Article / 24 September 2019
Jersey Tax Update
In our lastest update, issued in November 2018, we advised of the impending economic substance legislation.
Since then, the Jersey tax authorities have released further information regarding changes to the 2018 and 2019 Jersey tax returns following the implementation of economic substance legislation. This update provides further information for directors of companies that are tax resident in Jersey and provides recommendations for actions to be taken. Please contact your usual Crestbridge contact if you wish to discuss any of these matters further.
Economic Substance Update
Following the publication of the Economic Substance legislation in December 2018 (the “Legislation”), the EU Finance Ministers confirmed in March 2019 that Jersey, Guernsey and Isle of Man had delivered on the reforms and commitments with regard to economic substance. Consequently, the islands were all placed on the “white list” as fully cooperative jurisdictions. This was endorsed by the OECD in July, following a review on Harmful Tax Practices where the changes to Jersey’s new economic substance legislation were deemed “not harmful”. This is a positive outcome for Jersey as it demonstrates its commitment to cooperate and should provide reassurance to international investors.
Tri-Island guidance was released on 26 April 2019, designed to assist companies to interpret the new legislation. It builds on the existing key aspects paper and provides practical guidance on the scope and implementation of the economic substance requirements in relation to each of the relevant activities referred to in the Legislation (the “Relevant Activities”). It is a working document, with a number of placeholders to be updated through further discussions with the OECD and the European Code of Conduct Group. Due to some technical differences in legislation it is expected that Island specific guidance will also be issued to supplement the joint guidance.
The guidance should be welcomed by directors and shareholders as it provides clarifying guidance on the “directed and managed” requirements, in addition to providing worked examples of scenarios which would fall “in” and “out” of scope of the legislation including those that would satisfy the substance requirements and those that would fail. However, the guidance is principles-based and should not replace the need to take independent tax advice where appropriate.
As an overview, Jersey tax resident companies conducting Relevant Activities must ensure that core income generating activities (“CIGA”) that are related to the Relevant Activities are performed in Jersey. The guidance provides a non-exhaustive list of the types of CIGA for each Relevant Activity. CIGA can be outsourced, but only if control over the CIGA remains in Jersey.
As the Legislation took effect for accounting periods commencing on or after 1 January 2019, those companies identified as being within the scope of the Legislation should already have assessed the CIGA undertaken against the guidance to assess the adequacy of current practices. Practices should be documented and monitored on an ongoing basis to ensure adequate substance in Jersey and compliance with the Legislation can be demonstrated by the board of directors.
Companies failing the economic substance tests will be subject to sanctions.
Jersey Company Tax Returns
On 26 April 2019 the Jersey tax office published guidance explaining additional information that will be required on future tax returns in relation to economic substance. Management will need to ensure relevant financial and business information is captured for inclusion in the annual tax return. The Legislation gives specific powers to enable the tax authorities to request additional information where appropriate.
Changes to the 2018 Jersey tax returns
- Non-trading 0% tax rate companies must now specify the Relevant Activities, if any, that are being carried on by the company and include the company’s accounting profit/loss (before tax) for the period ending in the year of assessment.
- Companies which are incorporated in Jersey but managed and controlled and tax resident overseas in a jurisdiction where the highest rate of corporation tax is 10% or greater, are now required to declare their country/ies of tax residence.
- The guidance notes for completion of the 2018 company return form have been updated.
- Failure to submit a return by the deadline of 31 December 2019 will result in a penalty of £250.
Changes to the 2019 Jersey tax returns
Substantial changes will be made to the 2019 tax return to enable the collection of necessary information for the implementation of the economic substance legislation. The format of the return is still in development however, it is evident from the guidance that for a company which is in scope and carrying out a Relevant Activity, additional information will be required including:
- Provision of details of the Relevant Activities being undertaken, together with the gross income generated from each Relevant Activity and related operating expenditure
- Confirmation of the number of qualified employees in Jersey, specifying the number of full-time equivalents
- Detail of the name and address of the premises in Jersey
- Confirmation statements in relation to the “directed and managed in Jersey” test specifying the number of Board meetings held in Jersey with a quorum of directors physically present
- Confirmation of the CIGA performed in Jersey in relation to each Relevant Activity (where any CIGA is outsourced, additional questions will need to be answered)
- A declaration to confirm that the company has adequate economic substance in Jersey
Furthermore, all companies will be required to submit an electronic copy of their accounts with the tax return.
1. Assess compliance with economic substance legislation:
As the economic substance legislation is applicable now, Jersey tax resident companies carrying out one or more Relevant Activities must consider whether they can meet the requirements. This consideration should include whether:
- the directors hold adequate information to be able to answer all the questions;
- the directors have confidence in providing all the required confirmations;
- the company records are kept up to date to enable delivery of accounts; and
- they will be able to give the declaration and evidence adequate economic substance in Jersey.
2. Ensure accounting records are up to date and ready for filing on time:
Ensure the company’s accounts are up to date so that accounting profit/loss is available to be reported by 31 December 2019. If there has previously been a delay in producing accounts, you have until next year to remediate the position and ensure accounts can be filed with the 2019 tax returns (due 31 December 2020).
3. Determine who will be filing your Jersey tax return:
In most cases, Crestbridge will be able to file tax returns as agent.
Given the fundamental changes to the Jersey tax returns and declarations sought by the Jersey tax authorities, Crestbridge will seek to formalise tax agent appointments and refresh the connected terms of engagement where we have previously been appointed to undertake 0% tax filings.
Your usual Crestbridge contact will be in touch over the coming weeks in this regard.
Please note that this briefing is only intended to provide a general overview of the matters to which it relates. It is not intended as tax advice and should not be relied on as such.
30 April 2014 /