Jersey: Offshore Business Sectors

Back to Jersey Information: Business, Taxation amd Offshore

In this section:

- Jersey: Trade, Marketing and Distribution
- Jersey: Investment Fund Management
- Jersey: Banking
- Jersey: Trust Management
- Jersey: Professional Services
- Jersey: Insurance

The UK's three inshore IOFCs, Jersey, Guernsey and the Isle of Man have each developed some specialisations; Jersey stands out as a banking and finance centre, with a large offshore fund industry. It has relatively few 'captive' insurance companies compared with Guernsey. Jersey has a very well-developed trust sector with particularly strong support from law firms, trust managers and advisory practises. As a rather broad generalisation, the business environment in Jersey has shown a marked tendency to become more international over the last few years, partly because of the usefulness of the island to multinationals setting up in the EU, and partly because of increasingly tough anti-avoidance rules that have made it difficult for UK citizens to make productive use of trusts.

The attacks on 'offshore' by the EU and the OECD don't seem to have slowed the growth of Jersey's finance businesses, or the number of new company formations.

Company formations were up 6.7% by the end of 2010, compared to 2009. However, the total number of live companies on the register at the end of 2010 had decreased by 465 during the year from 33,187 to 32,722.

Jersey was named the best international finance centre at the International Investment Fund and Product Awards 2010 and 2011. In winning the prestigious award, Jersey beat off competition from other international finance centres including Dublin, Gibraltar, Guernsey, the Isle of Man and Luxembourg, which were all short listed. In 2008, Jersey was recommended as one of the top three global financial centres by leading advisers and wealth managers in research conducted by Citywealth.

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.

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Jersey Trade Marketing and Distribution

For all the sophistication of its business environment and its convenient location alongside the vast EU market-place, Jersey's small size and limited resources mean that the island is not a suitable base for physical warehousing, processing or distribution. However it is used as a base for trading, marketing and distribution in the EU by a substantial number of companies. In the past investors very often used the lowly-taxed International Business Company format which permitted commercial activity on the island as long as transactions didn't involve Jersey residents, although this vehicle was abolished to new entrants with effect from January 1, 2006.

Along with other offshore jurisdictions, Jersey is a suitable place in which to base e-commerce services for retail or wholesale distribution of material or non-material goods: see Offshore-e-com.com for extended descriptions of how such businesses can take advantage of the combination of offshore and e-commerce.

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Jersey Investment Fund Management

Collective Investment Funds are supervised by the Financial Services Commission under the Collective Investment Funds (Jersey) Law 1988, and if 'recognised' are allowed to be marketed in the UK. This has been a stimulus for the growth of a substantial managed funds sector on the island. Other types of fund, both public and private, are also licensed and supervised by the Financial Services Commission, and are usually directed at professional investors since public marketing would not be allowed in most countries, particularly not in the EU. Indeed the ability of Ireland and Luxembourg as EU members to host funds for public distribution in the member states of the EU has created strong competition for Jersey.

Nonetheless, the total value of collective investment funds on the island has grown rapidly. The total value of collective funds administered from Jersey grew by almost GBP150bn over the nine years to 2008. This figure then dropped by GBP77bn in 2009. In 2009, the Net Asset Value of funds in Jersey fell by 32% to GBP163bn and the total number of funds fell by 11% to 1,287. A modest recovery during 2010 saw the value of collective funds administered from Jersey grow to GBP184.703bn by the end of 2010 with the total number of funds standing at 1,324.

In February, 2004, Jersey introduced 'expert' investor fund legislation. This gives qualifying fund managers freedom to offer funds to licensed investors without previously clearing them with the FSC, provided they stick to the guidelines. A number of Jersey's competitor jurisdictions offer such freedoms, without which it is impracticable to offer attractive products to wealthy investors and their advisors. The new regime has proved popular, and by the end of 2008, more than 400 expert funds had been approved.

In June 2004 the JFSC also launched a Non-Domiciled Fund Guide. The Guide introduced a streamlined authorisation process for persons wishing to become functionaries (for example, an administrator, custodian, distributor) of Non-Domiciled Funds that are: materially equivalent to Jersey Expert Funds; equivalent to Jersey Recognized Funds; or compliant with the latest EU UCITS Directive.

The Guide was the result of a joint effort between the Commission and the Jersey Funds Association and followed on from the successful launch of the Jersey Expert Fund Guide in February 2004.

In October 2006, the JFSC announced plans to extend the Expert Fund regime to closed-ended investment funds listed on European and other leading stock exchanges including the Channel Islands Stock Exchange. The regime would be available to private equity, property and other alternative investment funds such as hedge funds and funds of hedge funds. It would operate in a similar fashion to the existing Expert Fund regime, except that there would be no selling restrictions attached to these investment funds. The JFSC had concluded that the regulatory environment of products listed on recognised exchanges and promoted by established sponsors already provided an appropriate level of investor protection and therefore a lighter level of regulation in relation to authorisation was considered appropriate.

In February 2006, the JFSC published two consultation papers on the regulation of functionaries and funds dealing with the Commission's long-term goal of bringing regulation of all financial services business operating in Jersey within the Financial Services (Jersey) Law 1998 (the “FS(J)L”).

The first paper set out the proposal for the future regulation of funds and functionaries. The Commission proposed that regulation of functionaries to unclassified funds be transferred from the Collective Investment Funds (Jersey) Law 1988 (the “CIF(J)L”) to the FS(J)L. This was achieved by creating a new category of financial service business under the FS(J)L to be called “fund services business”.

The advantage of this new “one licence” regime is the removal of the requirement for functionaries to hold multiple permits under the CIF(J)L. Instead, functionaries are required to be registered under the FS(J)L to carry on fund services business from within Jersey. Every fund services business is supervised under the FS(J)L and the Commission issued Codes of Practice in the form attached to the consultation paper.

In 2008, Jersey introduced an Unregulated Funds Regime designed to provide promoters and other fund introducers with the simplicity, certainty and speed they seek when setting up certain types of specialist fund.

A key feature is that there is no need to seek regulatory approval when establishing the fund. Geoff Cook, Chief Executive of Jersey Finance Limited, commented: “This is a significant step forwards for the Funds Industry in Jersey and is seen as a natural progression in our goal to become the European jurisdiction of choice for the Alternative Funds sector. Fund promoters of high net worth, sophisticated investors and institutions will have greater flexibility when choosing Jersey and will be able to structure their funds to suit both commercial and tax requirements.”

The Unregulated Funds Regime includes an Unregulated Eligible Investor Category (UEIC) and an Unregulated Exchange Traded Category (UETC). Funds in these categories do not need to be approved or authorised by the Island’s financial regulator, the Jersey Financial Services Commission (JFSC). Jersey Finance reported that 122 unregulated funds had been registered by October 2010.

Funds utilise a unit trust structure, or the limited liability company with redeemable share capital; lately the limited partnership has become popular for some types of private fund. See Types of Company.

In September 2009, Jersey’s Economic Development Department asked members of Jersey’s business community for their views on draft legislation which would introduce to the Island limited partnerships with legal personality.

Since the introduction to Jersey of limited partnerships in 1994, they have proved increasingly popular, particularly as investment vehicles.

The Economic Development Department has announced that it is seeking to build on that success with the introduction of two further limited partnership laws, introducing different possible legal statuses for limited partnerships.

Two new limited partnership laws were adopted by the States on May 25, 2010, follwowing a consultation published by Jersey’s Economic Development Department in September 2009.

These provide respectively for the establishment of Separate Limited Partnerships (SLPs) and Incorporated Limited Partnerships (ILPs). Establishment of an SLP was made possible from April 20, 2011 and for an ILP from May 24, 2011.

The SLP has legal personality but without being a body corporate (as is already the case for a Scottish limited partnership), whereas the ILP is a body corporate.

The Department believes that a wider range of uses of Jersey limited partnerships would be made by consumers if they had the option of creating a limited partnership with legal personality.

Limited partnerships are frequently used in fund structures but, the Jersey limited partnership did not have a separate legal personality and must contract through its general partner (usually a body corporate), which has unlimited liability for the debts of the partnership. Each of the two limited partnership vehicles have a separate legal personality, however, as its name suggests, the Incorporated Limited Partnership has the additional feature of being incorporated.

Prior to recent legislative changes, collective Investment Funds with foreign ownership could take advantage of International Business Company status to achieve a very low rate of taxation, while still being allowed to have offices on the island; alternatively a Collective Investment Fund could have exempt (tax-free) status if its administration was conducted on the island by an arm's length manager for a fee. However, the International Business Company vehicle was abolished to new entrants with effect from January 1, 2006. The tax landscape has also changed with the 'zero ten' reforms, introduced in January 2009. See Domestic Corporate Taxation for details.

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Jersey Banking

Statistics released by the JFSC in March 2011, showed that over the previous nine years, total bank deposits held in Jersey have increased by more than GBP31bn, achieving a peak in 2007, and declining thereafter. At the end of December 2010, there were 45 banks in Jersey, holding deposits of just under GBP161.6bn. The Jersey government statistical report shows that at the end of December 2011, 40 banks held deposits of GBP158.087bn, of which GBP54.276bn were sterling deposits.

In addition to commercial banking, asset management, foreign exchange and securities trading, Jersey banks have recently become involved in a number of large securitisation programmes. The creation of the Channel Islands Stock Exchange has encouraged the development of a larger capital issuance sector. The issuance of SPVs (Special Purpose Vehicles) and Covered Warrants has been a rapidly growing business for Jersey.

Banks can operate as limited companies or branches; or, in response to growing pressure on local resources, as managed units whereby another bank acts as a local manager, without the need for additional premises and staff.

All banks in Jersey are supervised by the Financial Services Commission under the Banking Business (Jersey) Law 1991 and accompanying regulations. An initial fee is payable on registration, and there are continuing annual registration fees.

In November 2009, Jersey’s States Assembly approved legislation to establish a Depositors Compensation Scheme (DCS) in the island with immediate effect. The scheme provides protection of up to GBP50,000 per person, per Jersey banking group, for local and international depositors in line with international standards.

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Jersey Trust Management

Trust management, particularly for wealthy UK individuals, was Jersey's traditional business. Successive tightenings of UK anti-avoidance legislation have reduced the possibilities for UK citizens, but Jersey's trust business has continued to grow based on a more international clientele, and following the introduction of the purpose trust, a surge in corporate trust work. Many Collective Investment Funds are also of course based on Trusts.

Total trust assets looked after on the island exceed GBP100bn, excluding Collective Investment Funds.

Jersey has an extremely well-developed legal and financial infrastructure for trust management. With such a large established base of trusts, and a growing reliance on corporate work, the volume of trust litigation is becoming significant.

Jersey's Financial Services (Extension) Law extended the remit of the Financial Services Commission (FSC) under the Investment Business (Jersey) Law 1998 over banking, investment funds and insurance activities into trust and company management, if the underlying activity is connected with financial services.

The law's code of practice was applied to relevant financial service providers from 27 November, 2000. Business licensing and qualification regulations came into force from 2 February, 2001, and 28 May, 2001 was the final deadline after which all other businesses must operate in full compliance with the code of practice. Qualification requirements for most lower category staff had to be fulfilled before November 2003; the deadline for top and middle category employees was November 2005.

In June 2009, Jersey's Privy Council approved an order allowing Foundations to be set up in Jersey.

Foundations have a long history in continental Europe. In medieval times they were used for charitable or religious purposes. They are now commonly used for wealth management, and residents of jurisdictions like the Middle and Far East are more familiar with foundations than with trusts, which do not exist in their legal systems. Jersey is the first of the Crown Dependencies to bring in a genuine foundation product.

The regulations will permit foundations to migrate in and out of Jersey. They also provide for existing Jersey companies to convert to foundations.

The approval of the Jersey Foundations Law by Jersey’s Privy Council was welcomed by Jersey Finance as a hugely positive step in affirming the island as a centre of excellence for private wealth management business.

Foundations sit alongside existing vehicles such as companies, trusts and limited partnerships for use in financial planning and private wealth management strategies.

Click on Formation of Trusts or Taxation of Trusts for further information.

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Jersey Professional Services

Click on Forms of Company or Offshore Legal and Tax Regimes for further information.

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Jersey Insurance

See Offshore Business Review – Insurance for a more general treatment of captive insurance companies.

Captive Insurance is regulated by the Insurance Business (Jersey) Law 1996 (as amended), the Insurance business (General Provisions) (Jersey) Order 1996 and the Insurance Business (Solvency Margin) (Jersey) Order 1996.

Category A permits are issued in respect of insurance business carried on by companies authorised and supervised in another jurisdiction, and Category B permits which apply in every other case including captive insurance business. Permits are subject to conditions which will be determined on a case by case basis. It is possible to prescribe conditions applicable to all, or a class of, insurers.

There were 121 general insurance companies registered in Jersey as of the end of 2010. Of a total of 185 insurance permits, 178 are category A permits (as of 2010).

The sector is regulated by the director of insurance in the Financial Services Commission. An annual audit is required, as are semiannual unaudited accounts and confirmation that permit conditions are being met.

The minimum capital requirement is GBP100,000 or its currency equivalent. Incorporation costs GBP120 plus a stamp duty on authorised capital at a rate of 0.5%, to a maximum of GBP2,500.

As of October 1, 2009, insurance companies pay the following fees:

• in the case of a category A permit:
  • GBP5,400 if the permit applied for or to be renewed is to include long term business of any class, and
  • GBP2,700 in any other case;
• in the case of a category B permit where the applicant or the permit holder is not a cell company or a cell:
  • GBP9,450 if the permit applied for or to be renewed is to include long-term business of any class, and
  • GBP4,725 in any other case; and
• in the case of a category B permit where the applicant is a cell company or a cell
  • GBP4,725 if the permit applied for or to be renewed is to be granted to a cell company
  • GBP2,700 if the permit applied for or to be renewed is to be granted to a cell and is to include long-term business of any class, and
  • GBP1,350 if the permit applied for or to be renewed is to be granted to a cell and is to include general business of any class.

Jersey's Companies (Amendment No.8) (Jersey) Law 2006, introduced advances to cell company investment structures. The legislation permits the creation of cell companies and includes innovative features which extend the scope of their use for investment purposes.

Jersey legislators have introduced the concept of an Incorporated Cell Company (ICC), alongside an enhanced version of the traditional Protected Cell Company (PCC), to provide investors with greater flexibility when choosing a cell structure to meet their investment objectives.

The new ICC involves the formation of separate, legally recognised cells within the overall structure, with each cell established as a separate incorporated Jersey company. This is in contrast to the traditional PCC where all the cells combined create one legal entity and each cell is not treated as a separate legal personality.

The measures, which Island practitioners describe as the first significant advance from the original PCC model, are expected to provide a boost generally to the Island’s investment capabilities in the institutional market, particularly for the insurance sector and in support of international capital markets activity.

Phil Austin, Chief Executive of Jersey Finance Limited, commented:

"We are not first to the market with PCC legislation, but we have consulted widely and taken into account lessons learned elsewhere. The result is an enhancement to the traditional features of a PCC and the introduction of the ICC concept. Under this new legislation, Jersey has strengthened the asset protection provisions, avoided many of the problems identified with PCCs in other jurisdictions whilst providing the simplified management benefits associated with cell companies."

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