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Jersey: Offshore Legal and Tax Regimes

Tax Treatment of Offshore Operations

NB: This section describes the situation that obtained prior to the introduction of the 'zero/ten' regime.

See Domestic Corporate Taxation for the general principles of Jersey corporate taxation, which also apply to offshore entities.

IBCs were subject to a minimum annual tax liability of GBP1,200. The diminishing sliding scale applicable to the 'international income' of IBC's was as follows:

Profit up to GBP3m 2%
The following GBP1.5m 1.5%
The following GBP5.5m 1.0%
Thereafter 0.5%

In common with many offshore jurisdictions, Jersey allowed its International Business Companies (which have to be owned by non-residents who have declared their beneficial ownership) to set their own rates of tax, with a minimum of 2%, in order to climb over the bar of any minimum tax rate specified in the owner's country of origin.

'Designer' taxation was already permitted informally in Jersey, but was regularised by the 1998 Finance Act. Unfortunately for Jersey, this was the year in which the OECD started its pogrom against offshore jurisdictions, and in which the UK Treasury was preparing a battery of measures against offshore, including a ban on 'designer' taxation, offshore mixing, and other techniques used by companies with foreign income flows.

In 2001 the UK Government finally allowed Jersey's 1998 Finance Act to receive royal assent, after holding it up for two years. Even though a UK company was unable to use a 'designer' tax through Jersey, the island's rules were still useful to companies from other countries.

Exempt companies paid a fee of GBP600 per annum while they were exempt. Income arising in the island from an 'established place of business' was taxed at 30%. Holding directors' meetings, issuing invoices and other minor administrative tasks were not caught by this provision. Interest received resulting from Jersey banks was counted as international income. There were no withholding taxes on dividends, interest, royalties or other payments made by exempt companies. Collective investment companies could have exempt status, and Jersey residents could hold their shares.

Foreign partnerships were not liable for tax on foreign income; however assessments were made on the firm in the name of resident Jersey partners for the profits of trading operations in Jersey. Limited partnerships were not subject to income tax assessment; but their resident partners were liable to tax on their share of the whole of the partnership's income; non-resident partners were liable on Jersey income only (as usual, excluding Jersey bank interest).

Captive insurance companies could be exempt, but they needed to demonstrate that there was economic benefit to the island.

Trusts with non-resident beneficiaries were usually (by concession) exempted from Jersey income tax on income arising outside the island and on Jersey bank interest. If some of the beneficiaries or life tenants were Jersey residents, the picture became more complicated, and exemption could be partly or wholly lost.

 

 

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