There is growing interest among asset managers in the benefits of relocating all or part of their business to an offshore jurisdiction. High among the list of candidates is Jersey in the Channel Islands.
This Briefing has been prepared for asset managers interested in the benefits of setting up their business in Jersey and will summarise some of the practical considerations that should be borne in mind when contemplating such a move.
The benefits of setting up an asset management business in Jersey
Attractive taxation regime
Jersey offers an attractive taxation regime for both businesses and individuals. There are no taxes on capital gains, inheritance or gifts, and income tax rates are significantly lower than in the UK: Jersey-based fund management companies are subject to an income tax rate of 0%, and Jersey-resident individuals are subject to a standard income tax rate of 20%.
For high net worth individuals moving to the Island, the regime is even more attractive. A concession is available in respect of non-Jersey income over a threshold amount such that it may be subject to a rate lower than the standard rate of 20%. Under the arrangements, all Jersey income (subject to personal allowances) and the first £1,000,000 of non-Jersey income is charged at a rate of 20%, but the next £500,000 of non-Jersey income is taxed at a reduced rate of 10% and any non-Jersey income over the sum of £1,500,000 is charged at the rate of just 1%.
Access to funds business
Asset management businesses located in Jersey are well placed to act for Jersey and non-Jersey funds alike.
The most frequently established fund in Jersey is the Expert Fund. Expert Funds are subject to fewer constraints than other collective investment funds on the basis that they are marketed to "expert investors" (as defined in the Jersey Expert Fund Guide) which, among other things, includes any person committing to invest at least US$100,000 (or its currency equivalent) in the fund. Expert Funds have been designed to provide a flexible, "fast track" procedure for the establishment of investment funds in Jersey and are aimed at sophisticated, institutional and high net worth investors. Under the fast track approval process, regulatory approvals are usually issued within three working days from the date they are submitted to the Jersey Financial Services Commission.
Once authorised, Jersey-based fund asset managers can also be appointed to non-Jersey domiciled funds, so there is no need for funds to be relocated with the asset manager. There is no prior approval process before new appointments are accepted, though the funds themselves may require limited approval in certain circumstances (for example, if a prospectus is to be circulated in the Island or if units in the fund are to be registered in the Island).
Jersey's geographic location makes it convenient to do business with the UK and the rest of Europe. It is located within an hour's flight of London and there are regular flights to Dublin, Paris, and Geneva. Jersey and the UK are both part of the same time zone so asset managers need not be concerned with time differences when dealing with their UK colleagues and clients.
Jersey has a strong and well-developed infrastructure, with many experienced service providers on hand to support a newly relocated asset management business. Each of the large accountancy firms maintains a presence in the Island and there are legal, custodial, banking, administrative and corporate secretarial services available from a range of top quality providers.
Regulation of the financial services industry is conducted by the Jersey Financial Services Commission, a mature and well-respected authority which works closely with other regulators, including the FSA.
The G20 summit recently confirmed that Jersey is in the top tier of jurisdictions which meet the highest standards of transparency and regulation. Jersey now sits on the OECD's 'white list' of countries that have substantially implemented the internationally agreed standard on exchange of information for tax purposes.
Jersey has received independent endorsement both for the quality of its financial regulation and its co-operative approach to highlighting money laundering and fiscal crime from the Financial Action Task Force, the Financial Stability Forum and the IMF.
In addition to the commercial benefits of running a business in Jersey, those individuals moving to the Island will benefit from an exceptionally high standard of living. The Island enjoys very low unemployment, a low crime rate, excellent private and public schools and a quality healthcare system. The town of St Helier is Jersey's capital and offers great shopping, many fine restaurants and an active nightlife. The Island itself is beautiful with a warm climate, clean waters and miles of sandy beaches, attracting visitors all year round.
New arrivals will notice that there is a strong UK influence on the Island and for UK individuals it will seem very close to home in a number of ways. The Island is English speaking, the currency is the British pound, the town has many of the names that you would find on a UK high street, cars drive on the left and television programming is largely the same.
Regulation of new businesses
New businesses in the Island will generally require a licence from the Minister for Economic Development under the Regulation of Undertakings and Development (Jersey) Law 1973 which requires any trade, business or profession, whether or not carried on for profit, and wherever carried out in the Island, to have a licence before commencing or engaging additional staff.
Under the published policy statement, the criteria against which applications will be assessed are:
- the pressure to be placed on the Island’s resources;
- the need to maintain a balanced and prosperous economy;
- the need to maintain a range of job and training opportunities for local residents and school leavers;
- the importance of the service rendered to local residents; and
- the track record of the undertaking in terms of profitability, and its contribution to tax revenues.
The Minister will also have regard to local competition laws and, as far as possible, to wider objectives with a particular emphasis on encouraging environmental responsibility as a key element of managing demand on resources.
A licence to engage staff will usually be for a defined period (e.g. three years) and will specify the number of staff who can be engaged. Once granted a licence, an undertaking is free to manage staff numbers within the terms of that licence. An undertaking is also free to apply for additional staff at any time.
Separately from issues relating to doing business in the Island, the question of work permits needs to be considered. British citizens and nationals of EEA Member States will not require a permit to work in the Island, but persons from other jurisdictions are required to have a visa and a work permit under the Immigration (Work Permits) (Jersey) Rules 1995 before entering Jersey for employment.
Financial services regulation
Asset management businesses in Jersey are required to be licensed by the Jersey Financial Services Commission for the conduct of investment business and, where the services are being provided to collective investment funds, fund services business. The primary legislation is the Financial Services (Jersey) Law 1998.
Applications for licensing are considered by the Commission in accordance with their published licensing policy. The Commission is required to satisfy itself that the applicant is a fit and proper person to be licensed and will look to (among other things) the integrity, competence, financial standing, structure and organisation of the applicant and the principal persons and employees of the applicant. Each application is considered on its own merits. As a good starting point, an applicant should:
- be able to demonstrate a minimum of 3 years' relevant and satisfactory experience as a regulated person in a jurisdiction of equivalent regulation to Jersey;
- have a satisfactory audit history; and
- have a well established and stable management team with the necessary skills in respect of corporate governance and conduct of business matters relevant to the proposed regulated activity.
A minimum of at least six weeks (from submission) should be allowed for applications made for licensing and applicants are encouraged to approach the Commission at a preliminary stage before submitting a formal application.
Due to the finite availability of private accommodation in Jersey, the Jersey government has long had in place housing legislation that restricts who can buy or rent accommodation in Jersey. Generally speaking, there are three categories of property available in Jersey: "A-H" properties, which are reserved for residentially qualified (local) persons, "J-Category" properties, for those non-locally qualified but who are 'essentially employed' in the Island and "1(1)(k)" properties, that may be taken up by high net worth individuals.
For asset management businesses looking to employ people from outside of Jersey (and subject to the business having the necessary Regulation of Undertakings and Development licence) it will be of some importance that their employees can lawfully occupy or purchase a residence in the Island. In such cases, an application for one or more J-Category or 1(1)(k) consents from the Minister for Housing would most likely be required.
In practice, the factors taken into account in assessing whether or not a J-Category consent should be granted include the expected economic contribution of the employer, the ability, qualifications and experience of the proposed employee, the importance of the post and availability of suitable candidates from within the local labour market.
High net worth individuals may secure Jersey housing qualifications and the right to purchase property in the Island on the condition that consent can be justified on social or economic grounds. In this context, it is the strategy of the Island's government to encourage 1(1)(k) applications to Jersey from suitable applicants. To this end, a Director of High Value Residency, Nigel Philpott, has been appointed by the Economic Development Department.
A 1(1)(k) consent is normally issued once the Housing Minister is satisfied that the applicant will make a major contribution to the Island's tax revenues if permitted to reside in Jersey. Each application is measured on its individual merits, with the guideline minimum annual tax contribution being expected to be no less than £100,000. The criteria against which 1(1)(k) applications are currently measured are as follows:
- the probable contribution to tax revenues;
- the business/social background of the applicant;
- the number of dependants of the applicant and the extent to which these persons may in time acquire housing rights if consent is granted;
- other, non-economic, benefits which the Island may receive if consent is granted;
- the total net worth of the applicant; and
- the possibility of the applicant bringing a business to the Island which will generate tax revenues and provide employment whilst not adversely impacting upon the Island's resources.