Legal Framework


What legislation sets out the economic substance requirements in your jurisdiction?

The economic substance requirements are set out in the Income Tax (Substance Requirements) (Implementation) Regulations 2021 (the Substance Regulations), which were first implemented in December 2018, came into force on 1 January 2019 and were then amended on 15 June 2021. The Substance Regulations are issued pursuant to the Income Tax (Guernsey) Law 1975, as amended.

The Guernsey Revenue Service publishes the Substance Regulations at the following website Economic Substance – States of Guernsey (

The law also makes clear that the director of the Guernsey Revenue Service (the Director) may issue guidance on the administration, implementation and enforcement of the Substance Regulations, including any expression used in them.

Relevant entities

What types of entity are subject to the economic substance requirements in your jurisdiction?

The following are within scope of the Substance Regulations:

  • companies that are considered tax resident in Guernsey and generating gross income from relevant activities. The term ‘companies’ includes all vehicles treated as companies for tax purposes. An incorporated cell will be treated separately from its incorporated cell company and other incorporated cells. By comparison, a protected cell company and its cells will be treated as one entity.
  • partnerships – all types of partnerships are potentially within scope of the Substance Regulations to the extent that they derive gross income from certain specified activities, including general partnerships, limited partnerships and limited liability partnerships. Foreign partnerships formed outside of Guernsey may also be required to comply to the extent that they have their ‘place of effective management’ in Guernsey and carry on business activity in Guernsey.


The following partnerships are not within scope of the Substance Regulations:

  • partnerships comprised solely of individual partners subject to income tax in Guernsey on their share of the profits of the partnership;
  • partnerships that are wholly domestic, that is, where a partnership substantially carries on its activities within Guernsey, and is not consolidated (for financial reporting purposes) as part of a multinational group; and
  • partnerships where the place of effective management is in a qualifying jurisdiction outside of Guernsey. The term ‘qualifying jurisdiction’ means one where (1) the partnership is subject to substance requirements substantially similar to those in the Substance Regulations, or (2) the highest rate of tax on the income of any person in that jurisdiction is at least 10 per cent.


Collective investment vehicles are outside of the scope of substance unless they are self-managed.

Relevant activities

What activities trigger the economic substance requirements in your jurisdiction?

Under the Substance Regulations, there are specific categories of ‘relevant activity’ that bring an entity within scope and which are further defined in the Substance Regulations. By way of overview, these ‘relevant activities’ are:

  • banking – ‘banking business’ means a deposit-taking business within the meaning of the Banking Supervision (Bailiwick of Guernsey) Law, 2020 carried on by a licensed institution within the meaning of that law;
  • distribution and service centre – means the business of:
    • purchasing parts, materials or goods from other members of the same group that are non-Guernsey resident and reselling them for a percentage of profits;
    • providing services to other members of the same group that are non-Guernsey resident; or
    • except in each case where such activities fall within another category of relevant activity except holding body and intellectual property business;
  • financing and leasing – means providing credit facilities of any kind for consideration, except where such activities fall within banking, fund management or insurance;
  • fund management – means the provision of management services (meaning exercising any managerial function in relation to an investment or in relation to the assets underlying an investment) when carried on in connection with a collective investment scheme within the meaning of The Protection of Investors (Bailiwick of Guernsey) Law, 2020 by an entity licensed for the purpose;
  • headquartering – means the business of providing certain services to non-resident intra group persons of the Guernsey resident body, including the provision of senior management, the assumption or control of material risk for activities carried out by, or assets owned by, any of those intra-group persons, and the provision of substantive advice in relation to the assumption or control of risk for such activities or assets, in each case except where such activities fall within other definitions of relevant activities and intellectual property holding;
  • insurance – means insurance business carried on in or from the island as an insurer (in both the long-term and general sectors, and this includes reinsurance) within the meaning of The Insurance Business (Bailiwick of Guernsey) Law, 2002 (as amended) carried on by a licensee under that law; and
  • shipping – the operation of ships in international traffic for income from the transport of passengers or cargo, and includes (where directly connected with, or ancillary to, such operation) chartering, ticket sales, the use, maintenance or rental of containers (including trailers and related transport equipment) and crew management. There are exclusions for fishing vessels, pleasure craft, harbour craft and certain small ships.


Two further activities are also within scope:

  • pure equity holding body – meaning a body that is a legal person within the meaning of the Beneficial Ownership of Legal persons (Guernsey) Law, 2017 or (as the case may be) the equivalent Alderney Law:
    • which has as its primary function the acquisition and holding of shares or equitable interests in other bodies;
    • which carries on no commercial activity; and
    • which holds a majority interest in those bodies.
  • intellectual property body – has income from intellectual property assets.


The activities of externally managed collective investment vehicles under Guernsey law are exempted from the Substance Regulations. However, ‘self-managed funds’ (ie, funds with no separate manager) will be required to meet an economic substance test in respect of their activities to the extent those generate gross income in a financial period.

Tax residence requirements

Must entities be tax resident (or deemed tax resident) in your jurisdiction to be subject to the economic substance requirements? If yes, what are the tax residence rules and requirements? If not, do the economic substance requirements in your jurisdiction differ with respect to non-resident entities ?

The substance requirements apply to companies that are tax resident in Guernsey, whether or not they are incorporated in Guernsey.

Under Guernsey law, a company is considered tax resident in Guernsey if it is either a Guernsey incorporated company that is not centrally managed and controlled and recognised as tax resident in another jurisdiction where the highest rate of corporate income tax is at least 10 per cent; or a non-Guernsey incorporated company that is centrally managed and controlled in Guernsey. Guernsey is also party to a number of double-taxation agreements, which may apply.

Partnerships are tax transparent entities meaning there is no tax residency test in the way that there is for a company. 

Accordingly, partnerships formed in Guernsey and deriving gross income from relevant activities or conducting activities as intellectual property asset holding or pure equity holding are within scope of the substance requirements. 

Partnerships formed outside of Guernsey may be within scope if they are doing in scope activities for gross income and have a ‘place of effective management’ in Guernsey. The place of effective management is the place ‘where the management and commercial decisions necessary for the conduct of the business as a whole of that person are substantially made having regard to all relevant facts and circumstances’. It is, therefore, important for partnerships to understand where their place of effective management is, as well as assessing if the partnership is carrying on any in scope activities. In the context of limited partnerships, it is likely that the place where the general partner conducts business will be the place of effective management of the limited partnership itself.


Has the government published guidance on the economic substance requirements?

Yes. The primary guidance at the time of writing is that published jointly with Jersey and the Isle of Man on 22 November 2019 in respect of companies. Further joint guidance was issued on 21 December 2021 in respect of the application of economic substance rules to partnerships. It should be noted that, as joint guidance, the text is drafted in a generic manner so as to explain the scope and application of the legislation across all three jurisdictions. It is expected that new guidance will be released shortly to cover partnerships. 

The Guernsey Revenue Service maintains links to relevant guidance online at Economic Substance – States of Guernsey (