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Economic Substance, corporate tax residence and the implications of Coronavirus (COVID –19)

Insight 13 March 2020

Economic Substance, corporate tax residence and the implications of Coronavirus (COVID –19)

Considerations for companies required to demonstrate Economic Substance in Jersey and entities that are tax resident in the Island on the basis of management and control.


The Taxation (Companies – Economic Substance) (Jersey) Law 2019 was enacted in Jersey on 1 January 2019. The legislation requires all companies which are deemed to be conducting relevant activities to demonstrate that they have economic substance in the Island by, amongst other things, being ‘directed and managed’ in the Island.

The requirement to be directed and managed in the Island is a separate test to the case law based ‘management and control’ test, which is used in determining the tax residency of a company.

The directed and managed test is designed to ensure that there are an adequate number of board meetings held and attended in the Island, (although it is not necessary for all of those meetings to be held in the Island). What constitutes an adequate number of meetings in the Island is dependent on the relevant activities of the company, however, it is generally expected that the majority of board meetings will be held in the Island.

In contrast the ‘management and control’ test is applied to companies which are incorporated outside of the Island, but which want to be recognised as tax resident in Jersey. For Jersey, tax residency is broadly determined by reference to where the company's central management and control abides, being the location where the high-level strategic decisions of the company are made.

The Comptroller of Revenue has recognised that the spread of Coronavirus is likely to mean that many people around the world will be subject to travel restrictions in the coming weeks and months and may not be able to travel to Jersey for Board Meetings as they normally would.

Therefore the Comptroller has decided that “where companies operating practices have to be adjusted to compensate for the Coronavirus outbreak, the Comptroller will not determine under Article 6, Taxation (Companies- Economic Substance) (Jersey) Law 2019, that a company has failed the economic substance test.

This treatment will only apply to adjustments to the normal operating practices, and to the extent required to mitigate the threats from this outbreak.”

Where meetings would normally be held in Jersey but Directors are avoiding travel or self-isolating, those meetings should be, temporarily, held virtually to allow for Directors or their alternates to attend. This will not affect the economic substance of the company.

Similarly, where a company is incorporated outside of Jersey but the tax residence of the company is Jersey by virtue of management and control then any change as a result of Coronavirus will not disturb the determination of tax residency.

How can Sanne assist?

Sanne has technology which can support virtual board meetings. Meetings can be conducted through telephone conferencing and Skype capabilities and we can also give access to Board Intelligence; a bespoke system which allows clients secure online sharing of board papers and supporting documents, and in effect creates a virtual board room. If you would like to know more about Board Intelligence please do not hesitate to get in touch.

We will continue to keep you updated with respect to the stance of the Jersey Tax Office in respect of Coronavirus and you can rest assured that Sanne will continue to support you and your business as we navigate through these unprecedented times.

Should you have any further questions, please contact Lucy or Lisa directly.

Let's talk...

Corporate Services
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Lucy Baird Head of Jersey Corporate Services - Jersey
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Lisa Aune Lead Director - Jersey
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