Jurisdiction
Special Focus: JERSEY
by Jason Gorringe
The
largest and most southerly of the Channel Islands between
England and France, Jersey is a self-governing British
Crown Dependency, with a population of around 91,084
(July 2006 est.) expatriates and residents. Despite
being only 45 square miles, it is as bustling and active
as offshore jurisdictions many times its size, and the
moderate climate means that outdoor activities such
as golf, swimming, water-sports, and cycling, are enjoyed
by all its citizens.
As is the
case in all of the Channel Islands, Jersey is exceptionally
politically stable, and dealings with the United Kingdom,
(which is responsible for its external affairs, such
as dealings with the European Union), and with its peers
are always cordial and respectful. The currency is the
Jersey pound, which is on a par with the British pound,
and there are no exchange controls.
In terms
of living costs, prices are broadly the same as in the
UK, although there is some divergence. Certain items,
for example foodstuffs, are more expensive as a result
of the various costs incurred in transportation. However,
other goods benefit from the lack of VAT, and low level
excise duties on the island. Housing is one major area
in which prices are usually significantly higher than
in the United Kingdom.
Jersey
has a reasonably settled relationship with the multilateral
organisations of the moment, namely the EU, the Financial
Action Task Force (FATF), and the Organisation for Economic
Co-operation and Development (OECD), although there
was some friction with the latter in the early stages
of its 'harmful tax competition' initiative.
The island
is not a member of the European Union, and as such is
not necessarily obliged to comply with the Union's various
tax initiatives, although the UK often tries to exert
pressure on it to do so, as can be seen below. Despite
its close relationship with the UK, Jersey is excluded
from most of the effects of Britain's accession to the
EU, other than those concerning trade in goods. Its
constitutional position in relation to Europe cannot
be changed without the unanimous agreement of all EU
member countries, which of course includes the UK, which
never legislates regarding Jersey without consultation.
Jersey
was described on the occasion of the release of the
first FATF 'uncooperative countries' blacklist as being
in 'close to complete adherence' with the organisation's
forty anti-money laundering recommendations, and the
jurisdiction is one of the most respectable and long-established
of all the offshore financial centres.
It came
as a surprise, then, when in Summer 2000, Jersey and
Guernsey were included on the first OECD blacklist,
accused of employing 'harmful tax competition' because
they had refused to sign a letter committing themselves
to abiding by the rules laid down on taxation by the
organisation.
Jersey
signed a 'commitment' letter to the OECD in February
2002, but it contained an 'Isle of Man' level playing
field clause making changes dependent on comparable
changes in Switzerland and the USA. By mid-2003, the
OECD seemed to have forgiven Jersey, and was assisting
it to design a nil% corporate tax system.
Jersey's
unique situation with regard to the EU is both a strength
and a weakness. The island will remain a favoured base
for holding and trading companies working into the EU,
and for e-commerce activity; but it has the EU and the
OECD to contend with.
After several
years of 'hands-off' policy in regard to Jersey taxation,
the UK government in 2002 threatened Jersey with sanctions
if it didn't fall in line with EU information-sharing
rules. In May, 2002, it became clear that Jersey, along
with its fellow UK dependent territories Guernsey and
the Isle of Man, was ready to sign up to the EU information-sharing
regime if that became necessary; but after the EU finally
reached its compromise agreement on the Savings Tax
Directive in early 2003, Jersey decided, along with
Guernsey and the Isle of Man, to apply a withholding
tax to the returns on personal savings for EU residents.
This is
known locally as a 'retention' tax, and has been levied
at 15% since the Directive came into force in July,
2005.
Jersey's Advantages
Jersey
is particularly well known for its banking and trust
sectors, and the long established nature and popularity
of these areas of expertise has meant that a good financial
and business infrastructure has been established. The
Jersey Financial Services Commission's quarterly report
for the period to 30th June 2006 showed that almost
50 banks held bank deposits of GBP183 billion.
Meanwhile,
Lipper Fitzrovia research revealed that US$154.2 billion
(GBP83.4 billion) in 1,159 funds and subfunds were being
serviced in Jersey, as at 30 June 2006, an increase
of 94% over five years - up from US$79.6 billion (GBP56.6
billion) as at 30 June 2001.
So is Jersey
a suitable location for your assets? Should you establish
a business presence there? It depends…due to a
number of factors, including time zone, and language,
which it shares with all of the Channel Island jurisdictions,
Jersey is most suitable for UK (non-resident) expatriates,
foreign residents living and working in the UK, expatriate
consultants and business people and European citizens.
However,
if you belong to any of the above groups, and have liquid
assets which you would like to protect for the future,
would like to establish a personal service company,
or would simply like to take advantage of the tax advantages
afforded to non-residents, then it could well be ideal.
Below are just some of the factors in Jersey's favour:
- Favourable
Location. As previously stated, Jersey is conveniently
located for both Western Europe and the United Kingdom,
being both within spitting distance of France and
the UK (depending on how far you can spit, that is!).
The climate is moderate, and political stability is
a key advantage.
- Double
Tax Treaties. In common with many offshore and
low tax jurisdictions, Jersey does not enter into
a great number of double taxation agreements. However,
there are agreements in place with the United Kingdom
and Guernsey (which do not follow the OECD model).
There is also a limited agreement with France, which
exempts shipping and air transport profits from tax.
- Regulatory
Environment. Thus far, all of the Channel Island
jurisdictions have a good reputation in the offshore
world which they intend to keep, and as such it is
in their interests to maintain a high regulatory standard.
The financial sector in Jersey (which takes in banking,
investment funds, insurance, and in some cases trust
and company management) is regulated by the Financial
Services Commission. Tellingly, unlike many other
jurisdictions, Jersey banking law contains capital
adequacy provisions tougher than those contained in
the Basle requirements.
- Infrastructure.
As previously stated, the business and financial infrastructure
in Jersey is modern, efficient, and extensive. They've
been doing it for a long time, and they do it well.
- Online
Facilities And Telecommunications. Although until
relatively recently, Jersey was not particularly noted
in terms of online and e-commerce facilities on offer
- perfectly respectable, and able to acquit itself
compared to many offshore jurisdictions, but nothing
special - the island has gone to great lengths to
enhance its telecommunications system, and has invested
millions per year in e-commerce development and telecoms,
meaning that whether you want to check up on your
business presence on the island, or just want to contact
your bank manager, you should have no problems accessing
a fast and reliable service. It seems that it may
only be a matter of time before Jersey establishes
itself as a Western European e-commerce hub, with
the inherent affinity between offshore and the internet
facilitating this.
- Established
Stock Exchange. Jersey is a member of the Channel
Islands Stock Exchange, which is based in St Peter
Port, in Guernsey, and commenced operations in 1998.
In
October 2005, the CISX announced its 1000th listing,
that of Man Global Strategies Investment Strategies
Ltd. The market capitalisation of the CISX, as at
December 2004, was in excess of US$28 billion. 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.
In September, 2002, the US Securities and Exchange
Commission awarded the Channel Islands Stock Exchange
(CISX) designated offshore securities market status.
Wealth
Management In Jersey
Although
Jersey is widely recognised in the institutional investment
world as one of the leading jurisdictions for pensions
and insurance fund management, other areas of expertise
perhaps more of interest to expats, international consultants,
and HNWI include its banking sector, and its company
and trust formation sectors.
The majority
of the banks established in Jersey are branches or subsidiaries
of the world's top banking establishments, and as previously
mentioned, are in the main well regulated and safe,
with capital adequacy levels not seen in many offshore
jurisdictions. Advantageous tax treatment of interest
income from Jersey bank accounts - excepting, of course,
the STD related retention tax - combined with this peace
of mind, means that alone, or in combination with other
offshore structures, bank accounts in Jersey are a good
bet.
The efficient
infrastructure, which includes internationally qualified
IFAs, accountants, lawyers, and stockbrokers, is also
an important factor, and they should be able to provide
you with information and support both in deciding whether
it is appropriate to locate your assets in Jersey, and
in the succeeding years if you choose to do so.
Jersey
can also be a beneficial location in which to establish
an offshore structure, whether for the purposes of asset
protection, or to serve as a business presence for global
consultants and other such self-employed professionals.
Due to the burgeoning e-commerce sector, it was becoming
possible to establish a personal services company in
Jersey (usually in the form of an IBC) to act as a repository
for funds earned around the world, and to take advantage
of the island's generous tax regime.
However,
in accordance with Jersey’s commitment to the
‘Rollback’ provisions of the EU Code of
Conduct for Business Taxation, the International Business
Company vehicle was abolished to new entrants with effect
from 1st January, 2006. Benefits for existing beneficiaries
of the International Business Company regime will be
progressively extinguished by no later than the 31st
December 2011.
In any
case, tax evasion or money laundering via a Jersey offshore
structure would be very difficult to accomplish, as
beneficial ownership for all Jersey based companies
and vehicles must be disclosed to the authorities. However,
it will never be disclosed externally except by order
of the Royal Court. Tax minimisation, in conjunction
with the laws of the island, however, is eminently possible.
Obviously,
though, you will need assistance in setting up and maintaining
these structures, and what is appropriate for you will
vary according to your personal circumstances and country
of residence, so you should always consult a qualified
professional before making any decision of this kind.
Permission
to reside in Jersey on employment grounds (about which
more later) is often negotiated when applications are
made to establish a business presence on the island.
Probably
the most appropriate vehicles in Jersey for expats or
non-UK citizens in need of asset protection for estate
planning or other purposes (and in addition to, or in
combination with a Jersey bank account), is the Jersey
trust. The normal form of trust in Jersey is a discretionary
trust, and where the beneficiaries of the trust are
non-resident, income arising from sources outside Jersey
are not liable for income tax there, and neither are
distributions to the beneficiaries.
Although
the costs involved in setting up and maintaining a Jersey
trust can vary considerably, the creation of such a
structure is free from government duty at least. Trust
law in Jersey explicitly excludes foreign inheritance
laws, and except in cases of proven criminal wrongdoing,
foreign judgements are rarely recognised.
Jersey As A Location For Career Expats And Retirees
Jersey,
in common with some of the other island jurisdictions,
for example Guernsey, the Isle of Man, Bermuda, and
the Cayman Islands, has a good standard of living but
limited space and resources as a result of a comparatively
dense population.
Therefore,
although it is possible to achieve short-term residence
for employment purposes, or long term residence if you
are suitably qualified (in either the traditional or
financial sense!), achieving permanent residence in
Jersey is no mean feat…
Obtaining Permission To Live And Work In Jersey
For the
majority of expatriates, the two issues mentioned above
are inextricably linked, as there are really only two
ways to obtain residence on the island; on economic
grounds, or on employment grounds.
Initial
enquiries regarding the possibility of gaining residence
on economic grounds should be made to the Chief Advisor
to the States of Jersey, as each case is considered
on its individual merits. The Chief Advisor then consults
with the Housing Committee. Although there are no hard
and fast rules about who will be accepted, and normally
only 5 or 10 approvals are granted each year, the following
criteria may be considered when the application is being
processed:
- Likely
contribution to tax revenues (usually capital worth
in excess of £10 million is preferred)
- Professional
and social background
- Number
of dependants
- Non-economic
benefits which may be received by the island if permission
is granted.
In addition
to this, new residents accepted on economic grounds
are expected to purchase a substantial luxury property,
preferably with a value in excess of hundreds of thousands
of pounds.
Achieving
permission to reside and work on the island is a less
expensive business, certainly, but is still not easy!
Nationals of EU member states have free right of movement
in Jersey, and do not need to apply for work permits
(non-EU member country citizens must apply to the States
Defence Committee of the Aliens Office for permission
to reside and work on the island), but employers still
need to apply for a license in order to employ them.
Residence
in Jersey as an essentially employed individual is known
as 'J category' residence, and permission is usually
granted if the Housing Committee feels that it is in
the best interests of the community to approve the application,
if the employer has a good record in recruiting and
training local people, if no suitably qualified local
can be found to do the job, and finally, if the aforementioned
licence has been granted to the employer.
If the
Housing Committee is satisfied with an applicant, it
will issue either time-restricted (usually 3-5 years),
or open-ended consent. The former is more typical, although
the latter is sometimes offered to senior or highly
skilled employees, and permanent residential status
is afforded after 10 years of continuous essential service
on the island.
The Housing
Committee also has the authority to grant or withhold
permission to buy or rent property in the jurisdiction
for J category employees, and can sometimes require
employers to purchase or lease property in order to
house their expatriate workforce.
Although
in view of the limited space and resources available,
and the desire to maintain the standard of living of
existing residents, Jersey is of necessity not terribly
family friendly, it is possible for the fiancé(e)
or spouse of an expatriate who is coming to live and
work in Jersey, to obtain entry by applying for a visa
or entry certificate. Children of economic or J category
migrants obtain residential status in their own right
after an aggregate period of 10 years residence, provided
that that residence began when they were under 18.
Residence And Taxation
Residence
in Jersey for taxation purposes is divided into three
categories: Residence, Ordinary Residence, and Non-Residence.
Few jurisdictions employ the concept of ordinary residence
any more, but it is not complicated, and really just
implies a greater continuity than simple residence.
A person is considered to be Jersey resident for tax
purposes if they are:
- Physically
present there for more than six months of the year
- Present
in Jersey for an average of at least 3 months per
year over a 4 year period
- Maintaining
an abode in Jersey and visit the island at all
Income
tax is levied at one rate of 20%, and resident and ordinarily
resident individuals are subject to tax on their world-wide
income. Resident but not ordinarily resident individuals
are subject to tax on Jersey-source income and foreign
income remitted back to the island, and non-resident
individuals are taxed only on Jersey income, with interest
payments from Jersey based bank accounts exempted from
this by concession (but see above regarding the EU's
Savings Tax Directive).
Although
social security contributions are payable, and property
owners may be liable for some parish taxes, there is
no property tax, capital gains tax, wealth tax, or estate
tax payable in Jersey, which may account for its popularity
as a destination for HNWI.
For more
detailed information on liability for tax in Jersey,
please visit the Lowtax
Jurisdictions Guide.
Conclusion
So, is
Jersey a good final destination for you, your assets
or your business? Unfortunately, on the first question,
no definitive answer can be given, as the answer will
depend very much on your personal circumstances, wealth,
qualifications, and family situation. Each application
is considered on its individual merits, and because
of the high standard of living and relative wealth of
the jurisdiction, it is quite a popular choice. But
at the same time there are relatively few opportunities
for obtaining permanent residence available. However,
it is possible, so if you have a substantial liquid
net worth, and are prepared to contribute to the community,
or if you are a skilled career expat, used to moving
around fairly frequently, it could be just the place
for you.
On the
issue of whether Jersey is a good location in which
to locate your assets and/or personal service company,
however, there really isn't much dispute. Although obviously
there are no guarantees in the offshore world, especially
with the OECD vacillating on various issues, Jersey,
in common with the other Channel Islands has a reasonably
calm relationship with the major multilaterals, is politically
stable, experienced in the areas of trust management,
company formation and administration, and banking, and
should present no problems in the areas of telecommunications
or support services. It isn't the cheapest jurisdiction
in which to locate an offshore vehicle, but neither
is it one of the most expensive; all in all, Jersey
strikes a good balance.
For up-to-date
news about the offshore and taxation regime, visit the
Jersey
section of Tax-News.com.
Other Useful Links:
This
Is Jersey
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