Jersey and Guernsey to extend economic substance rules to partnerships

Local contact

EY Global

11 Jun 2021
Subject Tax Alert
Categories Corporate Tax

Following the introduction of economic substance rules for companies in 2019, Jersey and Guernsey are extending the substance requirement to partnerships. The extension of the substance rules to partnerships is a significant extension to the regime and is driven by requirements of the European Union (EU) Code of Conduct Group. 

The new rules will come into force for accounting periods commencing on or after 1 January 2022 for partnerships existing as at 30 June 2021. New partnerships formed on or after 1 July 2021 will be in scope for accounting periods commencing on or after 1 July 2021.

The State of Jersey has published draft law which is expected to be introduced by the end of June 2021. Guernsey has not yet published draft legislation, but the main aspects of the Guernsey rules are expected to be the same as in Jersey, as both jurisdictions have worked with the EU together on this extension to the substance regime.

Based on the published draft legislation in Jersey, the rules will apply to a new concept of a “resident partnership” which is a partnership formed under Jersey law unless its place of effective management (POEM) is outside of Jersey in a country or territory where the highest rate at which any 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 in another jurisdiction that is substantially the same as Jersey’s economic substance test. A partnership not formed in Jersey but whose POEM is in Jersey will also be considered a resident partnership. 

The draft Jersey legislation defines a partnership’s POEM as “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 and 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)”. Additional guidance is expected to be issued in due course, which will include further details on the POEM concept as applied to partnerships. 

The substance rules will apply to the following types of partnerships if they carry on a relevant activity:

  • Incorporated limited partnership
  • Limited liability partnership
  • Limited partnership
  • Separate limited partnership
  • Foreign limited partnership
  • General partnerships

The relevant activities are the same as those of the company substance rules, except for a holding company which in this context is referred to as a holding partnership. 

The economic substance test is similar to that applicable to companies with the directed and managed part of the test adapted to partnerships and known as the “managed” test. The core income-generating activities remain identical to those set out in the company legislation. 

Helpfully, there are some exemptions included in the draft legislation. A resident partnership is not required to satisfy the economic substance test in relation to a relevant activity if any of the below apply:

  • All of the partners in the partnership are individuals who are subject to income tax in Jersey.
  • The resident partnership is not part of a multinational group and the resident partnership does not undertake business activities outside of Jersey. A partnership is considered part of a multinational group if under international accounting standards, the partnership’s income and expenses would be a part of the consolidated results of a group of enterprises, and one or more of the persons or partnerships in the group is not a tax resident in Jersey, or has one or more permanent establishments outside of Jersey.
  • It is a regulated collective investment scheme.

Similar to the company substance rules, financial sanctions and possible exchange of information will apply if the substance test has not been met.

Guidance regarding the new rules has yet to be released and we are also waiting on details regarding the annual partnership tax filing requirements which will be introduced in Jersey.

In relation to Guernsey, the draft law is expected to be published shortly. In the meantime, the Guernsey Revenue Service has issued a Circular which is broadly aligned to the draft Jersey law above - GSCCA Circular 18 (pdf). At present, partnerships in Guernsey do not file tax returns – the new rules are expected to require all relevant partnerships (including those not in scope of the substance rules) to register with the Guernsey Revenue Service and to file an annual tax return.


For additional information with respect to this Alert, please contact the following:

EY Jersey
  • Áine Slater
EY Guernsey
  • David White

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.