19 February 2019


The Governments of the Crown Dependencies, including Jersey, have published draft legislation that will require resident companies carrying on certain activities to have “adequate economic substance in their jurisdiction”. This legislation is being passed in these jurisdictions after the EU Code of Conduct Group expressed concern over the tax policies being followed in certain non EU countries, including the Crown Dependencies, against the general concepts of transparency and fair taxation.

This legislation will necessitate most companies, impacted by this legislation, to be directed and managed, to have adequate employees, adequate expenditure and physical presence in that particular jurisdiction and to conduct their core income generating activities there.  The substance requirements introduced by the draft legislation apply only to corporate taxpayers that are “resident companies”, with residence in Jersey determined by reference to the Income Tax (Jersey) Law 1961 as amended and includes non-Jersey companies managed and controlled in Jersey. The Law will not affect trusts, partnerships, foundations and companies that have no gross income with regards to a  “relevant activity”, although general partners and trustees that are themselves companies may be caught.

It should be noted that the draft legislation has still to be sanctioned by Royal Assent in the United Kingdom, although the legislation has been approved by the governing legislative body in Jersey. The draft legislation is intended to be effective for company accounting periods commencing 1st January 2019.

The following businesses are deemed to be relevant sectors, for purposes of the draft legislation:

  • banking
  • insurance
  • shipping
  • fund management
  • financing and leasing
  • headquartering
  • operation of a holding company
  • holding intangible property
  • distribution and service center business

The draft legislation goes onto impose three tests if the company falls into one of these sectors, although a company is not required to meet these tests if it has no gross income in relation to a relevant activity carried out by it.

  1. The company is directed and managed in Jersey.

The company will need to demonstrate the, a) holding of board meetings in Jersey, b) physical presence of the directors at these meetings, c)  the taking of minutes and strategic decision making at these meetings, d) evidence of the knowledge and  expertise of the Directors as well as, e)  the retention of such minutes and records in the Jurisdiction.

  1. Conducts Jersey Core Income Generating Activities (CIGA)

The Company will need to conduct core-income generation activity in the jurisdiction. What this means in practice will vary from one relevant sector to another and examples of potential CIGA are set out in the draft legislation. Although a relevant sector company can outsource some or all of its CIGA, the CIGA must still be undertaken in Jersey and subject to adequate oversight by the company. In addition the service providers resources themselves will be taken into account when considering adequacy.

  1. Meets adequate physical substance requirements in relation to level of relevant activity carried out in Jersey.

The third requirement is that a relevant sector company will need to demonstrate that in relation to the level of activity, there are, a) an adequate number of qualified employees in relation to activity physically present in Jersey, be they employed direct by the company or another entity resident in the jurisdiction, b) adequate expenditure in Jersey and c) adequate physical assets in Jersey.

Who determines if company relevant Sector Company?

The Jersey tax authorities who will make their determination from the additional information contained within the company tax returns submitted.

Sanctions for Non-Compliance

Sanctions are progressive and include financial penalties, exchange of information to foreign tax authorities in the jurisdiction where immediate parent company, ultimate parent company and/or ultimate beneficial owners are resident. Ultimate sanction for repeated non-compliance would be for the relevant sector company being struck off the companies register.

For further and a more detailed background to the proposed law a link to the draft legislation of the Taxation (Companies-Economic Substance) (Jersey) Law 201….. follows:

Actions to this proposed legislation being made by Whitmill Trust Company Limited

Whitmill are currently conducting a thorough review of its client base to ascertain Jersey resident or non-Jersey Companies, resident and controlled from Jersey, who may fall within the various parameters of the Economic Substance legislation. Please note that further guidance on the provisions of the legislation and its interpretation are due to be released by the relevant  Department of the Jersey States in the next month or two. This guidance will hopefully provide clarity on the interpretation of the legislation, on a  case by case basis, where there is currently a degree of ambiguity.

If in the meantime you have any questions on the draft legislation or have any immediate concerns, please contact your normal client director. Where a company does clearly fall within the ambit of the legislation, your relevant client director will be contacting you to discuss the necessity of undertaking possible remedial work in relation to the company, to obviate any negative consequences arising from the introduction of this legislation.


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