Jersey authorities confirm non-tax status of murabaha profits

Jersey authorities confirm non-tax status of murabaha profits

Following representations by VG, the Jersey-based trust and administration firm that specialises in Islamic finance, the Jersey tax authorities have confirmed that commodity murabaha transactions that are used to structure Shari'ah-compliant investment in Jersey will not be subject to tax.

A change in Jersey's tax legislation earlier this year that was unrelated to Shari'ah-compliant finance had raised the possibility that profits on commodity murabaha transactions would be treated as trading profits and taxed. VG, which structures a lot of Islamic investment vehicles for its clients, sought clarification from the tax authorities and in late July, the authorities confirmed that the provisions of Article 123D(4)(e) will not be in scope in the context of Shari'ah-compliant funding structures that use Tawarruq/Murabaha contacts, and they confirmed the equality of treatment between Shari'ah-compliant funding structures and the treatemnt of loans between Jersey SPVs established to facilitate financing in conventional markets.

The statement of practice can be seen here. It includes a diagram of a Shari'ah-compliant real estate investment structure using Tawarruq/Murabaha. (The income stream addressed in the ruling is that paid by the 'Intermediate holding vehicle' to the Funding Company (Jersey SPV). 

For more information on this ruling, or on how to use Jersey structures to optimise Shari'ah-compliant investments, please contact Trevor Norman, VG's Director of Islamic Finance and Funds. tnorman@vg.je