Channel Islands: Economic substance rules for partnerships (Jersey)

Intended to satisfy the requirements of the EU Code Group

Intended to satisfy the requirements of the EU Code Group

Draft legislation would extend Jersey’s economic substance rules to “resident partnerships.”

Currently, the economic substance rules apply only to Jersey resident companies.

The intention of the proposed legislation is to satisfy the requirements of the EU Code Group for partnerships to be subject to economic substance rules in all of the “nil” or only nominal tax jurisdictions.

  • For these purposes, the term “partnership” would be broadly defined to include an incorporated limited partnership, a limited liability partnership, a limited partnership, a separate limited partnership, a foreign limited partnership, and any other arrangement that is subject to an assessment under Article 74 of Income Tax Law—such as general/customary law partnerships.
  • Also, the proposal provides that a partnership’s place of effective management would be the place where key management and commercial decisions that are necessary for the conduct of the partnership’s business are in substance made. A partnership could only have one place of effective management at any one time, even if there is more than one place where management decisions are made.
  • There are certain partnerships that would be specifically excluded from the need to meet the economic substance test.
  • The economic substance test would reflect measures from the company rules and consists of three elements: (1) managed in Jersey; (2) core income generating activities carried out in Jersey; and (3) adequate people, physical assets, and expenditure in Jersey. 
  • The rules are proposed to be effective for partnerships existing on 30 June 2021, and applicable for the first financial period commencing on or after 1 January 2022.

Read a May 2021 report prepared by the KPMG member firm in the Crown Dependencies


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