14th May 2021

Learning from Other Jurisdictions
Guest contribution by Swen Lorenz

To this day, there is no legal definition of who is (or isn't) a "Sark resident".

Knowing who is a legitimate member of the local community (and who isn't) provides a baseline for much of the work the government authorities need to carry out. A government ought to be run by its people for its people, which requires knowing who your people are. There probably isn't a single other jurisdiction in the Western hemisphere that does not yet have a legal definition of who is a resident. It's almost akin to a country saying it has not defined its border.

As far back as 2014, Chief Pleas agreed that creating such a definition was a priority, and a committee was set up to deal with the issue. However, the committee was disbanded without results in 2018.

The subject remained largely off the radar until the sudden, significant influx of new residents in the second half of 2020. The rapid increase of people and the various practical matters that arose out of it made it clear that Sark urgently needs such a legal definition.

In April 2021, Chief Pleas created a new committee tasked with resolving the issue.

By providing this article, I would like to offer some observations and help ignite a public debate about this subject. It will conclude with my recommendation that the Committee consider:

A requirement to be physically present in Sark for a minimum of 90 or 120 days per year, to comply with international norms.

The possibility of applying a rolling three-year average, to give everyone extra flexibility (e.g. to go backpacking for a year without losing residency if the shortfall of days is made up during the following two years).

The introduction of a tax discount for those who are on the island for more than 180 or 270 days, to incentivise everyone to spend money with Sark businesses. It's a subject that has some complexity to it, but it's directly relevant to everyone who calls Sark home. The following will also show some of the impact that the current gap in Sark's legislation will have on your life.

Why define a Sark resident?

If any more reasons were even necessary to finally tackle this task, the pandemic provided one. During the past 14 months, Sark had to monitor who was allowed to travel to the island. At times, this required prohibiting non-residents from coming to the island. However, if there is no definition of a resident, how do you enforce such a rule in a way that is both effective and even-handed?

The recent resurgence of the island's population to levels not seen since the early 2010s made it clear that Sark needs to carefully plan the use of its limited resources. E.g., who has the right to send their children to the Sark School free of charge and how many teachers does the school need as a result? How much affordable housing should the island provide, and which investments in vital infrastructure should be prioritised? If you don't know what your population is (or might be next year), you cannot plan accurately.

Not having a clear idea of who is a resident even endangers the future independence of the island. Sark is part of the Bailiwick of Guernsey, which is a major financial centre and, as such, monitored by international oversight bodies (such as the OECD and the Financial Action Task Force). Guernsey has built up a stellar reputation internationally for successfully monitoring the legitimacy of its finance industry. It is no secret that within the Bailiwick, Sark is an open flank through which financial criminals can come through the backdoor. Sark is under increasing pressure by the UK's Ministry of Justice to demonstrate good governance. Being known as a place that doesn't control residency will sooner or later draw attention and criticism. Sark will be accused of not even taking care of basic matters.

Last but far from least, clearly defining the legal requirements for calling Sark home gives residents (current and prospective) the clarity and stability they need to plan their lives. It will provide them with the confidence to build houses, refurbish properties, and make other long-term commitments that benefit the island. If you are legally recognised as a bona fide resident and confident about the rights that are bestowed upon you, you are more likely to care about the long-term future of Sark and everyone who makes up our unique community.

Sark owes it to its residents to provide this kind of clarity and stability. Currently, it simply doesn't. That is no one's fault, and luckily, it can get fixed without too much effort.

A framework to get started

Sark will always have a minimal capacity for administering and enforcing laws, and it is unlikely that anyone on the island would like to see a bigger bureaucracy.

The good news is that there are plenty of models and established standards around the world that Chief Pleas and the committee can take inspiration from. Put another way, Sark would benefit from implementing a legal definition that is not too far off what comparable jurisdictions have put in place. Taking such an approach will demonstrate that Sark is learning from best practices, and it will minimise the risk of criticism from the outside world.

Learning from what has proven to work in places like Guernsey, the UK or other Crown Dependencies and Commonwealth nations is an opportunity for not making things more complicated than necessary. Sark does not need to reinvent the wheel.

None of which is to say that Sark doesn't have the necessary freedom to adapt what is used elsewhere so that it works for the island's particular circumstances.

The 90-180-day range established by English-speaking countries

In the UK, you can become a resident for tax purposes if you spend at least 90 days per year in the country and fulfil specific other criteria. However, being there for 90 days will not automatically qualify you as a UK resident. There are certain circumstances where someone can be in the UK for up to 179 days per year without gaining the rights and obligations of a resident. If you are there for 180 days, you will, in any case, be a tax resident of the UK.

Put another way, you cannot be a tax resident in the UK if you are there for less than 90 days, and you will not be able to avoid being classed a resident if you spend more than 179 days there.

The previous paragraph is somewhat of a simplification because there are provisions for residents who may be entirely absent during one year, e.g. because they have gone backpacking around the world but did not give up their home. However, the 90-180-day range provides a good starting point as it will cover over 90% of all cases.

The substance of the rules applied in Guernsey is similar to those of the UK. It's important to note that the UK is eager to harmonise these rules across the British Isles, i.e. any rule that strays significantly from the framework provided by the UK will likely be shot down. Guernsey's immigration laws currently contain one provision that could be a loophole relative to the UK's own regulation, and as I am hearing unofficially, for that reason alone it is likely to be shut soon following pressure from the mainland. The UK is unlikely to have any appetite for making the Channel Islands a backdoor route for easy immigration into the British Isles.

Internationally, there are many variations of this time span, but the ones applied by major countries tend to fall within the same range. E.g., the US uses a rolling three-year average. You generally don't become a tax resident unless you have spent at least 120 days a year in the US either in a single year or across a rolling three-year average. However, this also permits someone to spend 360 days in the US without becoming a resident if, during the following two years, they spend zero days in the country.

Should Sark learn from more aggressive jurisdictions?

Some countries and jurisdictions apply a more generous interpretation of residence.

E.g., there are plenty of jurisdictions that allow claiming residency on the back of spending just 60 days a year there. The details are complex and ever-changing, but at one point or another, this included countries such as Cyprus, Uruguay, Paraguay, Montenegro, Georgia, and Panama.

Residents of some of these countries have told me that, in some cases, the requirement to be present some of the time was not enforced at all. Anecdotally, it appears that one can be a resident in some of these countries without being there at all or on the back of appearing for just a few days per year. Others seem to demand that one merely shows up briefly every 180 days.

Undoubtedly, jurisdictions that take such an approach are quite numerous, at least up until now. However, it's not unreasonable to say that these are often (though not always) less reputable jurisdictions, at least when viewed from a Northern European lens. Sooner or later, they will probably come under international pressure not to offer such a generous provision of residencies. The EU already clamped down recently on the sale of so-called "golden visas" by Cyprus and Portugal, and it's probably only a matter of time before lax residency rules come under fire, too. We are now facing a US administration that calls for a minimum global tax, so it's not too difficult to figure out which direction regulation and enforcement are moving into.

Sark needs to ask itself what benefits it wants to get from people who call the island their home and what the island wants to be known for internationally. E.g., mention Cyprus residencies to anyone, and the first association is that of a haven for Russians and Russian money. In fairness, such stereotypes are often based on outdated information. Cyprus stands for much more these days, but a reputation, once lost, is hard to regain. Sark's issues with the "Sark Lark" are now mostly considered a matter of the past, and the island's future residence rules should aim to prevent a repeat.

Sark also needs to consider that it is, after all, part of a Bailiwick. Guernsey has taken the route of going above and beyond to satisfy internationally established best practices. The finance industry of Guernsey is so successful because it only ever accepted legitimate business and actively worked to keep illegitimate business away. This approach has become part of Guernsey's culture. Sark, too, falls under the supervision of the Guernsey Financial Services Commission (GFSC). Should Sark instead orientate itself towards the standards set by Guernsey to be supportive of the work done by its neighbouring island, or does it want to be mentioned alongside the likes of Cyprus and Georgia?

With all this in mind, it would not seem wise to try and copy the more aggressive definitions of residency, at least not at this stage. Without a doubt, Sark needs to be competitive to attract and retain residents. However, following the recent resurgence of its population, the island isn't desperate for new people anymore. Sark has to consider carefully how to protect its reputation and long-term future. In my mind, this makes it clear that Sark's approach to defining a resident should always err on the side of caution. Aside from that, the coming harmonisation of rules across the British Isles makes it seem unlikely that Sark would get away with being the one place that offers racier residency options, such as residency against a donation and without a need to be there, as is offered in some jurisdictions in the Caribbean.

"Active versus passive" residency AND other special cases

Where Sark certainly has quite some leeway are the technical details of its legal definition of a resident.

E.g., some countries distinguish between residents who are there a lot and others who aren't there quite so much (but still above a certain minimum threshold). Being absent a lot does not need to be anything illegitimate, e.g. many people need to travel a lot for work or simply prefer to split their time between two or three places depending on the seasons. However, whether you are there a lot determines how much purchasing power you inject into the local economy and to what degree you consume government services.

One of the most visible and pertinent challenges on Sark is that of sustaining its local business. E.g., there are only a few restaurants open in winter, the food stores' offerings will inevitably be smaller if fewer people are on the island, and electricity becomes dearer if fewer people use the power station. Generally speaking, incentivising residents to be on the island longer should be a priority – but only up to a reasonable point, because residents also need to have flexibility and not be unfairly tied to the island. Sark needs to get that balance right both to attract and retain residents. If Sark implemented a definition of a resident that scared away those who arrived here only recently (who are mostly of a more international orientation and with mobile occupations), it would send the Sark economy back to a dark place.

Two cases Sark could learn from in this regard are Andorra and (yet again) Guernsey.

Andorra is a valuable case study because it is similar to Sark in many ways:

Not a member of the EU, but reliant on friendly relationships with the EU.

Fairly small with a long history of independence.

Not a "tax haven" by design, but by default due to its history.

Limited government apparatus to deal with administering the regulation. In 2012, Andorra passed an extensive modernisation of residency laws. Since then, you can be a resident of Andorra with a requirement to be present either 90 days or 180 days per year. Depending on which option you choose, you have to pay more (or less) tax, and you have more (or less) rights to using the country's public services. The details of it are quite complex, and probably more complicated than anything Sark would ever want or need. But the basic premise of distinguishing between people who spend a lot of time there and people who, for example, have an international business, makes a lot of sense.

Guernsey also distinguishes between someone who is "solely resident" (= on Guernsey most of the time) or "resident only" (= on Guernsey some of the time and above a certain threshold). These two categories define the subsequent rights and obligations of someone who is registered as resident in Guernsey. Designing such special provisions is not unusual for a Crown Dependency and comparable micro-jurisdictions. In that sense, Sark should also think creatively about solutions that work best for itself, provided they stay within reasonable international norms.

Administration and enforcement

In almost all of the jurisdictions mentioned above, will you find consultants and service providers that make a living out of helping prospective residents. Additionally, you will find government-subsidised agencies in many of these countries. One of them is Locate Guernsey, the States-funded body tasked with helping to sign up new residents for Guernsey and Alderney.

I don't think Sark would want to create a system that requires specialists to advise residents and would-be residents. Almost everyone on Sark would agree that keeping things simple is a virtue and that simplicity must be at the heart of any new definition. Nor would Chief Pleas likely want to set aside funding to create and operate such an agency (although if it ever did, I would happily close down my own relocation initiative).

When most other jurisdictions are drowning their citizens in ever-more bureaucracy, Sark should set a positive example of how it can be done differently. Whatever the new legal definition of a resident may be, everyone should be able to understand it easily and quickly.

A similar mindset should guide the enforcement of residency rules. Even if the island did have a customs post at the harbour, Sark could probably not automate the enforcement of a requirement to be present a certain number of days per year. Given multiple landing points, how should that be done? No one on Sark will want to be burdened with having to make their way to a registration point each time they arrive or being forced to use a smartphone app with geolocation data. Monaco nowadays monitors the physical presence of its citizens using a shocking amount of technology, but who on Sark would want such a Big Brother state?

Sark's residents are primarily honest people, and no one wants big government to arrive on Sark just because there may be a few who don't play by the rules. It's a place where government trusts the people to do the right thing and gives everyone the benefit of the doubt. The onus for providing evidence of one's physical presence on the island should be put on the individual, with clear guidelines on what is acceptable as evidence (e.g., flight and ferry tickets). Such an approach would also be in line with keeping Sark's government lean and not creating more demands on the budget.

It shouldn't be difficult to design a system of enforcement that is not aggressive but firm and humane. E.g., each year in early January, a number of residents could be asked to provide evidence that verifies their presence during the past year. These spot checks could be decided based on a randomised selection or local intel. If the residents in question can't provide that evidence but make a credible case altogether, then it'd be reasonable to require them to prove their presence during the current year to heal the previous year's failure. More serious consequences should be reserved for clear and stark cases of someone disobeying the requirements.

In as small a community as Sark, one would expect that well over 90% of all residents (and probably closer to 99%) would be honest once they are provided with clear rules. Having a system that takes care of the biggest part of the problem will be good enough and a significant step forward, compared to the situation we have currently.

Last but not least, there probably needs to be a provision for reviewing the system from time to time. Compare the world we live in today to that of 2010 and 2000, respectively. Every decade (or two), major regulation should be looked at.

A complex subject matter – but resolvable in 2021

The legal definition of a Sark resident needs to be based on a thorough understanding of what both parties get out of it.

No one wants a return to the circumstances of recent years when a steady decline of the population almost led to an economical collapse of the island. Let there be no doubt that Sark is also in competition with other jurisdictions for attracting new residents. There is a world of choice out there, and Sark's peculiar circumstances make the island appeal to a very narrow band of would-be residents. The question has to be asked: what does Sark need to offer to be a place that attracts and retains residents?

Equally, having more and new residents inevitably places pressure on limited resources. What does the island need to get out of its residents in order to survive and prosper? Keep in mind that many new residents, in particular, are keen to contribute and to respect the rules. A government needs to provide clarity on these matters, which Sark did not always live up to so far. These shortcomings then filter through to everyone, in the form of less choice in stores and restaurants or higher electricity prices. All of these subjects are interconnected.

There are many ancillary questions, e.g. what kind of economic landscape should Sark have and what number of residents does the island aim to have? These are broader questions that Chief Pleas is working on separately, e.g. through the current review of Sark's tax system. Inevitably, there are overlaps between these different subject matters.

To get to the right answers, it will be helpful to consider what similar places have put in place, to open up the subject to debate not just in Chief Pleas but in Sark's civil society, and to refer back to useful work done in the past (such as the 2014 workshops held on Sark).

Based on what I have spelt out above, the legal definition of a Sark resident should probably be based on the following pillars:

Require someone to spend a minimum of either 90 or 120 days per year on Sark.

Grant tax discounts to those who are there a lot longer, i.e. lower taxes if you are on the island for more than 180 or 270 days.

Provide flexibility by allowing the use of a three-year average.

For the avoidance of doubt, such rules do not imply that Sark cannot apply other standards in specific areas. E.g., this would not have to entail changing the rule that only residents who are on the island for more than 270 days a year can rent a Local Market property.

The legal definition of a resident could also be used to implement a few other overdue steps, such as carrying out at least a basic background check on new residents. Asking a new resident about potential prior convictions is standard practice elsewhere.

Among the upsides that come with resolving this issue are:

Easier to plan the limited resources of the island.

Fair collection of tax revenue from clearly distinguished kinds of residents (tying in with the upcoming review of Sark's taxes).

Safety and stability for all legitimate residents.

Protecting Sark's status as self-governing Crown Dependency.

Keeping the island's unique approach of simplicity.

Creating a stronger sense of belonging.

There are other aspects that I haven't touched on, and this is intended to be merely an overview of pertinent issues rather than an exhaustive analysis. I have tried to describe potential solutions based on what I perceive to be a likely achievable consensus in Chief Pleas and Sark's civil society. However, it's simply one man's opinion, and others will differ in their view on how to approach this issue.

However, what I am entirely convinced of is that the day will come when Sark will have to defend its residency system vis-a-vis Guernsey, the UK, and supranational organisations like the OECD and the EU. The island better be prepared. Sark will always get some sympathy and leeway because of its history and limited capacity, but it must not be seen as having an egregious system and abusing anyone's generosity. Failing to properly regulate this particular aspect of island life could lead to much more serious problems in the future, which everyone who legitimately calls Sark their home will want to avoid.

The members of the committee for defining Sark residency need our support and our input. They will have to invest significant amounts of their time for free to resolve this long-standing issue, and they won't be able to please everyone. The more people are willing to step forward and provide their viewpoint in a public forum, the better the subsequent result will be. It's important to demonstrate that Sark is capable of managing its own affairs, and finalising a new regulation before year-end 2021 would be a major step in this direction. Let's make it happen and then use 2022 to focus on other pressing matters, of which there are more than enough.

Please do not hesitate to email me with questions or comments: [email protected]

Thank you to The Sark Newspaper and Kevin Delaney for kindly agreeing to print my article as a guest contribution.