By Lowtax Editorial
09 June, 2015
A small island in the English Channel it may be, but Jersey packs a serious punch on the world financial stage with an estimated GBP1.2 trillion of wealth held in the island's banks, trusts, specialist corporate structures and investment funds. What's more, three-quarters of this wealth originates from outside the United Kingdom, making Jersey a true international offshore financial center.
Jersey is situated off the north-west coast of France in the English Channel. It is the largest and most southerly of the Channel Islands with an approximate area of 45 sq miles.
The resident population in July, 2013 was an estimated 95,732. English and French are both official languages and used widely.
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 defence and external relations but by long established constitutional convention Jersey 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.
Economy And Business Environment
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 currency is the pound which is on a par with the British pound; there are no exchange controls.
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.
In May 2015, international ratings agency Standard & Poor's praised the Jersey Government's fiscal and economic policies in affirming the jurisdiction's "AA+/A-1+" long- and short-term sovereign credit ratings, with a stable outlook.
In its report, S&P noted: "The AA+ ratings on Jersey reflect our view of its mature political and institutional setting, transparent economic decision-making process, wealthy economy, and significant fiscal flexibility supported by a high net general government asset position."
In January 2015, Jersey was named International Financial Center of the Year at the Citywealth Awards for the third consecutive year.
The latest Jersey Business Tendency Survey shows that finance industry leaders continue to be optimistic about current and future growth prospects.
Relationship With The EU
Jersey is not a member of the EU, and 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 does though apply the external common customs tariff of the EU. However, 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.
However, the impending referendum on the UK's ongoing membership of the EU, due to be held by the end of 2017, casts some uncertainty over the future legal and constitutional status of Jersey within the EU, given that Brussels has exerted considerable influence over some legislation in the jurisdiction, especially in the area of taxation.
Financial Sector Overview
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 Jersey Financial Services Commission (FSC) is responsible for the regulation, supervision and development of the financial services industry in the Island of Jersey for banking, collective investment funds, fund services business, insurance business, general insurance mediation business, investment business, money service business, and trust and company service providers.
Additionally, the FSC is the supervisory body for those sectors that are subject to regulatory oversight of their anti-money laundering and countering the financing of terrorism responsibilities, which includes: accountants; lawyers; estate agents; high value goods dealers; and non-profit organizations.
Companies incorporated in Jersey are governed by the Companies Law 1991 which is based largely on the English 1948 Companies Act.
Jersey company law allows for the formation of the following types of company:
- Limited companies, with par value or no par value shares;
- Guarantee companies, with members whose liability is limited to amounts committed by them by way of guarantee;
- Unlimited companies, where the liability of members is unlimited;
- Limited partnerships; and
- Cell companies, which provide for the segregation of assets and liabilities within different cells.
Having abolished its Exempt Company and International Business Company regimes, Jersey law no longer permits the formation of "offshore." Instead, all companies are subject to the same low rate of income tax, which is 0 percent in most cases for non-resident companies (see below).
Jersey companies may be public or private. A public company is one which has more than 30 members or which declares in its Memorandum of Association that it is public. Public companies are required to file audited accounts with the Registrar of Companies. Only a public company may issue a prospectus and offer its shares for subscription to the public.
A private company is any company that is not a public company, although a private company's Memorandum must state that it is a private company.
Shelf companies are not available in Jersey; however the formation process is quick and inexpensive provided that a new company does not intend to carry on business on Jersey itself. There is an incorporation fee of GBP200 and an annual return fee of GBP150. A company must have a registered office in Jersey. Public companies need to file audited accounts, but private companies are not legally obliged to do so.
A private company must have at least one director, and a public company at least two. There is no requirement under the Law for directors appointed to Jersey companies to be resident in Jersey, nor is it necessary for meetings of directors to take place on the island. Directors also do not have to hold shares in the company.
It is a requirement under Jersey law that companies hold annual general meetings, unless the company's Articles of Association provide otherwise, or all members agree in writing.
A company wanting to do business as such on the island will need to provide a great deal of information to the authorities in order to obtain the necessary consents and licenses; in fact the authorities actively discourage new business activity in most cases in order to conserve scarce resources.
On August 1, 2014, Jersey introduced amendments to its Companies Law aimed at minimizing bureaucracy and increasing flexibility. The measures, some of the most wide-ranging in recent years, include an 'out of court' procedure to reduce a company's capital, increased flexibility surrounding shareholder resolutions, and the prospect of new regulations that will permit a company to 'demerge' into two or more surviving companies. The new law also includes changes designed to make it easier to list Jersey companies on foreign exchanges.
A "zero/ten" tax system for companies has applied from 2009. This was achieved by introducing a standard rate of corporate income tax of 0 percent, and a special rate of 10 percent for specified financial services companies (banks), into the Island's existing schedular tax system. Utility companies, rental income and property development profits continue to be charged at the standard income tax rate of 20 percent.
The States agreed to introduce a broad-based, 3 percent Goods and Services Tax (GST) in 2008, with a registration threshold set at GBP300,000 of taxable turnover. This rate increased to 5 percent from June 1, 2011. However, financial services entities are generally exempt from the GST in order to preserve the competitiveness of Jersey's finance centre.
For taxation purposes, an individual may be resident, ordinarily resident, or non-resident. These terms are not statutorily defined. An individual is considered resident in Jersey for income tax purposes if they:
- are physically present in Jersey for more than six months in any one tax year, or
- are present in Jersey for an average of least three months per year over a four year period, or
- are maintaining an abode in Jersey and visit Jersey at some time during the tax year, even for only one day.
Ordinary residence suggests a greater degree of continuity than residence; non-residence is what it says.
Individuals resident and ordinarily resident in Jersey are subject to tax on their world-wide income.
Individuals who are resident but not ordinarily resident are subject to tax on their Jersey income and on any foreign income remitted to Jersey.
Non-resident individuals are taxed on Jersey income only, excluding Jersey bank interest (by concession).
Personal income is taxed at one rate of 20 percent. Social security contributions are also due at the following rates: 6.5 percent by the employer and 6 percent by the employee.
There is no capital gains tax, capital transfer tax, inheritance tax or wealth tax in Jersey.
Under the EU's Savings Tax Directive, withholding tax (known as a retention tax) was deducted from interest payments on savings made to people resident in EU member states from July 1, 2005, initially at a rate of 15 percent, rising to 20 percent from July 1, 2008 and 35 percent from July 1, 2011 (although account holders could opt for the alternative of disclosure of the payments to their domestic tax authority). However, on January 1, 2015, Jersey replaced the current retention tax regime with automatic exchange of information following the signing of inter-governmental agreements with the USA and the UK.
Jersey is the jurisdiction of choice for corporate entities seeking to list, with the greatest number of FTSE 100 companies registered outside of the UK, being registered in Jersey.
The number of Jersey-incorporated companies listed on stock exchanges globally increased by 13 percent during 2014 to 110, and these companies' total market capitalization rose 62 percent to GBP269bn (USD411bn).
Of these 110 listed companies, 57 are quoted on the London Stock Exchange's (LSE's) Alternative Investment Market (AIM), with Jersey being home to the largest number of AIM-listed companies outside the UK. Just under one-fifth of Chinese companies listed on AIM are now incorporated in Jersey.
38 companies are listed on the LSE Main Market and one on the Specialist Fund Market. Jersey is also home to seven FTSE 100 companies and an additional eight FTSE 250 companies.
The 96 Jersey companies quoted in London are valued at almost GBP146bn, while the Jersey companies listed on the Hong Kong Stock Exchange currently have a combined market capitalization of GBP40.6bn, and those listed on the Toronto Stock Exchange have a total market capitalization of GBP65bn.
Banks are registered in Jersey under the Banking Business (Jersey) Law, 1991 and the associated Banking Business (General Provisions) (Jersey) Order 2002 which is administered by the Jersey FSC. Applications for new banks or branches (more usual) are carefully vetted both from a prudential point of view and commercially.
The Banking Law has three main objectives:
- To protect depositors;
- To protect the reputation of Jersey as an international banking centre; and
- To protect the best economic interests of Jersey.
It contains capital adequacy rules which are stiffer than the Basle requirements.
In November 2009, Jersey's States Assembly approved legislation to establish a Depositors Compensation Scheme 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.
Jersey is home to global banking organisations from the UK, Europe, North America, South Africa, Asia, and the Middle East. Jersey only authorises the global top 500 banks to establish a presence in the island, a policy designed to ensure that only banks of the highest pedigree operate from the jurisdiction. There were 33 deposit-taking institutions located in Jersey at the time of writing.
Traditional offshore banking, wealth management and financial planning services for individual investors have been major areas of business for Jersey's banks. However, the jurisdiction has also become a leading finance centre in the provision of corporate banking services for multinational organisations, financial institutions, companies and firms with cross border interests and activities. For many corporate treasurers, institutional bankers and treasury specialists, fund promoters, brokers and other corporate financiers, Jersey represents an extension of the City of London.
Jersey's banking sector also provides services to support the fast-growing alternative investment funds industry, in particular the real estate, private equity and hedge fund markets, offering, for example, loan facilities to acquire assets and bridging facilities where appropriate.
Total deposits in Jersey banks at the end of 2014 stood at GBP132.4bn. The Middle East and Gulf regions are becoming an important source of business for Jersey's banking sector, with almost 15 percent of all bank deposits in the jurisdiction coming from these areas.
Collective Investment Funds are supervised by the Financial Services Commission under the Collective Investment Funds (Jersey) Law 1988. However, the emphasis of Jersey's funds sector has shifted towards funds for institutional, specialist and expert investors.
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. The Expert Fund regime was subsequently extended to closed-ended investment funds listed on European and other leading stock exchanges including the Channel Islands Stock Exchange (CISX).
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.
Jersey funds may be established as companies, limited partnerships or unit trusts, and be open or closed-ended, providing significant flexibility for investor needs.
Jersey has attracted a significant number of alternative funds and built up an experienced range of fund administrators, both as part of the services supplied by major custody banks and large specialist fund administration firms, and by boutique groups who can provide bespoke services to meet individual investor needs.
The net asset value of funds under administration in Jersey at the end of 2014 stood at GBP228.9bn, an increase of 19 percent compared with the previous year and the highest level since December 2008. Alongside the GBP23.5bn year-on-year increase in funds under administration, the total number of regulated funds rose by 19 during the final quarter of the year.
Investment in alternative asset classes grew substantially, with the value of hedge fund business growing by 46 percent year-on-year; real estate business growing by 32 percent, to its highest ever level; and private equity maintaining a steady increase of five percent in the same period.
Having now signed 27 bilateral cooperation agreements with EU Members States, including the UK, Germany and France, the can accept applications from local alternative fund managers enabling them to continue to access EU markets following the introduction of the Alternative Investment Fund Managers Directive.
Geoff Cook, Chief Executive of Jersey Finance, said: "The 2014 figures for Jersey's funds industry make impressive reading. Not only has the value of funds business reached its highest level since 2008, but the sizable annual increase of almost 20 percent is particularly pleasing in a global fundraising environment that is still relatively challenging. This growth is symptomatic of the confidence alternative funds professionals have in Jersey and why a number of major alternative fund houses have made the move to establish or expand their presence in the jurisdiction recently."
Ben Robins, Chairman, Jersey Funds Association, added: "The fact that there has been a strong upward trend across the core private equity, real estate and hedge fund asset classes as well as the debt and infrastructure fund spaces in the six months since The EU Alternative Investment Fund Managers Directive (AIFMD) was implemented is clearly pleasing. The number of Jersey domiciled managers receiving authorization to privately place and the number of funds being marketed into Europe through private placement under AIFMD is on the rise, and this goes to show that managers clearly like the flexibility and robust nature of Jersey's regulatory framework."
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.
Jersey regards itself as the leading common law trust jurisdiction and it has an extremely well-developed legal and financial infrastructure for trust management. Jersey has approximately 900 regulated trust company businesses and total trust assets looked after on the island total GBP400bn.
The emphasis today has shifted away from the very simple trust and underlying company structure for UK families, to high value and more complex structures involving trusts, companies, limited partnerships and now foundations for international families.
Jersey trusts are governed by The Trust (Jersey) Law 1984, which codified trust law largely along the lines of English-based common law. "Purpose" trusts were recognized in 1996.
The following types of trust can be formed in Jersey:
- Discretionary trusts and interest in possession trusts;
- Reserved powers trusts (where the Settlor reserves to himself or herself certain powers, rather than entirely vesting them in the trustee on establishment);
- Unit trusts (including property unit trusts);
- Charitable trusts;
- Non-charitable purpose trusts (these trusts have an additional requirement of an enforcer? whose role is to enforce the purposes); and
- Accumulation and maintenance trusts (used where funds are being set aside for minor beneficiaries such as grandchildren).
There is no rule against perpetuities for a Jersey trust, and a Jersey trust may continue in existence for an unlimited period. There are no registration requirements for Jersey trusts.
A Jersey trust may have non-Jersey individuals or entities as trustees, and there is no Jersey tax for non-resident beneficiaries on capital gains, bank interest from Jersey-based accounts and non-Jersey sourced income.
Private trust companies are commonly used in Jersey and are subject to lighter regulation than professional trust companies.
The latest amendment to Jersey's trust legislation came into force on October 25, 2013, strengthening the territory's legislative framework and providing greater clarity for the courts, practitioners and those who work with or benefit through Jersey trusts.
The effect of Trusts (Amendment No. 6) (Jersey) Law 2013 is to confirm the Royal Court's ability to provide discretionary relief in a number of trust scenarios, e.g. where a settlor has made an error in settling assets into trust, or where a trustee has erred in exercising a power, perhaps failing to take into account matters which should have been considered, or acting on incorrect professional advice.
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.
There has been a steady stream of interest in Jersey's foundation law since its introduction. By April 2013, the number of foundation structures registered in Jersey had breached the 200-mark. Around a third of these have been formed for philanthropic or charitable purposes, with a further third being used specifically by ultra-high-net-worth families as wealth and inheritance planning structures. Foundations are also being used for commercial purposes, for holding high value or luxury assets.
An additional 21 structures were formed in the first quarter of 2014, around 60 percent higher than the overall average rate of quarterly formation during the previous five years. At this time, more than 250 Foundations had been established in Jersey since the law came into force in 2009, with around a third of those having a charitable or philanthropic objective.
Relative to specialist insurance jurisdictions like Bermuda and Guernsey, Jersey's insurance sector is small. However, supported by a flexible legislative regime and a wide range of expertise and ancillary support services, it is a sector that is growing.
The Insurance Business (Jersey) Law 1996 ensures that the insurance supervisory regime in Jersey is in accordance with best international practice and standards whilst at the same time recognising the need to adopt a flexible approach to the authorisation and regulation of the different types of insurance business being undertaken in Jersey. For example, Jersey was the first international finance centre to introduce the concept of the incorporated cell company (ICC) into legislation in 2006 alongside an enhanced version of the traditional protected cell company (PCC).
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.
Jersey also permits the formation of "pure" captive insurance companies for larger entities looking to self-insure, and reinsurance companies.
Jersey has chosen not to seek equivalence with the EU Solvency II insurance regulation, but follows the international standards set by the International Association of Insurance Supervisors.
Transparency And Information Exchange
Jersey, like the other UK Crown Dependencies, decided early on that it was better to cooperate with the likes of the OECD, the EU and other plurilateral groups in their efforts to "clean up" the world of offshore than to resist. And it is a policy that has paid dividends. Jersey is consistently ranked as one of the most transparent and cooperative jurisdictions (some say that it is now more transparent than the UK and other "onshore" financial centres, including the OECD itself), and its reputation as such has helped to draw in business across a variety of sectors from all over the world.
In July 2013, Jersey was congratulated by the OECD for the measures it has taken in support of international transparency. In a letter to Jersey's Chief Minister, OECD Secretary General Angel Gurria made particular reference to the joint statement issued by the Crown Dependencies on June 15, 2013, in which the Island committed to join the pilot initiative of multilateral automatic tax information exchange launched by the UK and four other EU Member states, to publish an action plan on beneficial ownership and to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
In May 2015, Gurria told an audience of more than 400 senior private client tax, trust, and wealth management professionals at the event in London that Jersey has done a "tremendous job" in contributing to the international tax agenda. "We aim to deliver a level playing field for all jurisdictions and Jersey was one of the best and first in grabbing this opportunity to shape the agenda," he said.
Jersey currently holds a central register of beneficial ownership of companies, and companies and trusts are required by statute to maintain up-to-date and accurate information on the ownership of those for whom they act. All the information held in the Island is available to tax authorities and law enforcement agencies on request.
Jersey has also expressed support for the OECD's new single global standard for the automatic exchange of information between tax authorities worldwide, which was unveiled on February 13, 2014.
Furthermore, Jersey has completed automatic tax exchange agreements with the United States and with the United Kingdom, committed to join the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters and completed 35 TIEAs and 8 DTAs.
Jersey also moved to tighten its anti-money laundering law in 2013 to align the Jersey Order with certain revised recommendations from the FATF.
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