A deed of covenant is a 'tax efficient' way in which an individual can make a donation to a charity.
This is a scheme where the individual signs a deed of covenant under which they promise to pay to the charity a sum net of Jersey income tax for a period of at least five years (i.e. five annual payments).
The charity in turn reclaims the tax deducted at source upon presentation of the appropriate Certificate of Deduction of Income Tax (Form R10AP).
The right to deduct tax from the annual payment under the deed is covered in Article 87A of the Income Tax (Jersey) Law 1961. Section (3) of that Article states that the charity must be formally exempted from income tax under the provisions of Article 115(a), Article 115(aa) or Article 115(ab) of the Income Tax (Jersey) Law 1961, i.e. the charity must be established in either Jersey, the United Kingdom or Guernsey.
It follows that Jersey residents should not deduct Jersey income tax from any covenant payments made to charities established outside these jurisdictions.
Please contact the Income Tax Department help desk for further information at PO Box 56, Cyril Le Marquand House, The Parade, St Helier, Jersey, JE4 8PF. Tel: 01534 440300.