Economic Substance Requirements

Effective 1 January 2019, Jersey has introduced an economic substance test to address the concerns of the EU Code of Conduct Group on Business Taxation that companies may artificially attract profits that are not proportionate with economic activities and substantial economic presence in Jersey. The law requires resident companies engaged in the following activities to demonstrate that they have substance:

Banking business;
Insurance business;
Fund management business;
Finance and leasing business;
Headquarters business;
Shipping business;
Holding company business;
Intellectual property holding business;
Distribution and service center business; and
Self-managed funds business, excluding a collective investment fund (effective 1 January 2021).

Effective for financial periods beginning from 1 January 2022, the scope of the economic substance rules is extended to partnerships resident in Jersey. For partnerships established on or after 1 July 2021 but before 1 January 2022, the economic substance test must be met from financial periods beginning from 1 July 2021.

Under the measures of the law, resident partnerships must satisfy the economic substance test in relation to any relevant activity carried on by or through it for which it has gross income. However, a resident partnership is not required to satisfy the economic substance test in relation to a relevant activity carried on by or through it if:

All of the partners in the partnership are individuals who are subject to income tax in Jersey; and
During the relevant financial period:

the resident partnership is not part of a multinational group; and
the resident partnership does not undertake business activities outside of Jersey.

A resident company or resident partnership is considered to have economic substance on the fulfillment of the following conditions:

The company or the partnership is directed and managed in Jersey in relation to that activity;
Having regard to the level of relevant activity carried on in Jersey:

there are an adequate number of employees in relation to that activity who are physically present in Jersey (partners or employees, whether employed by the resident company or partnership or by another entity and whether on temporary or long-term contracts);
there is adequate expenditure incurred in Jersey; and
there are adequate physical assets in Jersey; and

The company or partnership conducts all its core income-generating activities in Jersey.

In case the core-income generating activity is carried out in Jersey for the relevant company or partnership by another entity, it is able to monitor and control the carrying out of that activity by the other entity. The expression ‘core income-generating activity’ (CIGA) refers to specific activities carried on from within Jersey as prescribed under the law.

In this regard, the government issued in April 2019 a joint guidance with Guernsey and Isle of Man on the new substance requirements. The guidance provides an overview of the economic substance requirements, information on the relevant sectors, directed and managed requirements, and other matters. An updated guidance was issued in November 2019 to cover additional sectors (such as insurance, intellectual property, high-risk intellectual property, and shipping), update existing guidance on other sections, and provide further clarifications on funds, CIGA, and other aspects. Additionally, in January 2021, another joint guidance was issued providing additional guidance on the scope and application of the economic substance legislation regarding partnerships.

Information pertaining to companies failing the economic substance test can be exchanged with any jurisdiction (including non-EU), provided that the exchange of information takes place under a bilateral agreement with the respective jurisdiction or under the Mutual Assistance Convention.

Failure to provide the required information to the appropriate authority or failure to meet the economic substance test attracts penalties of up to GBP 3,000 or GBP 10,000, respectively.

COVID-19 Emergency Measures

The Jersey government has clarified the operation of the economic substance test during the COVID-19 pandemic. In cases where companies regular operating practices have to be adjusted to compensate for the Coronavirus outbreak, such companies will not be determined to have failed the economic substance test. Where a company incorporated in another jurisdiction is a tax resident on the basis of control and management in Jersey, any temporary changes dictated by the COVID-19 pandemic will not disturb the determination of corporate tax residence from that prevailing before the COVID-19 outbreak. This treatment will only apply to adjustments to the normal operating practices and to the extent required to mitigate the threats from the outbreak.

Tax Information Exchange Agreements (TIEAs)

Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters and Jersey has concluded TIEAs with 38 countries, including Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Hungary, Iceland, India, Indonesia, Ireland, Italy, Japan, Korea, Latvia, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovenia, South Africa, Sweden, Switzerland, Turkey, the United Kingdom and the United States of America.

Exchange of Cross-Border Tax Rulings

Jersey has agreed to exchange tax rulings with eligible jurisdictions from 1 April 2017 in the implementation of BEPS Action 5. A specific ruling can be exchanged with a relevant jurisdiction if it is international in nature and affects the relevant jurisdiction. The exchange is possible if there is an agreement between Jersey and the relevant jurisdiction providing for the spontaneous exchange of tax information. The agreement can be a tax information exchange agreement (TIEA), a tax treaty, or the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Exchange is also required for “historical” rulings granted between 1 January 2012 and 31 March 2017.

Effective 17 March 2022, Jersey suspended all forms of tax cooperation with Russia. Jersey and Russia were both parties to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Financial Account Information Reporting and Exchange

Effective 2016, Jersey has adopted measures to implement the automatic exchange of financial account information with the global standard for exchange of information developed by the OECD under the Common Reporting Standard (CRS), with the first reporting of financial accounts in 2017.

Further, Jersey has concluded an Intergovernmental Agreement (IGA) with the United States on 13 December 2013 to improve international tax compliance and to implement the U.S. Foreign Account Tax Compliance Act (FATCA).

Mandatory Reporting of Cross-Border Tax Arrangements (MDR)

Jersey has published the mandatory disclosure regulations for common reporting standard (CRS) avoidance arrangements and opaque offshore structures based on the ‘OECD model rules for CRS avoidance arrangements and opaque offshore structures’ in order to meet the commitments made to the EU Code of Conduct Group.

Under the regulations, an arrangement is considered as a CRS avoidance arrangement if it can be reasonably concluded that it is designed to circumvent or is marketed as, or has the effect of, circumventing the CRS Regulations or exploiting the absence of legislative provisions in relation to the CRS.

An opaque offshore structure means a passive offshore vehicle that is held through an opaque structure. A passive offshore vehicle is a legal person or an arrangement that does not carry on substantive economic activity supported by adequate staff, equipment, assets and premises in the jurisdiction where it is established or is tax resident. However, this does not apply to vehicles that are wholly owned by one or more institutional investors and if all beneficial owners are tax residents in the same jurisdiction as the passive offshore vehicle. An opaque structure is designed to have, is marketed as having, or has the effect of disguising the identity of the beneficial owner.

Any person that is an intermediary with respect to a CRS avoidance arrangement (arrangement) or opaque offshore structure (structure) is required to disclose the arrangement or structure to the Comptroller if such intermediary:

Makes that arrangement or structure available for implementation, or provides relevant services in respect of that arrangement or structure, through an office of that intermediary located in Jersey;
Is a resident or has its place of management and control in Jersey; or
Is incorporated or established under the Jersey law.

The information required to be disclosed by the intermediaries includes:

The name, address, jurisdiction, and tax identification number of tax residence of the following:

the intermediary making the disclosure;
any client of that intermediary in respect of the arrangement or structure (identifying any client that is a reportable taxpayer);
any actual user of the arrangement or beneficial owner of the structure; and
any person that is an intermediary with respect to the arrangement or structure (other than the person making the disclosure);

Details of the arrangement or structure including:

in respect of the arrangement, a factual description of those features of the arrangement that are designed to circumvent marketed as having, or have the effect of, circumventing the CRS regulations; and
in respect of the structure, a factual description of those features that have the effect of not allowing the accurate determination of the reportable taxpayer's beneficial ownership or creating the appearance that the reportable taxpayer is not a beneficial owner of the passive offshore vehicle; and

The jurisdiction where the arrangement or structure has been made available for implementation.

However, an intermediary is not subject to disclosure requirements if such information or document is covered under a legal professional privilege of non-disclosure, subject to certain conditions. The exemption also applies to the information otherwise disclosed.

The disclosure is required to be made within 30 days after the intermediary:

Makes the arrangement or structure available for implementation; or
Supplies relevant services with respect to the arrangement or structure.

Further, a reportable taxpayer who is a Jersey resident and is a user of the arrangement or a beneficial owner under the structure must disclose the information about the arrangement or structure, if the intermediary has not disclosed such information in certain cases. Such disclosures must be made within 30 days after the first step has been taken to implement the arrangement or structure.

Failure to provide information or comply with the disclosure requirements attracts penalties of up to GBP 3,000.

The above regulations will come into force on the date appointed through an order by the Minister for External Relations.

Ultimate Beneficial Ownership Disclosure

Jersey published the Financial Services Order and Regulations which provide the rules for the implementation of the Financial Services (Disclosure and Provision of Information) (Jersey) Law effective 6 January 2021. The law requires certain specific types of entities to submit information relating to the beneficial owners and significant persons. Entities subject to the requirements include:

Companies;
Foundations;
Incorporate limited partnerships;
Limited liability companies;
Limited liability partnerships;
Separate limited partnerships; and
Any other prescribed body or person.

Beneficial owner under the law means:

An individual who owns or controls the entity; or
The individual on whose behalf a transaction is being conducted by the entity, including an individual who exercises ultimate effective control over the entity.

For this purpose, ultimate effective control over an entity includes ownership or control exercised through a chain of ownership or by means of control other than direct control.

Significant person under the law means:

In relation to a company, a director or secretary of the company, or any other officer purporting to act in a similar capacity; and
In relation to a limited liability company, a manager of the limited liability company or, if there is no manager, the members involved in the management of the limited liability company.

A company is required to disclose the beneficial owner information at the time of incorporation or while registering with the Jersey Financial Services Commission. Any changes in the information must be notified within 21 days.

Annual Confirmation Statement

An annual confirmation statement is also required to be submitted verifying that the beneficial owner information, significant person information, and any other prescribed information provided to the Jersey Financial Services Commission in relation to the entity is accurate. The statement is due by the end of February each year, following the year in which an entity is established. However, the deadline for the first statement is 30 April 2021.

Penalties

If an entity fails to disclose the changes in beneficial ownership information or does not provide an annual confirmation statement without reasonable excuse within a prescribed period, a fine may be levied and the executives of that entity may be subjected to an imprisonment of 4 years.

Further, the Registrar may send a notice to the entity stating that at the end of the period of 3 months following the date of the notice:

The name of the entity will be struck off the register; or
The registration of the entity may be canceled and the entity may be dissolved unless the entity complies with the relevant provision.

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