VG, working with other interested parties in Jersey, has successfully obtained a ruling from the tax authorities in Jersey 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, this is 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.

The Statement of Practice clarifies that 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 confirms 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

The Statement of Practice can be found online.