Jersey confirms status as location for Sharia compliant finance

Tuesday 06 August 2019

Jersey's tax authorities have issued a ruling confirming that the island is "open for business" for Sharia investment and financing structures.

Working with other interested parties in Jersey, the Revenue Jersey ruling was obtained by VG. It confirms that profits arising from commodity Murabaha contracts in an Islamic financing transaction are not subject to Income Tax in Jersey.

Commodity Murabaha contacts are commonly used in order to facilitate a Shariah-compliant loan or indebtedness between two parties - sometimes referred to as Tawarruq.

In situations where two Jersey companies have entered into such arrangement in order to fund the acquisition of real estate or other investment asset, it had been suggested that a recent change in Jersey’s Income Tax law would bring the trading profits arising from the purchase and sale of commodities into the scope of taxation.

However, on 30 July, Revenue Jersey published a Statement of Practice that confirmed the tax-free status of typical Sharia compliant funding structures.

The Statement clarified the provisions of Article 123D(4)(e) will not be in scope in the context of Shariah-compliant funding structures utilising Tawarruq/Murabaha contracts and confirmed the equality of treatment between Shariah-compliant funding structures and the treatment of loans between Jersey SPV’s established to facilitate financing in the conventional markets.

Bedell Cristin partner, Martin Paul, who was at the forefront of discussions between industry, Jersey Finance and Revenue Jersey, commented: "This is a useful step, confirming without doubt that typical Sharia financing structures work effectively in Jersey. It is further evidence of Jersey's determination to remain a leading centre for Sharia-compliant international investment."