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Crown Dependencies Add To Economic Substance Guidance

by Jason Gorringe, Lowtax.net, London
10 May, 2019

The UK Crown Dependencies have added to joint guidance issued in December 2018 on the economic substance requirements that are effective for accounting periods commencing on or after January 1, 2019.

Under each territory's new law on economic substance, companies that are tax resident in either Jersey, Guernsey, or the Isle of Man, and are engaged in key activities identified by the EU, must demonstrate that they meet minimum substance requirements as part of their annual tax return to access the territories' tax regimes.

The key activities identified by the European Commission Code of Conduct Group are: banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.

The substance requirements vary for each key activity to reflect the different needs of the companies involved and are designed to be fair and proportionate while ensuring that there are sufficient activities undertaken in the relevant jurisdiction to reflect the amount of profits accounted there. The substance requirements will include being able to demonstrate that the company is directed and managed from the relevant Crown Dependency, that the company has adequate levels of employees as well as annual expenditure and physical offices.

The release of the guidance is intended to encourage stakeholders to provide feedback.

The Isle of Man Government previously said regulations will be issued in the second half of 2019, and tax returns including the new information should be filed from January 2020.

The relevant laws are Guernsey's Income Tax (Substance Requirements) (Implementation) Regulations 2018, Jersey's Taxation (Companies – Economic Substance) (Jersey) Law 201-, and the draft Taxation Companies Economic Substance Law in the Isle of Man.

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