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. Over
the year to June 30, 2005, a total of
2,554 companies were incorporated, an
increase of 7.7% over the previous year.
In total there are 33,624 companies registered
in Jersey at September 30, 2007. However,
the total number of live companies on
the register decreased by 288 during the
12 months to the end of 2008, from 33,683
to 33,395 companies, while there was a
more marked drop in company formations
in Q4 2008, down 32% compared to Q4 2007.
Jersey
was named the best international finance
centre at the International Investment
Fund and Product Awards 2007. 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.
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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,
very often using the lowly-taxed International
Business Company format which permits
commercial activity on the island as long
as transactions don't involve Jersey residents.
NB The International Business Company
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.
Lipper Fitzrovia’s revealed that
USD225.9 billion (GBP112.5 billion) in
1,367 funds and subfunds were serviced
in Jersey, as at June 30, 2007, an increase
of 150% over five years - up from USD91.0
billion (GBP59.7 billion) at June 30,
2002.
Looking
solely at funds domiciled on the Island,
the largest asset classes were property/real
estate funds (with total net assets of
USD69.4 billion, representing 41% of the
total for domiciled funds’ assets)
and private equity/venture capital funds
(USD33.0 billion).
Despite
the global financial turmoil in 2008,
Jersey Finance reported just a 2% dip
in the net asset value of funds in December
2008 compared to a year earlier, from
GBP246.2bn to GBP241.2bn. However, the
total number of funds increased by 161
from 1,311 to 1,472 over the same period.
“The
last quarter of 2008 has been particularly
difficult for financial services businesses
globally. Whilst there is little doubt
that 2009 and much of 2010 is likely to
be challenging and we will see further
volatility in business numbers, there
are some inherent features of our offering
from which we can take some comfort,"
commented Geoff Cook, chief executive
of Jersey Finance Limited.
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 September 30, 2007,
349 expert funds had been approved with
a NAV of more than GBP43.5 billion. This
has risen to more than 400 by the end
of 2008.
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 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
is transferred from the Collective Investment
Funds (Jersey) Law 1988 (the “CIF(J)L”)
to the FS(J)L. This will be 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 will be the removal of the requirement
for functionaries to hold multiple permits
under the CIF(J)L. Instead, functionaries
will require to be registered under the
FS(J)L to carry on fund services business
from within Jersey. Every fund services
business will be supervised under the
FS(J)L and the Commission proposes to
issue Codes of Practice in the form attached
to the consultation paper.
The
second paper dealt with an interim proposal
pending implementation of the above arrangements.
Jersey
Finance has announced the the widening
of its capabilities as a funds jurisdiction
through the introduction of an Unregulated
Funds Regime which is 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 will be 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.”
Introduction
in early 2008, the new Unregulated Funds
Regime includes an Unregulated Eligible
Investor Category (UEIC) and an Unregulated
Exchange Traded Category (UETC). Funds
in these categories will not be approved
or authorised by the Island’s financial
regulator, the Jersey Financial Services
Commission (JFSC). Jersey
Finance reported that 26 unregulated funds
had been registered by October 2008.
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 will be available to private equity,
property and other alternative investment
funds such as hedge funds and funds of
hedge funds. It will operate in a similar
fashion to the existing Expert Fund regime,
except that there will be no selling restrictions
attached to these investment funds. The
JFSC has concluded that the regulatory
environment of products listed on recognised
exchanges and promoted by established
sponsors already provides an appropriate
level of investor protection and therefore
a lighter level of regulation in relation
to authorisation is considered appropriate.
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.
Collective
Investment Funds with foreign ownership
can 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 can have exempt
(tax-free) status if its administration
is conducted on the island by an arm's
length manager for a fee. NB 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
The Jersey Financial Services Commission's
quarterly report for the period to September
30, 2007 showed that almost 50 banks held
bank deposits of GBP219.5 billion. These
included subsidiaries or branches of the
top banks from the US, the UK, Switzerland,
Canada, Germany, Ireland, Israel, the
Netherlands and Spain. Banking deposits
decreased by GBP6.2bn during the year
2008 from GBP212.3bn to GBP206bn.
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: more than
1,000 of these instruments were created
in 2001.
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.
Like
other businesses, foreign-owned banks,
whether formed as a limited liability
company or as a branch, can take advantage
of International
Business Company status whereby they
are taxed at a very low rate but can have
administrative offices on the island.
NB
The
International Business Company vehicle
was abolished to new entrants with effect
from January 1, 2006. See Types
of Company and Offshore
Legal and Tax Regimes for further
details.
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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
October 2008, a law that will enable Jersey
to permit the formation of foundations
was approved by the States Assembly. The
decision means that, subject to final
Privy Council approval, Jersey will be
the first of the British Crown dependencies
to offer foundations as an investment
vehicle for financial planning.
Geoff
Cook, Chief Executive of Jersey Finance,
welcomed the news, stating: “foundations
will be available in Jersey alongside
existing vehicles such as companies, trusts
and limited partnerships, for use in financial
planning and private wealth management
strategies. It’s an important development
for the industry because foundations tend
to be a popular option for wealthy clients
in civil law jurisdictions where the concept
of a trust vehicle is not so familiar.
Up to now, we haven’t been able
to offer this alternative, but with foundations
on the statute book, Jersey based trust
and wealth management providers will be
able to offer a wider choice to their
clients.”
Click
on Formation
of Trusts or Taxation
of Trusts for further information.
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Jersey Professional Services
Jersey is a convenient location in which
to locate professional services operations
servicing the European Union. Partnership,
Foreign Partnership and Limited Partnership
forms are available, with tax advantages
if some of the partners are non-resident.
Limited companies also offer good tax-saving
opportunities for professional services,
using the International Business Company
form.
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 168 insurance companies registered
in Jersey as of mid-2005, (after which
the Financial Services Commission stopped
collecting statistics from insurance companies);
this number had been tending to fall slightly
due to amalgamations.
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.
A
captive operating as an International
Business Company is taxed at a negotiated
rate between 0 - 30%. A captive can also
be an exempt company. Click on Types
of Company or Offshore
Legal and Tax Regime for further information.
NB 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.
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, 2008, insurance companies
pay the following fees:
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