number of full-time equivalent employees in Guernsey, total operating expenditure in Guernsey, details of premises and physical presence, confirmation that board meetings took place in Guernsey, and details of core income-generating activities conducted on-island.
How to file
Via the Revenue Service online portal as an integral part of the ET1/ET3 corporate tax return.
Payment due
No separate payment; penalties are levied for failure to meet substance requirements.
Penalties for missing this deadline
£10,000 penalty in the first year for failure to meet substance requirements; £100,000 in subsequent years. Persistent non-compliance leads to referral to the EU Code of Conduct Group and potentially automatic exchange of information about the company with foreign tax authorities.
Filing checklist
- Identify whether any of the 9 relevant activities applies to the company
- Confirm board meetings have been held in Guernsey with a quorum physically present
- Count Guernsey-based employees (full-time and part-time)
- Quantify operating expenditure attributable to Guernsey operations
- Document the core income-generating activities (CIGA) conducted in Guernsey
- Gather board minutes evidencing Guernsey-based decision-making
- Complete and submit the declaration as part of the ET1/ET3 return
Common mistakes to avoid
- Thinking the substance declaration only applies to financial services companies — holding companies and IP companies are equally in scope
- Not counting part-time or outsourced employees correctly in the adequacy assessment
- Conducting board meetings by video conference without ensuring a quorum of directors are physically present in Guernsey
- Not distinguishing between the full substance test (for most relevant activities) and the reduced test (for pure equity holding companies)
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