Jersey: Offshore Legal and Tax Regimes
The term 'offshore' is not used in Jersey legislation or in describing company forms. Non-residence has been the key criterion for obtaining offshore tax treatment. Normally, non-resident tax treatment is given to foreign income, while income arising in Jersey is taxed more highly.
The main forms useful for offshore operations in Jersey include the Limited Partnership and Trust, and until recently the International Business Company and the Exempt Company. However, the IBC has been phased out in accordance with Jersey’s commitment to the ‘Rollback’ provisions of the EU Code of Conduct for Business Taxation. Benefits for existing beneficiaries of the IBC regime were progressively extinguished by December 31, 2011. Meanwhile, no new Exempt Company formations have been possible since June 3, 2008, under recently introduced reforms to Jersey's corporate tax system (see below).
It became clear in May 2002 that Jersey, along with its fellow UK dependent territories Guernsey and the Isle of Man, would agree to be part of the EU's information-sharing regime, whereby financial institutions are obliged to pass details of income on investments by nationals of EU member states to their home tax administrations. The EU finally began information-sharing in 2005, and after some hesitation, Jersey decided to opt for a withholding tax on the Swiss model. This withholding tax became effective from July 1, 2005, initially at a rate of 15%. This rate increased to 20% from July 1, 2008 and to 35% on July 1, 2011.
From January 1, 2015, Jersey will switch over to automatic information exchange in line with other EU countries.
Jersey's Comptroller of Income Tax reported in mid-2006 that GBP13 million was collected in withholding tax revenues from bank deposits in the first six months of the directive. For the year 2007, Jersey paying agents retained and passed to the Comptroller a total of GBP34.98 million of withholding tax. This rose slightly to and GBP36.62m in 2008. Following the global financial crisis, the total retention tax was GBP11.8 million in 2009, just over GBP4 million in 2010 and GBP4.5 million in 2011. The increase in 2011 was explained by the increase in the retention tax to 35% from 20% prior to July 2011.
Under the terms of the agreements entered into with each EU Member State, 75% of the tax retained is sent to the individual Member States concerned and the remaining 25% is retained by the Comptroller of Income Tax.
In November, 2002, in response to competition from other jurisdictions, including the Isle of Man, and with an eye to the EU's 'Code of Conduct' Committee, the authorities announced plans to reduce the rate of income tax on corporations in Jersey to zero. Financial institutions continue to be liable to income tax at a rate of 10%. The Finance and Economics Committee published its Fiscal Strategy proposals in February 2005 and these were approved by the States Assembly in May that year. The States agreed to introduce a broad-based, 3% Goods and Services Tax (GST) in 2008 to compensate for the loss of revenue caused by the elimination of business tax.
The 'zero/ten' tax system was introduced on January 1, 2009 by the Income Tax (Amendment No. 28)(Jersey) Law 2007 and the Income Tax (Amendment No. 29)(Jersey) Law 2007.
For the purposes of the 10% tax rate, the new tax law defines a ‘financial services company’ as one registered, or holding a permit, by virtue of various Laws administered by the Financial Services Commission. The 10% rate applies to the following:
- All entities carrying out banking business through a permanent establishment in the Island, whether through a Jersey company, through a branch or through some other structure.
- All entities carrying on the business or trade of trust business through a permanent establishment.
- All entities carrying on investment business, independent financial advice and similar activities through a permanent establishment.
- All entities carrying on the business or trade of funds administrator or funds custodian through a permanent establishment.
All 'non-financial services entities' are liable for the 0% standard corporate tax rate, excluding utility companies, which pay income tax at 20%.
All companies resident for tax purposes in the Island prior to June 3, 2008, switched to a tax rate of either 0% or 10% for the year of assessment 2009 onwards. However, a company that becomes resident for tax purposes in the Island on or after June 3, 2008, will be taxed at either a 0% or a 10% rate immediately. Such companies are unable to elect for exempt company status after this date.
It was feared that Jersey's 0/10 corporate tax regime may prove to be short-lived, however, due to concerns expressed by the EU that it does not adhere to the 'spirit' of the Code of Conduct on Business Taxation. In common with Guernsey and the Isle of Man, the Jersey government announced a comprehensive review of the island's fiscal strategy, with a view to introducing further changes to the tax regime.
A recent assessment of Jersey’s business tax regime by the EU Code of Conduct on Business Taxation Group (“the Code Group”) focused on the interaction of the deemed distribution and attribution provisions with the 0% general rate of tax that applies to Jersey resident companies. In early 2011, a proposal was lodged by the Treasury Minister, supported by the Council of Ministers, to remove the deemed distribution and attribution rules with effect from January 2012.
The Treasury Minister, Senator Philip Ozouf said: “We are confident that the evidence shows this positive action will result in Jersey’s 0/10 tax regime being considered fully compliant with the Code. We can then keep our existing corporate tax regime while also meeting the concerns of the EU.
The following information describes the situation in Jersey prior to the introduction of the 'zero/ten' tax reforms in 2009.