As part of its commitment to the EU Code of Conduct Group to introduce economic substance legislation, Jersey is proposing to extend its economic substance laws to cover partnerships.
Jersey's existing economic substance regime, adopted at the start of 2019, applies to companies only (please see our other economic substance briefings for further details). However, new draft legislation, which applies economic substance requirements to certain partnerships resident in Jersey, has been lodged for governmental approval in the form of the Draft Taxation (Partnerships – Economic Substance) Jersey Law 202-. It is expected that the new law will be approved at the end of June and come into effect from 1 July 2021, but will allow a six month transition period for existing partnerships.
The new law would apply to a variety of partnership forms (including general, limited and limited liability partnerships, whether or not formed in Jersey) which have their 'place of effective management' in Jersey. Limited exceptions are included in the draft law for partnerships (a) whose partners are all individuals who are subject to income tax in Jersey and (b) which are not part of a multinational group and do not undertake business activities outside Jersey.
Like Jersey's economic substance regime for companies, the law would apply only to partnerships that are generating gross income by carrying out one or more of the following 'relevant activities':
- banking business;
- insurance business;
- fund management business;
- finance and leasing business;
- headquarters business;
- shipping business;
- holding partnership business;
- intellectual property holding business; or
- distribution and service centre business.
Helpfully, the new law expressly provides that the business of being a fund is not a relevant activity.
The proposed economic substance test applicable to partnerships mirrors the test under the existing law applicable to companies. Partnerships that are within the scope of the new law would need to:
- be managed in Jersey in relation to the relevant activity;
- have adequate people, expenditure and physical assets in Jersey; and
- carry out all 'core-income generating activities' in Jersey (and monitor and control any third party to which the activities are outsourced).
The new law provides that (among other administrative requirements), in order to be 'managed' in Jersey, the partnership's governing body will need to meet in Jersey at an adequate frequency.
The new law includes an enforcement regime which is similar to the provisions of the existing companies' economic substance law - this includes criminal sanctions and, ultimately, winding up or dissolution for non-compliance. For a partnership that does not have a separate legal personality, each of the general partners (being any partners who are not limited partners) are required to meet the requirements of the law applicable to the partnership, and are made jointly liable for non-compliance.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.