Economic Substance for Jersey Funds

Jersey's economic substance regime has been in existence for four years now. On the one hand its scope has expanded to include partnerships as well as self-managed corporate funds; but on the other hand certain exemptions apply so that partnerships (and in many cases companies) acting as fund vehicles are out of scope. The purpose of this note is to provide some information about the impact of the economic substance regime on Jersey’s funds industry.


The economic substance regime is captured in two principle pieces of legislation, the Taxation (Companies – Economic Substance) (Jersey) Law 2019 (as amended on 4 June 2021 to bring self-managed corporate funds into scope, and again on 1 September 2022 to include Limited Liability Companies) (the “Companies Substance Law”), and the Taxation (Partnerships – Economic Substance) (Jersey) Law 2021 (which came into force with effect from 30 June 2021, bringing partnerships into scope) (the “Partnerships Substance Law”) (together the “Substance Laws”).


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A company or partnership will be caught within the scope of the economic substance regime if it is a “resident company” or a “resident partnership” which carries on one or more “relevant activities” and receives gross income from the relevant activity. A company will be a “resident company” for substance purposes if it is tax resident in Jersey.

A Jersey incorporated company will normally be tax resident in Jersey unless its central management and control is in another jurisdiction which has a highest rate of corporation tax of 10% or more. Similarly, foreign companies can be tax resident in Jersey where the central management and control is in Jersey.

A partnership will be a “resident partnership” if certain conditions are met, but being “resident” for substance purposes does not cause the partnership in question to be taxable person in Jersey – partnerships are transparent for Jersey tax purposes. A Jersey law governed partnership will generally be treated as resident in Jersey unless its “place of effective management” (“POEM”) is in a jurisdiction where the partnership is subject to a substantially similar economic substance regime or the highest rate of income tax of any person is at least 10%. A partnership’s POEM is where the key management and commercial decisions necessary for the conduct of its business are taken. A non-Jersey partnership is resident in Jersey if its POEM is in Jersey.

In any event, the residence of a Jersey company or partnership, or a foreign company or partnership seeking to be resident in Jersey, must be reported to Revenue Jersey.

Of the nine relevant activities set out in the Substance Laws, funds practitioners will generally be most interested in “fund management business”. However, in some circumstances other relevant activities may also be relevant (often in relation to subsidiaries of the fund vehicle), such as holding company business or holding partnership business (where the company or partnership’s primary function is the holding of shares), and finance and leasing business.

A company or partnership which carries on fund management business is one which provides fund management services to a fund (including a collective investment fund or a Jersey Private Fund) with respect to its investments and risk decisions. It does not include the provision of other services to a fund, such as administration or registered office services. The Companies Substance Law also now provides that self-managed corporate funds are caught within scope. On the other hand, partnerships which act as fund vehicles are exempt from the Partnerships Substance Law. Accordingly it is the functionary acting as the decision-maker of the fund (such as a general partner, managing trustee or investment manager) to which the Substance Laws normally apply.

The Economic Substance Test

If a company or partnership is caught within the scope of the Substance Laws it must satisfy the “economic substance test” by being directed (in the case of a company only) and managed in Jersey, having adequate employees, expenditure and physical assets in Jersey, and carrying on all of its “core income-generating activities” (“CIGA”) in Jersey. Each of these requirements apply only in relation to the company or partnership’s relevant activity.

The requirement to be directed (in the case of a company only) and managed in Jersey means that the board of directors (for a company) or the managers (for an LLC) must hold meetings in Jersey at an adequate frequency, with directors (or managers, for an LLC) that have sufficient knowledge and expertise with respect to the relevant activity, and with minutes and records kept in Jersey that show its strategic decisions being taken in Jersey. For companies, the quorum of directors (or managers, for an LLC) at the meeting must be physically present in Jersey (although if CIGA is performed at the meeting a majority of directors (or the managers, for an LLC) must be physically present in Jersey). For partnerships, similar requirements apply, including (i) the requirement for the “governing body” of the partnership to hold meetings in Jersey at an adequate frequency; (ii) members of the governing body must have the necessary knowledge and expertise, and (iii) a majority of the governing body must be physically present in Jersey for the meeting.

Whilst there is some flexibility for occasional meetings to be held outside Jersey, where CIGA is performed at the meeting the meeting must occur in Jersey. Guidance issued by the Government of Jersey does allow isolated instances of CIGA to occur outside of Jersey, but makes it clear that the quality and quantity of CIGA undertaken in Jersey must clearly outweigh anything undertaken outside Jersey.

As regards employees, expenditure and physical assets, the Substance Laws do not define “adequate”, which will consequently depend on the circumstances. However, it is clear that these requirements can be outsourced to a service provider in Jersey such that the service provider’s employees and office assets, as well as the fees paid on them, can be sufficient for the company or partnership to meet these requirements.

The Substance Laws also provide that an in-scope company or partnership’s CIGA must be carried on in Jersey. CIGA is specifically defined in relation to each relevant activity. In the case of fund management business, CIGA includes decisions relating to the holding and selling of investments; calculating risks; taking decisions on currency or interest fluctuations and hedging positions; and preparing relevant regulatory reports for authorities and investors. Again, CIGA may be outsourced in certain circumstances as long as the company or partnership is able to monitor and control the outsourcing.


Where an in-scope company or partnership fails the economic substance test it may face a fine which can increase significantly from the first year of non-compliance into future years, as well as reporting by Revenue Jersey to tax authorities in the jurisdictions of the company or partnership’s beneficial owners, and in some circumstances can ultimately lead to strike-off. In the case of partnerships which are not separate legal persons, the general partner will be liable for any failure to satisfy the economic substance test.

Walkers has a dedicated experienced regulatory group that can offer bespoke privileged legal advice and guidance in connection with all aspects of the Channel Islands’ regimes for economic substance, including POEM, company tax residence and compliance. Please reach out to one of the contacts below if you would like to learn more.

Chris Hutley-HurstPartnerT +44 (0) 1481 758

Jonathan HeaneyManaging PartnerT +44 (0)1534 700
Dilmun LeachGroup Partner*T +44 (0) 1534 700
Christopher ReedGroup Partner*T +44 (0) 1534 700
Leanne WallserGroup Partner*T +44 (0) 1534 700
Tatiana CollinsSenior CounselT +44 (0) 1534 700
Kirsten FaichnieSenior CounselT +44 (0)1534 700
Tom FothergillSenior CounselT +44 (0) 1534 700
Sarah TownsendSenior CounselT +44 (0) 1534 700
Antonia AmentSenior AssociateT +44 (0) 1534 700

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