Overview
The RegTech super-deduction is designed to encourage financial services companies to invest in regulatory compliance technology (RegTech) that aligns with the standards of the Jersey Financial Services Commission (JFSC).
From year of assessment 2024, eligible companies are able to deduct 150% of qualifying expenditures related to the purchase and implementation of RegTech in the year of acquisition. This enhanced allowance is offered to help companies automate the processes and controls required to navigate their regulatory obligations.
Eligible companies
To apply for the RegTech super-deduction, a company must:
Eligible expenditures
Eligible expenditures must be related to regulatory compliance activity as defined in Article 3AF of the Income Tax Law. The scope of eligible expenditure is defined by Article 70E and includes:
- software costs related to compliance systems
- hardware required primarily for complying with regulatory requirements
- direct costs related to the installation and configuration of RegTech solutions
- training expenses directly related to the use of RegTech systems
The 150% deduction is available for current and capital spending. For current expenditure, the deduction must be applied in the year of acquisition under accepted accounting principles.
Capital expenditure should be treated as a 150% capital allowance and, if not exhausted in the first year, must be tracked in a separate capital pool. This is in accordance with existing procedures relating to capital allowances, substituting 150% for 25%.
Capital allowances guide
Example
A firm purchases a new onsite data centre for backing up client data in accordance with the Money Laundering (Jersey) Order 2008. The firm can claim 150% of this expenditure as a deduction from their taxable profits as follows:
- initial cost of the data centre: £100,000
- Super-deduction rate: 150%
- Total deduction from taxable profits: £150,000 (150% x £100,000)
- Total tax reduction: £15,000 (£150,000 x 10% tax rate)
Regulatory compliance activity
Companies must be able to demonstrate that expenses claimed under the enhanced rate of deduction are required to meet obligations of the JFSC in the following areas:
- the prevention of financial crime, including combatting money laundering activity and combatting of the financing of terrorism and the proliferation of weapons of mass destruction
- the management of data, information and cyber risks, and the protection of identity and privacy
- other activities requires by the JFSC for risk management, fraud prevention and the good conduct of financial services
- regulatory reporting and analytics, and compliance management in relation to the activities in sub paragraphs 1 to 3
To demonstrate the above requirements, companies must be able to indicate the specific legislation, or rules of the JFSC, that created the obligation.
Applying the super-deduction
Assessment of qualifying expenditure
Prior to claiming the super-deduction, financial officers must assess expenditure to ensure it meets the eligibility criteria. Officers should document the spending's relation to regulatory requirements under specific legislation and guidance such as:
Application
When preparing returns for the 2024 tax year and beyond, financial officers should mark their intention to claim the super-deduction on the box provided on the tax return. All required documentation relating to the spending should be prepared as for other current and capital expenses, including invoices and proof of payment for qualifying expenditures.
Declaration
Financial officers should include the usual declaration, signed by an authorised representative, that the information provided is accurate and complete.
Treatment of the 150% deduction in capital pools
When treating the super-deduction in capital pools, the capital allowances guide should be followed, except paragraphs 32 and 33 relating to balancing charges. Instead, for unrelated parties, the balancing charge of a disposal is 100% of disposal value. For connected parties, the balancing charge of a disposal is 100% if the asset is held for more than three financial periods, and 150% if held in three financial periods or fewer.
Compliance and review
Revenue Jersey will review applications and may request additional information or undertake audits to ensure compliance with the rules of the deduction. Companies must keep separate records for expenditure to which the enhanced deduction has been applied to ensure accurate balancing charges in case of asset disposition.
Technical guidance
Comprehensive details on assessing qualifying expenditures and applying the RegTech super-deduction are included in the technical guidance.
RegTech Super-Deduction - Technical Guidance
Further assistance
Any requests for assistance or clarification should be directed to Revenue Jersey.
gov.je