The Taxation (Companies – Economic Substance) (Jersey) Law 2019 came into effect on 1 January 2019 and applies to accounting periods commencing on or after that date. The new economic substance requirements apply to certain Jersey tax-resident companies and have been passed in order to comply with the EU Code of Conduct Group on Business Taxation for the purpose of demonstrating that the profits generated by Jersey companies which carry on certain specified geographically mobile activities (including fund management business) are commensurate with their economic activities and substantial economic presence in Jersey.

The substance requirements establish new economic substance tests which require fund managers to demonstrate that:

  • they are directed and managed in Jersey in relation to that activity;
  • they have adequate employees, expenditure and physical assets in Jersey proportionate to the relevant activities carried on there; and
  • all of the core income-generating activities (CIGAs) that they undertake are carried out in Jersey.

Jersey tax-resident fund managers, whether they are regulated in Jersey or benefit from an exemption from regulation, are in scope of the law where they have gross income in relation to their fund management activities. Fund vehicles themselves are outside the scope of the law. Services such as fund administration, advisory services and custody services are also out of scope.

The Crown dependencies issued a joint key aspects document in November 2018 and guidance notes on aspects of the substance requirements on 26 April 2019. The guidance notes are intended to be a work in progress and will develop through further discussions with the Organisation for Economic Cooperation and Development (OECD) and the EU Code of Conduct Group.

This article summarises the current position relating to the substance requirements for fund management companies.

Directed and managed test

Companies carrying on fund management must be directed and managed in Jersey. In this regard, the law requires:

  • meetings of the board of directors (all of whom must have the necessary knowledge and expertise to discharge their duties as a board) in Jersey at adequate frequencies, having regard to the level of decision making required;
  • a quorum of the board of directors to be physically present in Jersey at these meetings;
  • minutes recording the strategic decisions of the company made at these meetings (where the company has a sole director, strategic decisions should be evidenced by way of written resolutions of that director when physically present in Jersey); and
  • the retention of all company records (including its certificate of incorporation, articles of association and financial statements) and minutes of all board meetings in Jersey (where such records are held in electronic form, they must be maintained and accessible in Jersey).

While it is anticipated that companies with a minimal level of activity will hold at least one board meeting per annum, in the case of fund management businesses, the expectation is that board meetings should be held more frequently (at least quarterly). The guidance notes clarify that it is not necessary for all of a fund management company's meetings to be held in Jersey. However, the expectation is that the majority of all board meetings be held in Jersey and that a quorum of directors be physically present at such meetings. It is acknowledged that it may be necessary for certain meetings to be held outside Jersey (eg, where necessary to complete a transaction in another jurisdiction).

The guidance notes provide that, in order to meet the substance requirements, the board of directors must be the decision-making body and not simply approve decisions taken outside Jersey. A fund management company is unlikely to meet the substance requirements if strategic decisions have been delegated to entities outside Jersey which make such decisions without reference to, or real oversight by, the board.

In the unlikely event that a fund management business has corporate directors, the key aspects document and the guidance notes provide that it is necessary to look through the corporate directors to the individuals who are officers of the corporate director and are actually performing the duties of the corporate director.

Where a management company is in liquidation, the liquidator must demonstrate that the company is directed and managed in Jersey and the board of directors should be taken to be the liquidator.

Adequate employees, expenditure and physical premises

Having regard to the level of fund management carried on in Jersey, fund managers must have adequate (ie, enough or satisfactory for a particular purpose):

  • number of employees in relation to the activity who are physically present in Jersey;
  • expenditure in Jersey; and
  • physical assets in Jersey (eg, dedicated premises or access to meeting rooms).

The key aspects documents acknowledges that what is adequate for these purposes will depend on the particular company and its business. Appropriate records should be maintained by the company in order to demonstrate the adequacy of the resources used and the expenditure incurred. The regulatory regime for fund managers in Jersey is such that most regulated companies should already be operating broadly in compliance with the adequacy tests.

The guidance notes adopt the definition of 'employees' used by the European Union in relation to small and medium-sized enterprises, which is not limited to persons who are employed by the company, but includes persons deemed to be employees under Jersey law (eg, owners, managers and directors). The employee count should be based on the number of full-time equivalent employees during the relevant financial year. Where a company outsources or delegates some of its activities, the resources of the service provider in Jersey will be taken into consideration for the purpose of determining the number of employees. The guidance notes further acknowledge that automation and advances in the use of technology will create efficiencies, meaning that fewer employees may be required for the performance of the company's activities.


Fund managers must conduct all of their CIGAs in Jersey and must be able to monitor and control any CIGAs carried out by another entity in Jersey. CIGAs in respect of fund management business include any of the following activities:

  • taking decisions on the holding and selling of investments. The guidance notes clarify that a company which is simply implementing the decisions of another entity (eg, by selling investments) is not preforming a CIGA. Further, in order for a decision to be determined as being taken in Jersey for the purposes of a CIGA, the majority of persons making the decision should be physically present in Jersey;
  • calculating risks and reserves. In this context, risk includes market, credit, liquidity and operational risk. A CIGA will not be performed where calculations are limited to one area of applicable risk – it will be performed where the overall risk across the fund and the reserves are required on a strategic basis;
  • taking decisions on currency or interest fluctuations and hedging positions. For a CIGA to be performed, such decisions must be taken at a strategic level in relation to the whole fund, not just in isolated circumstances involving specific investments; and
  • preparing relevant regulatory reports for government authorities and reports and returns to investors. The guidance notes clarify that the CIGA does not necessarily involve the administrative task of compiling the returns, even though fund managers may be responsible for this. However, fund managers must be able to convey the position of the funds that they manage at any time.

It is not necessary for a company to carry on all the above CIGAs in order to demonstrate substance. However, it must demonstrate that the CIGAs that generate its gross income are performed in Jersey and where one of those CIGAs relates to making relevant decisions, the majority of those making the decisions must be physically present in Jersey when the decision is made.


It is common for fund managers to outsource activities to other entities (including third parties or group companies) and the law does not prohibit this. Examples include:

  • administrative activities outsourced to an administrator in Jersey; and
  • the execution of strategic investment decisions outsourced to investment teams of group entities located outside Jersey.

As long as the board of a fund manager monitors and retains the ability to control the activities of service providers in Jersey, this outsourcing will comply with the substance requirements. Further, as long as the company has set the strategic decisions and investment parameters within which investment decisions may be implemented by the group entities outside Jersey and receives reports and can monitor and control the outsourcing, those outsourced activities will not undermine the fact that a CIGA is conducted in Jersey.

Information to be included in company tax returns

The guidance notes disclose the additional questions relating to economic substance which will be included in tax returns as of 2019.

Companies must:

  • state which relevant activities they perform;
  • enter the gross income from that activity;
  • provide a numeric number for those board meetings in Jersey where a quorum of directors was physically present;
  • identify the specific CIGA that they perform; and
  • provide general information relating to their relevant activities, including:
    • their accounting profits for the financial period;
    • the number of employees in Jersey;
    • the address of their premises; and
    • their total gross expenditure in Jersey and expenditure incurred on outsourced activities in Jersey.

Further details in respect of outsourced activities will also need to be provided.

Significantly for company directors, companies must declare that, on their own analysis, they have met the economic substance test in respect of their activity.


The law provides sanctions for non-compliance, including:

  • financial penalties;
  • strike-off from the register of Jersey companies; and
  • reporting to any relevant tax or regulatory authorities where the provision of such information is permitted under:
    • a bilateral agreement between Jersey and that country or territory; or
    • the OECD and Council of Europe Multilateral Convention on Mutual Administrative Assistance in Tax Matters 2011 as amended by the 2010 Protocol.


Fund managers should review outsourcing, delegation and control arrangements that they have with service providers (including group service providers) and consider whether these, particularly arrangements dealing with investment and risk decisions, meet the substance requirements.

As the law also covers finance and leasing business, holding company business and distribution and service centre business (which may capture intra-group service arrangements), consideration should be given to whether any entities within a fund manager's group that carry on intra-group financing, intra-group service arrangements or holding company activities fall within the scope of the substance requirements.

Given the applicable regulatory regime in Jersey, it is anticipated that many structures will be compliant with the new requirements already. However, consideration should still be given to whether amendments and updates are required to contracts, policies and procedures, outsourcing arrangements, offering memoranda and board resolutions and procedures as a result of the law.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.