Tamuning GMT +10
EY
Ernst & Young Building
Suite 201
231 Ypao Road
Tamuning Guam 96913
Executive contacts
Ian T. Zimms
+1 (671) 649-3700
Fax: +1 (671) 649-3920 Email: ian.zimms@gu.ey.com
Edmund E. Brobesong +1 (671) 649-3700 Email: edmund.brobesong@gu.ey.com
Sherillou C. Aguon
Immigration contact
Ian T. Zimms
A. Income tax
+1 (671) 649-3700 Email: sherillou.aguon@gu.ey.com
+1 (671) 649-3700
Fax: +1 (671) 649-3920 Email: ian.zimms@gu.ey.com
Who is liable. Guam residents are subject to tax on all income, regardless of source. An individual who is not a citizen or perma nent resident of the United States or a resident of Guam is subject to tax on Guam-source income only.
A nonresident alien is subject to Guam tax on income that is effectively connected with a Guam trade or business and on Guam-source fixed or determinable, annual or periodical gains, profits and income (generally investment income, including divi dends, interest and rental income).
Foreign nationals who are not lawful US permanent residents (that is, who do not hold green cards) are considered Guam resi dents if they meet both of the following requirements:
• They are present in Guam for at least 31 days during the current year.
• They are deemed present in Guam for at least 183 days during a test period of three consecutive years, including the current year, using a formula weighted according to the following percentages:
— Current year: 100.00%
— First preceding year: 33.33%
— Second preceding year: 16.67%
Among the exceptions to the test outlined above are the following conditions:
• An individual may claim to be a nonresident of Guam in the year of departure from Guam by having a closer connection to a foreign country.
• Under certain circumstances, it may be beneficial for an individual to be considered a resident of Guam for income tax purposes. If certain conditions are met, an individual may, for
tax purposes, elect to be a resident in the year of arrival (firstyear election).
Because Guam is a US territory, US citizens and permanent resi dents with Guam income are taxed somewhat differently from nonresidents. At present, Guam is using the US Internal Revenue Code in “mirror-image” fashion, with the word “Guam” substituted for “United States” wherever it appears. Citizens and per manent residents of the United States who are bona fide residents of Guam must file their individual tax returns with the govern ment of Guam instead of with the US Internal Revenue Service.
Citizens or permanent residents of the United States are generally considered bona fide residents of Guam if they satisfy both of the following conditions:
• They are physically present in Guam for 183 days or more dur ing the tax year.
• They do not have a tax home outside Guam during any part of the tax year and do not have a closer connection to the United States or a foreign country during any part of the tax year.
Income subject to tax
Employment income. Gross income and deductions in Guam are determined under the same rules as those in the United States. Taxable income from personal services includes all cash wages, salaries, commissions and fees paid for services performed in Guam, regardless of where the payments are made. In addition, taxable income includes the value of an employee’s expenses paid by the employer and the fair-market value of noncash goods and services provided by the employer, including housing and vehicles. Guam-source investment income received by nonresidents is ordi narily taxed on a gross basis at a flat 30% rate, which may be withheld by the payer.
A nonresident alien who performs personal services as an employee in Guam at any time during the tax year is considered to be engaged in a Guam trade or business. A limited exception to this rule applies to a nonresident alien performing services in Guam if the services are performed for a foreign employer, if the employee is present in Guam for no longer than 90 days during the year and if compensation for the services does not exceed USD3,000.
Compensation is considered to be from a Guam source if it is paid for services performed in Guam, regardless of where the income is paid or received. If income is paid for services rendered partly in Guam and partly in a foreign country and if the amount of income attributable to services performed in Guam cannot be accurately determined, the Guam portion is determined based on a workday ratio. Fringe benefits that meet certain requirements are sourced to the person’s principal place of work. These bene fits include moving expenses, housing, primary and secondary education for dependents and local transportation. A Guam or foreign employer is responsible for withholding Guam income tax from payments made to nonresident alien employees.
Educational allowances provided by employers to their local or expatriate employees’ children 18 years of age and younger are taxable for income tax and social security tax purposes.
Self-employment and business income. Every Guam resident who operates a business is taxable on the worldwide income of the business. Nonresidents are taxable on business income from Guam sources only. The rules for the computation of an individual’s taxable income from a business are similar to the US rules. A 5% gross receipts tax applies on all income earned by an individual in connection with a business in Guam, with certain exceptions, including income from wholesale sales, real property sales and export sales.
Investment income. In general, dividend and interest income of residents is taxed at the ordinary rates (outlined in Rates). Non resident alien individuals are subject to special rules. Guamsource investment income received by nonresidents is ordinarily taxed on a gross basis at a flat 30% rate, which may be withheld by the payer.
Portfolio interest received by nonresidents is exempt from the 30% tax rate. An election to tax rental income on a net basis is available.
Directors’ fees. In general, directors’ fees are considered to be earnings from self-employment. A 5% gross receipts tax applies to directors’ fees earned in Guam.
Income from certain foreign corporations. Under a complex set of rules, US citizens and Guam residents with ownership interests in “controlled foreign corporations” may be subject to tax on certain categories of income, even if the income has not been distributed to them as a dividend. Beginning in 2018, the catego ries of income subject to current taxation are expanded. Individuals who were subject to these rules in 2017 were required to calculate a “transition tax” when filing their 2017 tax returns.
Taxation of employer-provided stock options
Qualified stock option plans. Under incentive stock option (ISO) rules, options provided to employees under qualified stock option plans are not subject to tax at the time the option is granted nor at the time the employee exercises the option and buys the stock. However, at the time of exercise, the difference between the exer cise price and the fair market value of the stock at the date of exercise is considered a tax preference item for AMT purposes (see Rates). Tax is levied at capital gains tax rates when the employee sells the stock (see Capital gains and losses). The employee’s basis in the stock is the amount paid for the stock at the time the option is exercised. Consequently, the employee recognizes a capital gain or loss in the amount of the difference between the sale price and the grant price. For purposes of deter mining whether the capital gain is long term or short term, the holding period begins on the date after the option is exercised, not on the date the option is granted. Stock purchased under an ISO may not be sold within two years from the grant date and within one year from the exercise date. If the stock is sold before the expiration of the required holding period, any gain on the sale is treated as ordinary income.
Non-qualified stock option plans. A stock option provided to an employee under a non-qualified plan is taxed when it is granted if the option has a readily ascertainable fair market value at that
time. An option that is not actively traded on an established mar ket has a readily ascertainable fair market value only if all of the following conditions are met:
• The option is transferable.
• The option is exercisable immediately and in full when it is granted.
• No conditions or restrictions are placed on the option that would have a significant effect on its fair market value.
• The fair market value of the option privilege must be readily ascertainable.
The above conditions are seldom satisfied. Consequently, most non-qualified options that are not traded on an established mar ket do not have a readily ascertainable fair market value and are not taxable at the date of grant.
The exercise of a non-qualified stock option triggers a taxable event. An employee recognizes ordinary income in the amount of the value of the stock purchased, less any amount paid for the stock or the option. When the stock is sold, the difference between the sale price and the fair market value of the stock at the date of exercise, if any, is taxed as a capital gain.
Capital gains and losses. Net capital gain income is taxed at ordi nary rates, except that the maximum rate for long-term gains is limited to the following:
• 0% for married individuals filing jointly, with a maximum tax able income of USD80,800 (USD40,400 for single individuals)
• 15% for married individuals filing jointly, with a maximum taxable income of USD501,600 (USD445,850 for single indi viduals)
• 20% for married individuals filing jointly, with taxable income of more than USD501,600 (USD445,850 for single individuals)
Net capital gain equals the difference between net long-term capital gains over net short-term capital losses. Long term refers to assets held longer than 12 months. Short-term capital gains are taxed as ordinary income at the rates set forth in Rates.
Investors who hold “qualified small business stock” may be entitled to exclude from income part or all of the gain realized on disposition of the stock.
Once every two years, Guam taxpayers, including resident aliens, may exclude up to USD250,000 (USD500,000 for married tax payers filing jointly) of gain derived from the sale of a principal residence. To be eligible for the exclusion, the taxpayer must generally have owned the residence and used it as a principal residence for at least two of the five years immediately preceding the sale. However, if a taxpayer moves as a result a change in place of employment, for health reasons or as a result of unfore seen circumstances, a fraction of the maximum exclusion amount is allowed in determining whether any taxable gain must be reported. The numerator of the fraction is generally the length of time the home is used as a principal residence, and the denomina tor is two years. The repayment of a foreign currency mortgage obligation may result in a taxable exchange-rate gain, regardless of any economic gain or loss on the sale of the principal resi dence. In certain cases, part of the gain on the sale of a principal
residence may not be eligible for exclusion. To the extent the taxpayer has “non-qualified use” of the property, that portion of the gain (determined on a time basis over the total holding period of the property) is not eligible for exclusion from income. A complex set of rules applies to determine whether a particular use of the property, such as renting out the property or leaving it vacant, is considered a “non-qualified use.”
Capital losses are fully deductible against capital gains. However, net capital losses are deductible against other income only up to an annual limit of USD3,000. Unused capital losses may be car ried forward indefinitely. Losses attributable to personal assets (for example, a personal residence or an automobile) are not deductible.
In general, capital gains received by nonresidents from the sale of stock in a Guam company is exempt from the 30% tax rate described in Investment income. Gains received by nonresidents from sales of Guam real property interests are generally considered to be effectively connected income, and special complex rules apply.
Dividends. Dividends received by individuals from domestic cor porations and “qualified foreign corporations” are taxed at the same special rates as those applicable to net capital gains, for both the regular tax and the alternative minimum tax. See Capital gains and losses for the tax rates.
To qualify for the 15% (or 0% or 20%) tax rate, the shareholder must hold a share of stock for more than 60 days during the 120day period beginning 60 days before the ex-dividend date. Other dividends are taxed at ordinary rates.
Deductions
Deductible expenses. Certain types of deductions, including amounts related to producing gross income, are subtracted to arrive at adjusted gross income. Alimony payments to a former spouse and contributions to health savings accounts are among the most commonly claimed deductions in this category. Alimony (but not child support) must meet certain criteria, and must be included in the recipient’s gross income, to be deductible by the payer. A tax of 30% generally must be withheld (and remitted) from alimony paid by a US citizen or Guam resident to a nonresident-alien former spouse. For divorce agreements executed after 31 December 2018 (or modified after that date to reflect the new tax rules), alimony payments are not deductible, and alimony received is not taxable.
Complex rules determine eligibility for other deductions from gross income. For example, depending on the taxpayer’s income level, interest of up to USD2,500 on qualified educational loans, and individual retirement account (IRA) contributions of up to USD6,000 (USD7,000 if age 50 or older at the end of 2021) may be deducted.
After adjusted gross income is determined, a citizen or resident alien is entitled to claim the greater of itemized deductions or a standard deduction. The amount of the standard deduction varies, depending on the taxpayer’s filing status. For 2021, the standard deduction is USD25,100 for married individuals filing a joint
return, USD18,800 for a head of household, USD12,550 for a single (not married) individual and USD12,550 for a married taxpayer filing a separate return.
Itemized deductions include the following items:
• Unreimbursed medical expenses to the extent that they exceed 10% of adjusted gross income
• Income, general sales, and property taxes of US states and localities, but limited to USD10,000 in total
• Foreign income taxes paid if a foreign tax credit is not elected
• Certain interest expenses, generally home mortgage interest and investment interest expenses
• Casualty losses to the extent they are attributable to specified natural disasters
• Gambling losses to the extent of gambling winnings
• Charitable contributions made to qualified charities
A nonresident alien may not use the standard deduction instead of actual itemized deductions. Also, the types of itemized deductions a nonresident alien may claim are limited to charitable contributions made to qualified charities, and state and local taxes imposed on effectively connected income (limited to USD10,000). A nonresident alien may not claim an itemized deduction for medical expenses, taxes (other than state and local income taxes) or most interest expenses.
Business deductions. Self-employed individuals are entitled to the same deductions as employees, except that they may also deduct directly related ordinary and necessary business expenses. However, special rules may apply to limit business deductions if a taxpayer’s business activity does not result in a profit for three out of five years. In this situation, the activity may be classified as a hobby, and the expenses are deductible only if they qualify as itemized deductions. Self-employed individuals may establish, and may deduct contributions paid to, their own retirement plans, subject to special limitations.
Beginning in 2018, taxpayers may be entitled to deduct up to 20% of their “qualified business income,” when calculating tax able income. The 20% deduction is calculated under a complex set of rules. There are many limitations to this deduction, includ ing whether the taxpayer operates a qualified business, and whether the individual’s taxable income is below the overall limit of USD164,900 (USD329,800 for married filing jointly) for 2021. In general, qualified business income does not include income from performing services as an employee.
Rates. The applicable Guam tax rates, like the US rates, depend on whether an individual is married and, if married, whether the individual elects to file a joint return with his or her spouse. Certain individuals also qualify to file as head of household. The graduated tax rates listed below apply in Guam for 2021.
Married filing joint return
Taxable income Amount of tax
10% of the taxable income Over USD19,900 but USD1,990 plus 12% of not over USD81,050 the excess over USD19,900 Over USD81,050 but USD9,328 plus 22% of not over USD172,750 the excess over USD81,050
Not over USD19,900
Married filing joint return
Taxable income Amount of tax
Over USD172,750 but USD29,502 plus 24% of not over USD329,850 the excess over USD172,750
Over USD329,850 but USD67,206 plus 32% of not over USD418,850 the excess over USD329,850
Over USD418,850 but USD95,686 plus 35% of not over USD628,300 the excess over USD418,850
Over USD628,300 USD168,993.50 plus 37% of the excess over USD628,300
Married filing separate return
Taxable income Amount of tax
Not over USD9,950 10% of the taxable income
Over USD9,950 but USD995 plus 12% of not over USD40,525 the excess over USD9,950
Over USD40,525 but USD4,664 plus 22% of not over USD86,375 the excess over USD40,525
Over USD86,375 but USD14,751 plus 24% of not over USD164,925 the excess over USD86,375
Over USD164,925 but USD33,603 plus 32% of not over USD209,425 the excess over USD164,925
Over USD209,425 but USD47,843 plus 35% of not over USD314,150 the excess over USD209,425
Over USD314,150 USD84,496.75 plus 37% of the excess over USD314,150
Head of household
Taxable income Amount of tax
Not over USD14,200 10% of the taxable income
Over USD14,200 but USD1,420 plus 12% of not over USD54,200 the excess over USD14,200
Over USD54,200 but USD6,220 plus 22% of not over USD86,350 the excess over USD54,200
Over USD86,350 but USD13,293 plus 24% of not over USD164,900 the excess over USD86,350
Over USD164,900 but USD32,145 plus 32% of not over USD209,400 the excess over USD164,900
Over USD209,400 but USD46,385 plus 35% of not over USD523,600 the excess over USD209,400
Over USD523,600 USD156,355 plus 37% of the excess over USD523,600
Taxable income
Single individual
Amount of tax
Not over USD9,950 10% of the taxable income
Over USD9,950 but USD995 plus 12% of not over USD40,525 the excess over USD9,950
Over USD40,525 but USD4,664 plus 22% of not over USD86,375 the excess over USD40,525
Over USD86,375 but USD14,751 plus 24% of not over USD164,925 the excess over USD86,375
Over USD164,925 but USD33,603 plus 32% of not over USD209,425 the excess over USD164,925
Over USD209,425 but USD47,843 plus 35% of not over USD523,600 the excess over USD209,425
Over USD523,600 USD157,804.25 plus 37% of the excess over USD523,600
The brackets of taxable income are indexed annually for infla tion.
The above rates are used to compute an individual’s regular Guam income tax liability. In addition, higher income taxpayers (income over USD250,000 for married filing jointly and USD200,000 for single) are subject to a 3.8% tax on their “net investment income.” The definition of “net investment income” is broad and essentially includes all income other than income from a trade or business. Compensation from personal services is generally excluded from this tax.
Guam also imposes alternative minimum tax (AMT) at a rate of 26% on alternative minimum taxable income, up to USD199,900, and at a rate of 28% on alternative minimum taxable income exceeding USD199,900 (long-term capital gains and qualified dividends are generally taxed at lower rates of 15% or 20%; see Capital gains and losses and Dividends). The primary purpose of AMT is to prevent individuals with substantial income from using preferential tax deductions (such as accelerated deprecia tion), exclusions (such as certain tax-exempt income) and credits to substantially reduce or to eliminate their tax liability. It is an alternative tax because, after an individual computes both the regular tax and AMT liabilities, the greater of the two amounts constitutes the final liability.
Nonresidents are taxed on income effectively connected with a Guam trade or business after related deductions at the graduated rates of tax set forth above. Unmarried nonresident aliens are taxed under the rates for single individuals. Married nonresidents whose spouses are also nonresidents are generally taxed under the rates for married persons filing separately.
Credits. Tax credits directly reduce income tax liability rather than taxable income and therefore provide a dollar-for-dollar benefit. Most credits are limited, depending on the taxpayer’s income level. Credits include a maximum USD14,440 credit for qualified adoption expenses, a USD3,000 child tax credit for dependents under 6 years of age (and who have a social security number), a USD3,600 child tax credit for dependents between the ages of 6 and 17 years of age, a USD500 credit for certain other dependents, and two alternative higher education credits, with maximums of USD2,000 and USD2,500.
Relief for losses. In general, passive losses, including those gener ated from limited-partnership investments or rental real estate, may be offset only against income generated from passive activi ties.
Limited relief may be available for real estate rental losses. For example, an individual who actively participates in rental activity may use up to USD25,000 of losses to offset other types of income. The USD25,000 offset is phased out for taxpayers with adjusted gross income of between USD100,000 and USD150,000, and special rules apply to married individuals filing separate tax returns.
Disallowed losses may be carried forward indefinitely and used to offset net passive income in future years. Any remaining loss
may be used in full when a taxpayer sells the investment in a transaction that is recognized for tax purposes
B. Estate and gift taxes
Guam does not impose estate or gift tax. Non-US citizens and US citizens who obtained their citizenship by birth or naturalization in Guam and are residents of Guam at the time of death are sub ject to US estate and gift tax only on assets located in the United States, not on those located in Guam. US citizens other than those who received their citizenship by birth or naturalization in Guam are subject to US estate and gift taxes on all of their assets, including those located in Guam.
C. Social security
Social security tax. Guam is covered under the US social security system. Under the Federal Insurance Contributions Act (FICA), social security tax is imposed on wages or salaries received by individual employees to fund retirement benefits paid by the federal government. The following two taxes are imposed under FICA:
• Old-age, survivors and disability insurance (OASDI)
• Hospital insurance (Medicare)
For 2021, the OASDI tax is imposed on the first USD142,800 at a rate of 6.2% on the employee and 6.2% on the employer. Medicare tax is imposed, without limit, at a rate of 1.45% on the employee and 1.45% on the employer. In addition, higher income employees (but not their employers) pay an extra 0.9% Medicare tax. The income threshold varies by tax return filing status. Married couples filing jointly pay the extra tax on their combined wages in excess of USD250,000, single taxpayers and heads of households on wages exceeding USD200,000, and married taxpayers filing separately on wages exceeding USD125,000. Selfemployment income (see below) is added to the amount of wages when determining the threshold.
FICA tax is imposed on compensation for services performed in Guam, regardless of the citizenship or residence of the employee or employer. Consequently, absent an exception, nonresident alien employees who perform services in Guam are subject to FICA tax. Certain categories of individuals are exempt from FICA tax, including foreign government employees, exchange visitors in Guam under J visas, foreign students holding F, M or Q visas, and individuals covered under social security totalization agreements between the United States and other countries. These agreements allow qualifying individuals to continue paying into the social security system of their home countries, usually for a period of five years.
A Guam or foreign employer is responsible for withholding social security taxes from compensation paid to nonresident alien employees.
Self-employment tax. Self-employment tax is imposed under the Self-Employment Contributions Act (SECA) on self-employ ment income, net of business expenses, that is derived by US
citizens and Guam residents. The following two taxes are imposed under SECA:
• OASDI
• Hospital insurance (Medicare)
For 2021, the OASDI tax is imposed on the first USD142,800 of the net earnings of a self-employed individual at a rate of 12.4%. Medicare tax is imposed, without limit, at a rate of 2.9%. In addi tion, higher income individuals pay an extra 0.9% Medicare tax. The income threshold varies by tax return filing status. Married couples filing jointly pay the extra tax on their combined selfemployment income in excess of USD250,000, single taxpayers and heads of households on self-employment income exceeding USD200,000, and married taxpayers filing separately on selfemployment income exceeding USD125,000. Wage income (see above) is added to the amount of self-employment income when determining the threshold.
Self-employed individuals must pay the entire tax (unlike an employee who pays half the tax while the employer pays the other half of the tax) but may deduct 50% (not including the extra 0.9% Medicare tax) as a trade or business expense on their federal income tax return. No tax is payable if net earnings for the year are less than USD400. If a taxpayer has both wages subject to FICA tax and income subject to SECA tax, the wage base subject to FICA tax is used to reduce the income base subject to SECA tax. SECA tax is computed on the individual’s US income tax return (Form 1040-SS). Nonresident aliens are not subject to SECA tax unless they are required to pay the tax under a totaliza tion agreement (see Social security tax).
D. Tax filing and payment procedures
Guam income tax returns are filed under the same rules, and using the same forms, applicable in the United States, but they are filed with the government of Guam instead of with the US Inter nal Revenue Service. Residents of Guam must report their US income on their Guam return, and residents of the United States must report their Guam income on their US return. Income taxes withheld on Guam wages offset Guam income reported on a US return, and vice versa. Estimated tax payments are filed with Guam or the United States, depending on where a taxpayer resides on the date the payment is due. Self-employment taxes are paid to the US Internal Revenue Service.
If a nonresident alien is not engaged in a Guam trade or business and if all of the tax owed on Guam-source income is withheld, the nonresident alien is not required to file a tax return.
Nonresidents must file tax returns if they are engaged in a trade or business in Guam, even if they report no income from the busi ness. Individuals not engaged in a Guam trade or business must file returns if they have any Guam-source income on which all of the tax due is not withheld. Nonresident employees subject to Guam income tax withholding must file tax returns by 15 April. Other nonresidents must file returns by 15 June.
E. Double tax relief and tax treaties
Foreign tax credits offset taxes on Guam income in the same manner as in the United States. Under the Guam Investment Equity Act, Guam may apply the Guam withholding tax at the applicable US income tax treaty rates.
F. Non-immigrant and immigrant visas
The immigration procedures in Guam are the same as those for the United States. For details, see the chapter on the United States.
G. Marital property regime
Guam is a community property jurisdiction. Any person who establishes residency or domicile in Guam is subject to Guam’s community property laws. For these purposes, continuous physical presence in Guam for at least 90 days normally gives rise to a conclusive presumption of residence in Guam. During divorce proceedings, the community property laws apply to all property acquired during the marriage, whether located within or outside Guam.
Under Guam law, community property is any property acquired by either spouse during the marriage that is not separate property. Separate property is property acquired by either spouse before the marriage and property designated as separate property in a written agreement between the spouses. Income derived from separate property is separate property.
Guam’s community property laws apply only to married couples. The laws of Guam do not prescribe any particular form for the ceremony of marriage.