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Incoming economic substance for partnerships

Service area ⁄ Taxation and Economic Substance Legal jurisdictions ⁄ Jersey Date ⁄ May 2021

The recently submitted Draft Taxation (Partnerships – What are ‘resident partnerships’? Economic Substance) (Jersey) Law 202- is expected to be Resident partnerships are partnerships deemed to have their approved on 29 June 2021. In line with EU global commitments, effective place of management in Jersey. Jersey partnerships it will extend the Jersey economic substance regime to Jersey will be deemed resident partnerships automatically unless resident partnerships generating income from relevant their effective place of management is in another jurisdiction activities from 1 July 2021, with existing partnerships having a that either has an income tax rate of at least 10% or an 6-month transition period. Partnerships that are funds will be equivalent economic substance test. On the basis they are predominantly out of scope but the activities of a general taxed or used domestically, exceptions will be made for: (a) partner may themselves require substance under the existing partnerships where all the partners are individuals subject to legislation. income tax in Jersey; and (b) partnerships that are not part of

a multi-national group and do not undertake business Carey Olsen continues to be closely involved in the activities outside of Jersey. development of substance legislation and is happy to advise on the impact it may have on structures in Jersey, as well as the equivalent regimes in , BVI, and the What are ‘relevant activities’? . Further information will be published in due Relevant activities are certain activities carried on by or course. In the interim, the proposals in Jersey can be through the resident partnership. There are nine categories, summarised as follows: which mirror those under the company regime: banking business, distribution and service centre business, finance and What does the law propose? leasing business, fund management business, headquarters business, insurance business, intellectual holding property From 1 July 2021, an ‘economic substance test’ similar to that for business and shipping business. Some take priority over others, Jersey resident companies will apply to ‘resident partnerships’ and the activities of a fund will not necessarily be considered generating gross income from ‘relevant activities’ in relevant relevant activities. financial periods, being financial periods starting on or after:

(a) for those formed after 1 July 2021, their date of formation; and (b) for those formed before 1 July 2021, 1 January 2022. The What is the ‘economic substance test’? regime will be familiar to those with an understanding of the A resident partnership will meet the economic substance test in company regime, with the main difference being that the test relation to a relevant activity if: (a) it is managed in Jersey, will look at the activities of the relevant governing body. For meaning in summary that its governing body meets in Jersey example, for limited partnerships, the activities of the general at an adequate frequency with a majority physically present at partner will be key. those meetings, records are kept of the strategic decisions at those meetings and passed by members who have the necessary knowledge and expertise to do so, and all records

OFFSHORE LAW SPECIALISTS

BERMUDA CAYMAN ISLANDS GUERNSEY JERSEY CAPE TOWN HONG KONG LONDON careyolsen.com are kept in Jersey; (b) it has adequate levels of people, expenditure and assets in Jersey; and (c) all core income-generating activities (CIGA) are carried out in Jersey (and to the extent outsourced to another person in Jersey the partnership is able to monitor and control those activities). FIND US Carey Olsen Jersey LLP What are the penalties? 47 Esplanade If a breach is determined for a financial period, the resident partnership is liable to a St Helier fine for that period not exceeding £10,000. A higher penalty will apply if a breach Jersey JE1 0BD occurs in a financial period where the partnership has received prior notices. That Channel Islands higher fine will be an amount of up to £50,000 multiplied by the number of previous T +44 (0)1534 888900 notices plus 1. In respect of any breach, the Tax Office will also be required (subject to E [email protected] limited exceptions) to exchange the information received with the authorities in each jurisdiction in which the partnership has its controlling partner, ultimate holding body of that controlling partner and the ultimate beneficial owner of the partnership. Additional penalties will apply to those who provide false or misleading information, or obstruct the Tax Office. FOLLOW US

Should you require any more information or assistance, please speak to your usual

Carey Olsen contact. Visit our taxation and economic substance team at careyolsen. com

PLEASE NOTE Carey Olsen Jersey LLP is registered as a limited liability partnership in Jersey with registered number 80.

This briefing is only intended to provide a very general overview of the matters to which it relates. It is not intended as legal advice and should not be relied on as such. © Carey Olsen Jersey LLP 2021.

2 ⁄ Incoming Jersey economic substance for partnerships careyolsen.com