JERSEY: COUNTRY AND FOREIGN INVESTMENT REGIME

Jersey Geography

According to the Jersey government the resident population at the end of 2008 was an estimated 91,800. English and French are both official languages and used widely. In the country areas a Norman-French dialect is spoken. The capital, St Helier lies on the island's southern cape within one hour's flying time of London and Paris; there are frequent flights to a number of UK and Continental destinations.

Prior to the Norman Conquest the Channel Islands formed part of the territory belonging to the Duchy of Normandy. In 1204 when Normandy was freed from English rule the islands retained their allegiance to the King of England. Successive English monarchs have ruled the Islands through their claim to the Duchy of Normandy but have observed the Islands' established laws and customs. Royal charters have confirmed the independence of the Islands' judicial systems and administration, the right to tariff-free trade with England and freedom from English taxes.

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Jersey Relationship with the EU

Jersey is not a member of the EU. Protocol No 3 of the UK's Treaty of Accession to the UK excludes the island from most of the effects of the Treaty, other than those concerning trade in goods.

There is free movement of industrial and certain agricultural goods between the island and the UK according to historic Charter rights; and between the island and EEA countries except for some sensitive products. The island applies the external common customs tariff of the EU.

EU (and hence UK) VAT does not apply to Jersey.

Jersey's constitutional position in relation to the EU cannot be changed without unanimous agreement of the member states, including of course the UK, which by long-established convention does not legislate in regard to Jersey without prior consultation.

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Jersey Government

The Channel Islands consist of two 'bailiwicks', Jersey and Guernsey, and there are no constitutional links as such between the two. Jersey is a British Crown dependency. The Queen of England is the head of state and represented by a lieutenant governor. The United Kingdom is responsible for its defence and external relations but by long established constitutional convention it is self-governing in matters of domestic policy. The island has its own legislative assembly, the States of Jersey, and a comprehensive independent legal, fiscal and administrative system. The power to appoint certain local administrators is vested with the Crown; and with certain minor exceptions, legislation passed by the island's assembly must be validated by the UK Privy Council - normally this is just a formality.

The States of Jersey is a unicameral, directly elected body and there are no party politics. Apart from the few senior offices in the gift of the Crown, most executive powers are administered by committees of the States. This provides for direct, effective administration, but may be short on checks and balances. However, over many years the States has aimed at creating a well-regulated, efficient financial centre with up-to-date legal, judicial and regulatory frameworks. Broadly, it seems to have succeeded: in 1998 the UK Government carried out a review of the island's financial regulatory regime with generally positive results (see next section). The Government department which previously regulated the finance sector was reborn in 1998 as the Financial Services Commission, which now operates as an independent regulatory agency. To some extent this change was a response to isolated financial scandals which had threatened the island's generally good reputation.

The island is not directly represented in the United Kingdom Parliament. By convention Parliament does not legislate for the island without its consent in matters of taxation or on local issues. The Island's assembly is consulted before any international agreement is reached which would affect it.

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Jersey Relationship With The UK

In 1998 the British Government announced that there would be a review of financial regulation and structure in Jersey, Guernsey and the Isle of Man. The review was carried out by Anthony Edwards, a former senior Treasury civil servant, and was published in November, 1998. Saying that 'the islands are in the top division of offshore centres' Mr Edwards gave the islands a generally satisfactory report, making 154 recommendations that applied to Jersey. The great majority of these covered matters that were already in the legislative pipeline or were readily agreed to by the administration. Some recommendations however were more contentious for the island.

The difficult recommendations were:

• That the Financial Services Commission should have powers to prosecute and to 'name and shame'
• That all limited companies and limited partnerships should file accounts
• That trustees should be obliged to make proper disclosures to beneficiaries
• That trustees should waive self-incrimination privileges

The administration's initial replies amounted to qualified refusal of these recommendations, largely based on the existence of common law safeguards and in defence of confidentiality, but subsequent pressure from the FATF and the OECD, together with the consequences of the September terrorist attacks in the US have led to a considerable tightening up.

In 2001, for instance, the jurisdiction introduced a law obliging trust and company service providers to obtain an operating license from the Financial Services Commission, in much the same way as banks and investment funds have always been obliged to. This license commits the organisation to record the beneficiaries of all assets handled, provide adequate anti-money laundering training for staff, and report all suspicious transactions to the authorities.

Jersey's standards of anti-money laundering regulation have in fact been the subject of favourable international comment, and the G7 Financial Stability Working Group on offshore centres places Jersey in Group 1 - those which meet international standards of financial regulation and international co-operation.

Another review questioning financial supervision and transparency, taxation in relation to financial stability and international cooperation in Britain's three Crown Dependencies (Guernsey, Jersey, and the Isle of Man) and six Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands) was released in late 2009. Authored by Michael Foot, former Chairman of the UK office of Promontory Financial Group, the report was largely complimentary of the way in which the Crown Dependencies conduct their economic and fiscal policies. Indeed, Foot concluded that these territories made a significant contribution to the liquidity of the UK market during his review, providing net financing to UK banks of USD332.5bn, with Jersey by far the largest net contributor. Foot also noted that the Crown Dependencies have good frameworks for tackling money laundering and terrorist financing, as recognised by the Financial Action Task Force (FATF) and that all three had met the Organization of Economic Cooperation and Development (OECD) standard for tax transparency by the G20 meeting in April 2009.

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Jersey Economy and Currency

The economy is stable and is based largely on financial services, agriculture and tourism; of these, financial services is dominant, accounting for more than half of gross domestic product. The island has a balance of payments surplus, without external debt, and has low unemployment. The finance sector is dominated by banking, fund management and trust management.

The Jersey government's 2009 statistical report shows that 47 banks held deposits of GBP170.6bn at the end of September 2009. Funds assets domiciled on the island stood at GBP163bn, having fallen from GBP239.9bn on September 30, 2008.

The Financial Services Commission estimates that 30% of the top 500 European companies and over 10% of the top 700 Asian-Pacific companies use Jersey's financial facilities. The Government has also encouraged development of light industry, and there is significant activity in the electronics sector.

GDP was an estimated GBP4 billion in 2008, and GDP per head was US$66,000.

Jersey’s economy faces a contraction of 2% in 2010, following negative growth of around 5% for 2009. The government anticipates that the island will run a budgetary deficit of GBP60m in 2010, followed by GBP68m in 2011, and a recurring deficit of GBP40-50m thereafter.

The Jersey currency is the pound which is on a par with the British pound; there are no exchange controls.

Nearly 100,000 companies are registered in Jersey, with many more foreign companies administered from the island.

Jersey remains the highest rated offshore international finance centre according to competitive rankings published by the City of London, and was the only offshore jurisdiction in the top twenty in the last report, released in March 2010. Jersey was placed 18th in the Global Financial Centres Index (GFCI) overall.

Geoff Cook, Chief Executive of Jersey Finance Limited, commented:

“Considering the impact of the financial crisis and the scrutiny that has been directed at offshore finance centres, it is extremely encouraging that Jersey has improved its rating and retained its leading position among its offshore rivals. We are now the only jurisdiction in the offshore category in the top twenty so these rankings are very positive for us.”

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Jersey The Channel Islands Stock Exchange

The Channel Islands Stock Exchange ("CISX") commenced operations on 27 October, 1998 with 23 founder members. Its aim is to provide trading and listing of investment funds, debt instruments and shares in companies and to bring the expertise available in the Channel Islands to the expanding network of international businesses requiring expert offshore financial services in the European time-zone. Ownership of the CISX lies in the hands of its listing members, who have to be established in the Channel Islands. Management and control are vested in a board of directors who are elected. Based in St Peter Port, Guernsey, the CISX provides a listing facility and screen-based trading. Trading members do not have to be established in the Channel Islands, but must be licensed, regulated or supervised by a regulatory body in a jurisdiction recognised by the CISX. In August 2007 the exchange welcomed its 50th member.

The exchange has developed specialist niches in floating property funds, open and closed-ended investment funds, debt, securities and special purpose vehicles and is attracting increasing interest from alternative investment funds. The CISX also lists international trading companies and not just those based in Guernsey.

The 3,500th listing on the exchange occurred on January 20, 2010, when the Market Authority admitted a new Cell of Guaranteed Investment Products, 1 PCC Ltd, a structured fund organized and administered by Anson Fund Managers Limited with Abbey National Treasury Services plc acting as its investment manager.

In 2009, the exchange experienced trading volumes in excess of 83 million trades alongside the admission of 443 securities to the Official List. Five new members also joined the Exchange during the year. Business continued to be strong in niche markets, in particular in alternative investment funds and specialist debt and there was continuing interest in listing structured funds.

In September, 2002, the US Securities and Exchange Commission's awarded the Channel Islands Stock Exchange (CISX) designated offshore securities market status. In December, 2003, the CISX gained approval by the UK Financial Services Authority as a Designated Investment Exchange.

Although the CISX is as open to listings from Jersey as from within Guernsey, in practice the exchange trades four times as many Guernsey-domiciled securities as those from Jersey. The exchange said in 2004 that it was trying to remedy this imbalance; it is also promoting several new product areas, including eurobonds and structured funds.

In October, 2009, it was announced that Jersey companies have been approved for listing on the Hong Kong Stock Exchange. The move is a significant development for Jersey’s finance industry, which is seeking to increase business flows from the Asia Pacific region.

The formal inclusion of Jersey companies on the Hong Kong Exchange’s approved list is the result of more than a year’s negotiation, research and document preparation involving government officials in Jersey, representatives from Jersey Finance, and the finance industry.

The approval enables Jersey’s finance industry to compete on an equal footing with other competitor jurisdictions, which have been established longer in Asia. Jersey has achieved this recognition ahead of some of its closest competitors, including Guernsey and the Isle of Man.

Robert Kirkby, Technical Director of Jersey Finance, commented: “Gaining access to a major capital market such as Hong Kong is further excellent news for Jersey and is a step forward in our ability to attract new business from the region. The move by the Exchange authorities adds weight to Jersey’s reputation as a rigorously supervised, highly regarded jurisdiction and also demonstrates how the market in Asia views the quality and robustness of Jersey company law. Moreover it gives further impetus to the formal opening of our second overseas office in Hong Kong later this month and is very welcome news.”

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Jersey Entry and Residence

Nationals of European Union member states have free right of movement in Jersey for the purposes of work and establishment. Non EU nationals must apply for permission to reside or work in Jersey. Generally a work permit will be granted only if no suitably qualified local exists. Preference is given to UK and other European Union nationals. Long-term residency in Jersey is carefully controlled; with certain exceptions consent for residency will be given only to a person owning a residence, and in turn the purchase of a residence is subject to consent, which is given in only a limited number of cases, usually involving a luxury dwelling or an individual who is clearly going to contribute significantly to the island through payment of local taxes.

On the other hand, consent is usually granted quite readily for commercial property transactions.

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Jersey Business Environment

In terms of business and communications infrastructure, Jersey offers Western European standards. The business environment is particularly well-attuned to the finance sector as a result of the island's long-term policy of promoting itself as an international finance centre, accompanied by a well-developed regulatory structure, and careful supervision of incoming finance-sector businesses in order to screen out doubtful operations.

Jersey's political stability, low taxes and international credibility make it an attractive place in which to do business. However, in order to protect limited local resources, the administration does not welcome foreign-owned businesses unless they will clearly contribute to the diversity or quality of the services available on the island. Every business that operates in Jersey needs to have a Regulation of Undertaking Licence and the process takes approximately 3 weeks. A business which is planning to trade under a business name needs to be registered with the Jersey Financial Services Commission (JFSC). Restrictions on numbers of employees and the controls on residential accommodation are further ways in which the administration limits business expansion. These rules are not applied to exempt (since abolished) or non-resident companies, which are permitted to hold board meetings on the island and to have some fairly minimal administrative activities there.

By 2001, restrictive housing policies had begun to act as a serious brake on business activity, and in January 2002 the Housing Committee of the States of Jersey published a long-deferred major strategic policy report for 2002-2006, in which it called for sites for more than 1,100 new homes to be zoned in the first five years of the new Island Plan.

At the time, the Island Plan included provision for only 750 new homes, but the Committee said the larger number will allow them to provide 500 rental and 600 first-time buyer homes. Even so, said the Committee, the real shortfall in homes was probably as high as 1,450 - but it considered that development of the additional sites could be phased over a longer period than five years, thus reducing pressure on the construction industry. Alongside this more extended programme, it was considered beneficial to create a ‘residential land bank’.

"Restricting too tightly the supply of land will only have the effect of increasing land values and will ensure that any newly-rezoned sites continue to be the subject of intense speculation," warn the committee.

Pressure on the availability and price of houses continues to be one of the major constraints on development of the island's business community, with incoming managers and specialists facing dramatic restrictions on their ability to find reasonably priced accommodation, in the face of a rabidly 'NIMBY' (not in my back yard) existing population. Several banks which have relocated to the Isle of Man in recent times said that pressure on staff and property costs in Jersey had influenced their decisions.

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Jersey Import of Foreign Capital

There is no exchange control in Jersey. Jersey companies may be freely incorporated with a share capital denominated in any currency and there are no restrictions on inward or outward investment or on the repatriation of dividends, interest and profits. Bank interest on deposit payable to nonresidents is exempt from Jersey income tax. Royalties are treated for the purposes of tax in the same way as interest.

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Jersey Investments by Foreigners

The authorities deter "active" foreign investment (new businesses and permanent immigration) but welcome "passive" investment (purchase of real estate for investment purposes, or the purchase of existing business assets). This is part of the administration's general policy of protecting the island's scarce resources. Therefore the island does not offer investment incentives, other than its permissive tax regime as such.

It became clear in May 2002 however 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, the Savings Tax Directive, whereby financial institutions will be obliged to pass details of income on investments by nationals of EU member states to their home tax administrations. The EU introduced this information-sharing on 1 July 2005, although Jersey along with Guernsey, the Isle of Man, Austria, Belgium, and a number of 'third countries' including Switzerland, decided instead to opt for a withholding tax on interest income which was applied initially at a rate of 15%. This rate increased to 20% on July 1, 2008, and will increase again, to 35%, on July 1, 2011.