Changes made to Guernsey's zero-10 corporate tax regime to make it compliant with the EU code of conduct have been given the thumbs up by European regulators.

It follows the EU Code of Conduct Group on Business Taxation ruling that deemed distribution provisions meant Guernsey's zero-10 corporate tax regime was harmful. Guernsey's parliament duly agreed to repeal the deemed distribution provisions.

The move, which will kick in on 1 January 2013, is tipped to lose the island several million pounds of income each year.

Deemed distribution of business profits ensured that Guernsey residents with a shareholding in an island company must pay personal income tax on any unallocated company profits, while those living 'off-island' are excluded from the levy.

The wider Zero-10 regime allowed the majority of corporations in Guernsey to pay no tax, while others must cough up 10% while a small proportion are compelled to pay 20%.

Following the EU's Economic and Financial Affairs Council (ECOFIN) formal ratification of the amended regime, Fiona Le Poidevin, chief executive of Guernsey Finance - the voice of the island's finance industry, said: 'It is very pleasing that our zero-10 corporate tax regime has now been formally ratified as compliant by the EU.

'The deemed distribution provisions primarily affect locally resident shareholders and therefore it is very much a case of business as usual for the international client base of our finance industry. However, this decision provides extra reassurance to them that Guernsey is a jurisdiction which is willing and able to move quickly to ensure it continues to meet international tax standards, while also retaining its position as an extremely competitive place to do business.'

Fellow channel island, Jersey, together with the Isle of Man, both made similar changes to their tax regimes which were subsequently approved by the EU last year.Peter Harwood, Guernsey's chief minister, said: 'This is a not inconsiderable achievement given the misinformation and misperceptions that continue to be perpetuated in some quarters about our jurisdiction.'