Partnerships update on Jersey income tax and Economic Substance obligations

August 04, 2022

The Taxation (Partnerships - Economic Substance) (Jersey) Law 2021, as amended, has been effective in Jersey since 1 July 2021 and, with a few important modifications, extends the corporate Economic Substance regime to partnerships.

We have previously issued alerts on the law and guidance notes and, with many clients having undertaken substance assessments for the 2022 Year of Assessment and now thinking about compliance requirements, this alert summarises the current understanding of the potential tax filing requirements for partnerships in Jersey.

Key Highlights

Registration Requirement - Partnerships

Revenue Jersey will need to process the basic information for each partnership into their systems. For most Jersey-established partnerships, much of the information required (e.g. partnership name, registration number, address and commencement date etc.) will be publicly available information, so limited information is likely to be required from the partnership or tax agents.

For foreign-established partnerships with a Place of Effective Management (POEM) in Jersey, Revenue Jersey will require information from the partnership/ tax agent and such information will be obtained via a webform which is expected to be available by September 2022. We have previously seen the introduction of registration requirements for foreign-incorporated companies which are tax resident in Jersey and Guernsey has already formalised its registration process for partnerships with a POEM there.

It’s crucial that before undertaking substance assessments there is a comprehensive review of all administered entities to ensure that all Jersey tax resident companies and partnerships are known and registered with Revenue Jersey. Reflecting on the Foreign corporate bodies notification requirement, which became effective from 1 January 2020, a large number of late registration notices were issued and we continue to identify missed registrations during substance health check engagements.

The potential penalties under the partnership regime are yet to be confirmed, but drawing a parallel with the corporate regime, the financial impact can quickly escalate in group situations given the potential for penalties of up to £3,000 per late registered company and some now also facing multiple years of late tax return filings.

Registration Requirements - Partners/ Members

The introduction of the economic substance test for partnerships and the potential requirement to file a Combined Notification should not alter the income tax position for partners or members.

The economic substance test only applies at the partnership level (i.e. it does not apply to the partners unless they have their own separate relevant activity).

Revenue Jersey anticipates that any partners or members liable to Jersey income tax should already be on their systems (i.e. the changes identified above do not impact the income tax position for each partner or member), although the substance assessment process provides a prime opportunity to refresh and confirm the tax status of the partnerships and their partners given the close alignment of the substance and tax regimes.

New Combined Notification for Partnerships

It is proposed that, from 2023 all Jersey-established partnerships and foreign-established partnerships with a POEM in Jersey will be required to submit a new annual “Combined Notification”, making ES disclosures and providing a partnership tax statement where required.

This means that the first filing of a Combined Notification would take place in 2023, with respect to the 2022 Year of Assessment, despite the law applying to some partnerships in respect of the 2021 Year of Assessment. We are continuing to engage with Revenue Jersey in relation to the mechanics of this arrangement.

It is further proposed to align the submission date of the Combined Notification with the corporate tax return deadline which is currently 31 December - note there has been a recent consultation around moving the filing deadline. The Combined Notification will be in a “smart” electronic form and submitted via an online portal, similar to the corporate tax return.

There should be no requirement to provide accounts/ financial statements alongside the Combined Notification and, similar to the corporate tax return, there will be a white space disclosure box which can be used where further explanation is considered appropriate.

Next Steps

A material difference between the corporate and partnership substance regimes is the broader array of exemptions provided for partnerships. From engagement with Revenue Jersey on the Combined Notification mechanics, it appears likely that each partnership would need to declare whether an exemption applies before considering whether there is gross income from a relevant activity. It is therefore crucial that administrators and the responsible partner(s) have a full understanding of the exemptions regime and complete accurate substance assessments.

Given the Year of Assessment 2022 is already under way and certain partnerships will already be subject to the Economic Substance test we recommend an impact assessment together with any substance classifications should be undertaken as soon as possible. Quite apart from any carrying out an impact assessment there is the need to think about any eventual filing requirements and actually meeting the economic substance requirements on an ongoing basis where they are relevant. There is still a window for any remedial action to be identified and implemented.

Contact us

Stephen Lazarevich

Stephen Lazarevich

Tax Director, PwC Channel Islands

Tel: +44 7700 838208

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