Guernsey and Jersey adjust substance requirements

In response to the Covid-19 outbreak, the Channel Islands are catering to travel bans and restrictions

Guernsey and Jersey have collectively adjusted their requirements for economic substance amid the outbreak of Covid-19, to help reduce the spread of the virus.

Normally, the jurisdictions require companies and funds domiciled there and generating gross income, to meet economic substance tests. This includes holding various board meetings in the jurisdiction with a quorum, and a majority of those voting must be physically present.

Both Guernsey and Jersey also expect companies to be a tax resident in the jurisdiction if the business is centrally managed and controlled there.

However, law firm Carey Olsen advised that due to Covid-19’s global impact, in instances where normal operating practices must be altered, companies will not be penalised or fail to meet the economic substance test. In Jersey, this also means firms will not disturb their tax residence status. However, these are only temporary measures to help combat the spread of Covid-19.

These documents will provide evidence needed to prove measures outside of the firm’s/fund’s control, in this case Covid-19, prevented them from completing business as usual with regards to board meetings, and thus prove it is a temporary measure.

Companies and funds domiciled in Guernsey or Jersey must do the following:

• Document and retain evidence of difficulties encountered and why operating practices have had to change
• Maintain and retain relevant records showing company policies regarding travel restrictions for directors concerned and that a time frame policy was in place

Given the increased uncertainty, Carey Olsen also advises client boards might want to consider appointing alternate directors based in Guernsey or Jersey for the interim period while travel bans and restrictions are in place.

Click here to read the official statements from Guernsey and Jersey.