Jersey Economic Substance Update
With effect from 1 January 2019 legislation comes into effect in Jersey aimed at tackling the EU’s concerns that profits generated by a company resident in Jersey may not be supported by the necessary level of economic substance.
Initially this will be applicable only to Jersey resident companies carrying on certain “relevant activities” as follows:
- Fund management
- Financing and leasing
- Holding company
- Intellectual property
- Distribution and service centres
Companies carrying out any of the above activities will need to demonstrate that they:
- are directed and managed in Jersey;
- have Jersey core income generating activities (CIGA); and
- meet the necessary adequacy tests regarding people, premises and expenditure in Jersey.
The first returns for such companies will be made as part of the compulsory annual Jersey tax returns to be filed at the end of 2019, which will require them to evidence that they have an adequate number of physical employees, adequate expenditure and adequate physical assets in Jersey. In addition all Jersey companies will also be required for the first time to submit a copy of their most recent annual financial statements.
Given all activity in 2019 will be subject to reporting, all Jersey boards should be considering the legislation now in order to assess the impact on their particular circumstances. This should include:
- reviewing structures on a company by company basis to identify which carry out relevant activities and are therefore within scope;
- documenting and monitoring procedures currently in place to ensure that they will be sufficient to demonstrate compliance going forward; and
- identifying and addressing any potential areas where there may be deficiencies.
The legislation includes sanctions which will apply to companies failing to meet the economic substance test. In addition to financial penalties of up to £100,000, the legislation as drafted could result in an instruction for the company to either conduct its business in a manner that meets the substance requirements or face a potential striking off.
Pavilion is an independent provider of director services and corporate governance solutions. We provide our clients with appropriate and effective solutions to meet the specific governance needs of their corporate structure, whilst evidencing robust control, driving up standards and pursuing excellence. For more information please view our website at www.pavilionfiduciary.com.
The above briefing is only intended to provide a very general overview of Jersey’s new Economic Substance tests and is not intended as tax advice nor should be relied on as such.