Jersey has published the Taxation (Partnerships – Economic Substance) (Jersey) Law 202-, which was adopted by the States Assembly on 29 June 2021 and is currently pending sanctioning and registration by the Royal Court. The law provides for the extension to partnerships of the economic substance rules that apply to Jersey resident companies. The extension is made to fully meet commitments the Government of Jersey gave to the EU Code Group in 2018.

Under the measures of the law, resident partnerships must satisfy the economic substance test in relation to any relevant activity carried on by or through it for which it has gross income. However, certain exemptions apply:

• A resident partnership is not required to satisfy the economic substance test in relation to a relevant activity carried on by or through it if all of the partners in the partnership are individuals who are subject to income tax in Jersey; and
• A resident partnership is not required to satisfy the economic substance test in relation to a relevant activity carried on by or through it in a financial period if, during that financial period:
  • the resident partnership is not part of a multinational group; and
  • the resident partnership does not undertake business activities outside of Jersey.

A partnership meets the economic substance test in relation to a relevant activity if:

• It is managed in Jersey in relation to that activity;
• Having regard to the level of relevant activity carried on in Jersey:
  • there are an adequate number of people performing work in relation to that activity who are physically present in Jersey (whether partners or employees, whether employed by the resident partnership or another entity or partnership and whether on temporary or long-term contracts);
  • there is adequate expenditure incurred in Jersey; and
  • there are adequate physical assets in Jersey;
• All of the partnership's core-income generating activities are carried out in Jersey; and
• The partnership's governing body is able to monitor and control the carrying out of core income-generating activities carried out in Jersey for the partnership by another entity or partnership (if any).

A partnership formed under Jersey law is a resident partnership unless its place of effective management is outside of Jersey in a country or territory where:

• The highest rate at which a company or individual may be charged to tax on any part of its income is 10% or higher; or
• The partnership is required to satisfy a test that is substantially the same as the economic substance test.

A partnership not formed under Jersey law is also a resident partnership if its place of effective management is in Jersey. For this purpose, a partnership's place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the partnership's business as a whole are in substance made. In any case, a partnership will have one place of effective management at any one time, even if there is more than one place where management decisions are made.

Under the transitional provisions of the law, the economic substance test must be met from financial periods beginning from 1 July 2021 for partnerships that are established on or after that date but before 1 January 2022. For all other partnerships, the economic substance test must be met for financial periods beginning from 1 January 2022.