On
this Page:
- JERSEY
FORMS OF OFFSHORE OPERATION
- JERSEY TAX TREATMENT
OF OFFSHORE OPERATIONS
- JERSEY TAXATION
OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
- JERSEY EXCHANGE
CONTROLS
- JERSEY OFFSHORE
ACTIVITIES
- JERSEY
EMPLOYMENT AND RESIDENCE
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 is being
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 will be progressively extinguished
by no later than the 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 will rise to 35% on July 1, 2011.
Jersey's Comptroller of Income Tax reported in
mid-2006 that GBP13 million had been 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.
In
October, 2004, Jersey Finance Limited, the finance
industry's representative body in Jersey, in association
with the Jersey Bankers Association released an
eight page guide to the EU Savings Tax Directive
for international investors. Speaking following
the launch of the guide, Phil Austin, Chief Executive
of Jersey Finance Limited explained that:
"We
are aware of the considerable interest that exists
in the implications of the EU Savings Directive,
although for the majority of customers of Jersey-based
institutions, there will be no impact whatsoever.
However, with the help of the Jersey Bankers Association,
we hope the Guide will answer most clients' questions
and also reassure investors about its impact."
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 appleies to
the following entities:
- 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 the June 3, 2008, will switch 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.
The
following information describes the situation
in Jersey prior to the introduction of the 'zero/ten'
tax reforms in 2009.
Jersey
Forms of Offshore Operation
Offshore
operations may take place within the following
forms:
Jersey
Tax Treatment of Offshore Operations
See Domestic
Corporate Taxes for the general principles
of Jersey corporate taxation, which also apply
to offshore entities.
IBCs are subject to a minimum annual tax liability
of GBP1,200. The diminishing sliding scale applicable
to the 'international income' of IBC's is 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
allows 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 is unable to use a 'designer' tax through
Jersey, the island's rules are still useful
to companies from other countries.
Exempt
companies pay a fee of GBP600 per annum while
they are exempt. Income arising in the island
from an 'established place of business' will
be taxed at 30%. Holding directors' meetings,
issuing invoices and other minor administrative
tasks will not be caught by this provision.
Interest received resulting from Jersey banks
is counted as international income. There are
no withholding taxes on dividends, interest,
royalties or other payments made by exempt companies.
Collective investment companies can have exempt
status, and Jersey residents may hold their
shares.
Foreign
partnerships are not liable for tax on foreign
income; however assessments may be made on the
firm in the name of resident Jersey partners
for the profits of trading operations in Jersey.
Limited partnerships are not subject to income
tax assessment; but their resident partners
are liable to tax on their share of the whole
of the partnership's income; non-resident partners
are liable on Jersey income only (as usual,
excluding Jersey bank interest).
Captive
insurance companies can be exempt, but they
may need to demonstrate that there is economic
benefit to the island.
Trusts
with non-resident beneficiaries are 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 are Jersey residents, the picture
becomes more complicated, and exemption may
be partly or wholly lost.
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Jersey
Taxation of Foreign Employees of Offshore Operations
This section refers to the taxation of foreign
employees of non-resident operations and International
Business Companies; see Domestic
Personal Taxes for the general principles
of individual taxation in Jersey, which also apply
to the resident employees of non-resident entities.
There is in fact no distinction between the employees
of resident or non-resident operations. It is
a question of individual status. Most types of
compensation and benefit paid to employees are
taxable; there are no special privileges or exemptions
for expatriate workers.
There
is no statutory definition of residence. Jersey
often follows the UK in this respect. Normally,
an individual is resident if he spends more than
six months on Jersey in any one year, or more
than 3 months on average in each of 4 consecutive
years. If the individual has a place of abode
in Jersey, the rules are tighter.
Non-residents
are liable to pay Jersey income tax only in respect
of income arising in Jersey or from Jersey sources.
Commonwealth or EU citizens may claim proportional
allowances in respect of Jersey income. By concession,
Jersey bank interest is not taxed in the hands
of non-residents. Tax due from a non-resident
director of an International Business Company
in respect of duties performed on the island is
not pursued.
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Jersey
Exchange Control
Jersey has no exchange controls.
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Jersey
Offshore Activities
For International Business Companies, activities
on the island must not involve transactions with
Jersey residents, but are not otherwise specifically
limited. For exempt companies, activities are
permitted on the island as long as there is no
established place of business there. In most other
cases of non-residence there are no specific rules
about Jersey activities; income is simply split
according to its source and taxed or not accordingly.
However, In accordance with the Island’s
commitment to the European Council of Finance
Ministers (Ecofin), the International Business
Company vehicle was abolished to new entrants
with effect from 1 January, 2006. In
accordance with the 'zero/ten' corporate tax reforms,
no new exempt companies could be formed in Jersey
from June 3, 2008.
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Jersey
Employment and Residence
There are no special privileges or disabilities
for the employees of non-resident or offshore
operations as such. Nationals of European Union
member states have free right of movement in Jersey
for the purposes of work and establishment. Generally
a work permit will be granted only if no suitably
qualified local exists. A work permit is issued
for the duration of the vacancy up to a maximum
period of 3 years. The expectation is that during
this period the employer will continue to seek
to fill the post on a more permanent basis by
finding someone who is free of permit restrictions,
training them if necessary. In exceptional circumstances,
with the approval of the Home Affairs Committee,
a permit may be issued for up to 5 years. Preference
is given to UK and other European Union nationals.
A non European Economic Area national seeking
entry for more than 6 months needs to obtain an
entry clearance from a British Embassy or High
Commission abroad, before arrival.
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.
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