Lisa-Marie Marc, Legal Assistant

Lisa-Marie Marc, Legal Assistant

A second set of guidance notes regarding the economic substance requirement was issued jointly by the Crown Dependencies in April 2019.

What are the economic substance requirements?

The economic substance requirements are requisites that tax resident companies in the Crown Dependencies must fulfil if their gross income*are from any of the sectors below:

·         Banking

·         Insurance

·         Shipping

·         Fund management (not including Collective Investment Vehicles)

·         Finance and leasing

·         Headquartering

·         Distribution and Service Centres

·         Operation of a Holding Company

·         Holding intangible property (Intellectual Property)

*gross income excludes not taxable income/profit or accounting income/profit

The economic substance requirements have been introduced by all parliaments of Jersey, Guernsey and the Isle of Man in December 2018 and are effective for accounting periods commencing on or after 1 January 2019.

Pinel Advocates will issue a series of articles on each sector in the followings weeks. This article will focus on the banking sector.

Banking sector

The banking sector for the purpose of the economic substance requirements refers to activities that are deposit taking businesses and subject to regulation as banks in the Crown Dependencies. Such companies hold licences issued by the financial regulator in the three islands.

Therefore, if the gross income of a company comes from the banking sector as defined above, such companies must:

1 – Demonstrate that they have adequate substance in the relevant island

Generally, a company will be deemed to have adequate substance in the relevant island if:

  • the company is directed and managed in the relevant island

  • proportionally to the activity carried out in the relevant island, the company employs an adequate number of qualified personnel, has an adequate expenditure and has adequate physical assets

  • the company manages “core income-generating activity” (CIGA) in the relevant island

The CIGAs are defined as the key essential and valuable activities that generate the income of a company. They vary depending on the sector concerned.

The CIGAs for the banking sector are:

  • raising funds, managing risk including credit, currency and interest risk

  • taking hedging positions

  • providing loans, credit or other financial services to customers

  • managing capital and preparing reports and returns to the relevant supervisory and regulatory bodies

It is not expected from a company carrying out activities in the banking sectors to perform all the CIGA above, but such company must perform the CIGA that generates the income it produces in the relevant island.

2 – Report information

A company concerned by the economic substance requirements must provide the information below as part of its income tax filling process:

  • its business or income types in order to determine the relevant activity

  • the amount and type of gross income by relevant activity

  • the amount of operating expenditure by relevant activity

  • the details of premises

  • the number of qualified personnel specifying the number of full-time equivalents

  • confirmation of the CIGA conducted for each relevant activity

  • the financial statements

  • confirmation of whether any CIGA have been outsourced and if so relevant details.

If you are concerned by the economic substance requirements or have any questions regarding this matter, please do not hesitate to contact the Pinel Advocates team at