Issue No.6
Finance Update For international investors and their advisors
Jersey's international appeal as a finance centre
Jersey Finance
Finance Update: For international investors and their advisors
Contents
Contents Jersey's international appeal as a finance centre................................................1 Pole position for listings........................................................................................ 3 Corporate tax regime receives thumbs up from EU......................................... 4 New partnerships bring new options and opportunities................................ 5 Philanthropy in Jersey................................................................................................6 Trusts: Securing a successful succession........................................................... 7 Structuring for wealthy international families................................................. 8 Outsource to grow and go global............................................................................9 An alternative destination for Alternative Investment Managers..................10 Jersey's TIEA with India....................................................................................... 11 Mudarabah and Jersey limited partnerships................................................... 12 Solutions for high net worth individuals from China..................................... 13 Singapore interest in Jersey wealth planning structures...............................14 A voice for Jersey in Europe.................................................................................15
www.jerseyfinance.je
Jersey Finance
Finance Update: For international investors and their advisors
Introduction
Jersey's international appeal as a finance centre Jersey has just celebrated the “50th anniversary of its modern financial services industry – its international appeal is now stronger than ever
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By Geoff Cook Chief Executive, Jersey Finance
Jersey’s 50 year pedigree as an international finance centre is proving to be an attractive feature to those seeking a jurisdiction of substance when choosing a location. A number of other factors are also playing a part in developing Jersey's international appeal further, such as Jersey's commitment to fighting fiscal crime; confirmation that Jersey’s revised zero-ten corporate tax regime has a long term future; increasing evidence that Jersey investment structures are ideal for listing purposes and a growing interest among Asian investors in the investment structures used in wealth planning strategies. In the most recent Global Financial Centres Index, Jersey continues to feature as the number one offshore jurisdiction, thanks to the expertise of its workforce and its long term reputation. It has also entered the top ten of jurisdictions for wealth management and private banking and is now ranked fifth among European locations behind London, Zurich, Geneva and Frankfurt. Regulation and tax information exchange One of the factors that is helping Jersey to retain this leading international position is its stance in the fight
against fiscal crime. It is committed to the global drive for greater transparency whilst not compromising the rights to confidentiality of legitimate clients. In a comprehensive report published recently by the World Bank and United Nations Office on Drugs and Crime, Jersey’s effective procedure for identifying beneficial owners of companies was positively singled out. The report stated that "of the 40 jurisdictions reviewed only one – Jersey – required the beneficial owner to be identified and recorded by a government body, the Companies Registry within the Jersey Financial Services Commission". Jersey’s procedures were then used in a case study within the report. Jersey continues to sign Tax Information Exchange Agreements, the most recent being important agreements with India and Japan, the 13th and 14th signed with G20 nations. There are more in the pipeline. In a report from the Financial Stability Board to the G20, Jersey is a jurisdiction in the top tier for demonstrating strong adherence to international standards of regulation and information exchange. The Financial Action Task Force also has Jersey in the top tier.
than 90 Jersey companies are listed on leading stock exchanges, “More with a combined market capitalisation of more than £135 billion ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Introduction
In the most recent Global Financial Centres Index, Jersey continues to “ feature as the number one offshore jurisdiction, thanks to the expertise of its workforce and its long term reputation ”
Serving both corporate and private clients Jersey continues to provide the regulatory conditions and legislative armoury required to support the needs of financial institutions and other corporate clients, as well as high net worth individuals and their families. Continuous innovation and development means international investors have more choice when working with practitioners in Jersey. New Limited Partnership legislation, for example, has broadened the choice of options for fund promoters. During the debate on the Alternative Investment Fund Managers Directive, Jersey has used the opportunity to streamline and innovate its fund offering. The provision of a new private placement fund is being worked on, which will improve speed to market and ease of formation.
In the wealth management sector, new trust law amendments are imminent, whilst Jersey foundations, which now number more than 100, mean that Jersey now has even broader appeal in the major economies in the Far East and India. Jersey is also ideally placed to meet the increasing demand for investments with philanthropic objectives. Jersey companies continue to be a preferred choice for institutional clients, particularly those seeking to invest in the West. Chinese investment in Jersey is growing rapidly for example. Nearly £9 billion of banking deposits held in Jersey are from Greater China and the Far East. Three influential deals have been listed on the Hong Kong Stock Exchange since approval was given for Jersey holding companies to list on it. Worldwide there are more than 90 Jersey companies listed on leading stock exchanges, with a combined market capitalisation of more than £135 billion. An attractive domicile For business owners Jersey offers quality of location too, thanks to numerous factors including a stable business tax system, revisions to which have recently obtained approval from the EU’s Code of Conduct Group; premium but affordable office space; an excellent education system; health and housing opportunities and a beautiful natural environment. In particular Jersey is an attractive domicile for fund managers and boutique providers of international financial services. Jersey has just celebrated the 50th anniversary of its modern financial services industry. Its international appeal is now stronger than ever. During the year ahead Jersey Finance and its Members will continue a programme of visits to London, Continental Europe, Russia, the Gulf, India, China and other parts of the Far East. Should any of the Jersey Finance hosted events be of interest to you, please let us know. Full details of our events programme can be found at www.jerseyfinance.je/events. ■
an attractive domicile for fund managers and boutique “Jersey isproviders of international financial services ” www.jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Listings
Pole position for listings With just under 100 companies listed on “worldwide stock exchanges and a combined market capitalisation exceeding £135 billion, Jersey holding companies continue to be very popular as listing vehicles
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By Heather Bestwick Technical Director, Jersey Finance
With just under 100 companies listed on worldwide stock exchanges and a combined market capitalisation exceeding £135 billion, Jersey holding companies continue to be very popular as listing vehicles. Despite the volatility of the financial markets since the global financial crisis, companies seeking to raise capital have a wide choice of exchanges on which to list, and a similar range of jurisdictions in which to incorporate their listing company. Jersey’s pole position can be explained as follows:
■ S cottish Salmon: Scotland’s leading independent salmon farming company is listed on the Oslo Axess market and has applied to transfer to the main list ■ G lencore: the world’s largest commodities trader is listed on the London Stock Exchange
■ There is no stamp duty payable on share transfers
Following the turmoil in US and European markets, many companies have looked to Asia. The Hong Kong Stock Exchange is the world’s largest by market capitalisation, and Jersey has been formally approved as a jurisdiction for admission. A notable example is West China Cement, which became the first Chinese business held through a Jersey company to list on the Hong Kong Stock Exchange.
■ Shares can be held uncertificated and traded on CREST
Other Jersey companies on different exchanges include:
■ The Takeover Code applies
■ C ircle Holdings plc, which has the majority shareholding in the Circle UK healthcare group and was admitted to the LSE AIM
■ J ersey companies provide tax neutrality and do not have to withhold on dividends
■ J ersey companies law is based on that of England, but with more flexibility The strength and depth of the legal and financial services providers in Jersey, coupled with the fact that Jersey is in the same time zone as the UK (thus catching trading in Hong Kong and New York), are additional factors which enhance Jersey’s proposition. So where are Jersey companies used? Over the past five years, many multinational companies have chosen to list on exchanges further afield than before, as a means of expanding into other markets and seeking new investors. These include:
■ R angold Resources Limited, a gold focused mining and exploration business, listed on both NASDAQ and the LSE Many other Jersey companies are listed on Euronext, the Australian Stock Exchange and the Toronto Stock Exchange. At a time when investors are moving back to exchanges and away from ‘dark pools’, and regulators are being called on to mitigate risks from technological advances in trading technology, investors can at least continue to be comfortable with the Jersey holding company as the listing vehicle of choice. ■
The strength and depth of the legal and financial services providers in Jersey, “ coupled with the fact that Jersey is in the same time zone as the UK, thus catching trading in Hong Kong and New York, are factors which enhance Jersey’s proposition ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Tax
Corporate tax regime receives thumbs up from EU Certainty over corporate “taxation coupled with its top class regulatory environment is essential to maintaining Jersey’s status as a leading international finance centre By Neil Oliver Director, Ernst & Young
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It is said that in life only two things are certain; death and taxes. For a jurisdiction that has built its reputation on a low tax regime, the EU code group’s challenge to Jersey’s corporate tax regime had the potential to be unsettling for Jersey’s taxpayers. International organisations looking to structure their business and managers seeking to set up investment funds look for certainty when selecting a jurisdiction, so certainty over corporate taxation coupled with its top class regulatory environment is essential to maintaining Jersey’s status as a leading international finance centre. It is excellent news that any uncertainty regarding Jersey's zero-ten corporate tax regime has now ended. At its meeting in September 2011, the EU Code of Conduct on Business Taxation Group accepted that Jersey’s proposal to end shareholder taxation through attribution of profits or deemed dividends would remove the harmful effects of the zero-ten corporate tax. This decision was ratified by ECOFIN in December 2011 thereby strengthening Jersey’s position as a market leading jurisdiction for the establishment of companies and funds. This is undoubtedly a very welcome and positive development for Jersey. Jersey has always sought to maintain its general zero percent rate of income tax for companies. Tax neutrality is extremely important for maintaining its competitive position. It allows
businesses to structure commercial operations in Jersey secure in the knowledge that there will be no taxation burden. Recent legislation has ensured that this neutrality would be maintained for funds and similar vehicles. The EU announcement is good news for other sectors of Jersey’s finance industry ensuring that a simple system of tax neutrality will maintain Jersey’s attraction to all international businesses. The cost of repealing the shareholder taxation rules is limited to a cash flow effect to the extent that profits continue to be distributed to Jersey resident shareholders. The economic benefit of a neutral regime and the business it attracts to Jersey should compensate for the £10 million loss of tax which has been budgeted for. Clarity over corporate taxation positions Jersey extremely well to prosper in the future. Jersey has maintained throughout that zero-ten remains a viable, strong tax regime that is easily understood by service providers and their clients and at the same time ensures that Jersey offers stability and remains competitive with other jurisdictions. The EU's decision gives finance firms even greater confidence in Jersey as a solid, robust and attractive centre in which to do business. ■
Jersey has maintained throughout that zero-ten remains a viable, “ strong tax regime that is easily understood by service providers and their clients and at the same time ensures that Jersey offers stability ” www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Legal
New partnerships bring new options and opportunities The SLP and ILP laws have “been tailored to reinforce the existence of separate legal personality and body corporate status before foreign courts By Daniel O’Connor Partner, Carey Olsen
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Jersey has introduced two new forms of limited partnership. A separate limited partnership (SLP) is a legal person, similar to a Scottish limited partnership. An incorporated limited partnership (ILP) is a legal person and a body corporate. Carey Olsen registered the first of the structures (an SLP) in 2011 and others have followed since. The ‘traditional’ Jersey limited partnership (JLP) is treated as transparent for all UK tax purposes and counsel's advice is that SLPs and ILPs will receive the same treatment. The SLP and ILP laws have been tailored to reinforce the existence of separate legal personality and body corporate status before foreign courts: ■ A n SLP is a legal person whose capacity is not limited and which can sue and be sued in the name of the SLP or its general partner (GP); ■ A n ILP is a body corporate with perpetual succession and unlimited capacity, which can only be dissolved in accordance with detailed (company style) winding-up provisions or Jersey's insolvency legislation. The GP is the agent of the ILP, owes duties to the ILP (as well as to other partners) and has liability for ILP debts only after the ILP has defaulted. The SLP and ILP are ideal as carried interest and other profit distribution structures, as fund vehicles, and also to act as GP for UK and other limited partnerships. The UK's qualifying partnerships regime is expected to be expanded shortly, requiring many English and Scottish limited partnerships to prepare accounts audited to UK GAAP (Generally Accepted Accounting Principles). The use of a Jersey ILP as the GP is expected to take these partnerships outside the scope of the new regime.
Common features of all types of Jersey limited partnerships Like a JLP, an SLP/ILP consists of one or more GPs who are jointly and severally liable for all the debts of the partnership, and one or more limited partners, who are not liable beyond the amounts they agree to contribute. Other common features of all Jersey limited partnerships include the following: ■ ' Stackability’ – can act as a general or limited partner to any Jersey or other LP without prejudicing the limited liability of its limited partners; ■ C apital and profits can be distributed at any time without formality, provided partnership is solvent; ■ No public inspection of limited partner names; ■ U nless partnership is regulated as a fund or a financial service business, there is no requirement for Jersey serviceproviders; a Jersey GP; Jersey directors; filing any annual return or accounts; or any audit. Where the LP is regulated, its accounts must be audited but do not need to comply with any GAAP; ■ Partnerships can be listed; ■ T here is full commercial flexibility on the terms of the partnership agreement. There is a non-exhaustive list of ‘safe harbours’, allowing limited partners to have greater involvement in management than in some other jurisdictions. The benefits of Jersey limited partnerships are now available in structures where Scottish or other vehicles have conventionally been used. The ability to establish structures across fewer jurisdictions, combined with the flexibility of Jersey companies and limited partnerships, offers new opportunities for cost savings and greater simplicity in corporate and fund structuring. ■
If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Philanthropy
Philanthropy in Jersey Jersey is an ideal “jurisdiction in which to establish philanthropic structures
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By Zillah Howard Partner, Bedell Cristin Jersey Partnership
Philanthropy is a topic of increasing importance for those who, having achieved success in business, are keen to use their skills and resources to embark on giving initiatives, to make a real difference to something that matters greatly to them. Jersey is an ideal jurisdiction in which to establish philanthropic structures: it offers stability (politically, economically and geographically), a robust regulatory regime, a well-respected judicial system, a depth and breadth of experience amongst its professional advisers, and a body of legislation that places strong emphasis on the importance of flexibility, allowing for the creation of structures designed to meet an individual client's requirements. The two principal structures used in Jersey for philanthropy are the trust and the foundation. Both can be used to pursue particular initiatives which, although benevolent or altruistic, may not be strictly charitable. The Trusts (Jersey) Law 1984 allows for the creation of charitable trusts and, for causes which fall outside the definition of "charity" (such as projects for humanitarian, ecological or research purposes), also provides for the establishment of non-charitable purpose trusts. Both forms of trust can be established for an unlimited period. As there is no registration of trusts in Jersey, the existence of a trust for philanthropic purposes is not a matter of public record: this can be important for those wishing to maintain a low profile.
Foundations have become an attractive alternative to trusts for those interested in philanthropy. The Foundations (Jersey) Law 2009 is very flexible and allows for the creation of a foundation for purposes – known as objects – which are charitable, non-charitable, or both charitable and non-charitable. A foundation can be established for an unlimited period and is an incorporated body, brought into being following the completion of a registration process. For those wishing to maintain an open profile, the fact that a foundation's existence is a matter of public record can often be important. The constitutional documents of a foundation are its charter and regulations. A foundation is incorporated on the instruction of the founder, with a council to administer its assets and carry out its objects and a guardian who has an enforcement role. One of the council members must be a "qualified person" with the appropriate regulatory licence pursuant to the Financial Services (Jersey) Law 1998: this member is known as the qualified member. For those wishing to have an ongoing involvement with their chosen project, the Foundations Law allows a founder to be the guardian and/or a council member. With an established record for creating charitable and non-charitable purpose trusts, and significant numbers of foundations already incorporated to promote a broad range of giving initiatives, it is clear that Jersey has a valuable role to play in the field of philanthropy. ■
The two principal structures used in Jersey “ for philanthropy are the trust and the foundation ” www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Wealth Management
Trusts: Securing a successful succession For the family seeking a successful “succession strategy, a wide range of Jersey structures exist which can be adapted to suit the most complex family requirements By Marc Farror Director, Vistra
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Like all businesses, family businesses need to deal with a diverse range of challenges including reacting to market changes, cash flow pressures, retaining the best management talent and driving international growth. Without doubt though, the most critical challenge involves generational change. Within the trust world there are countless stories of families who create wealth through an entrepreneurial individual and lose it again within three generations. Making a success of succession is not by any means impossible and there are large numbers of high profile families who not only protect their family wealth, but manage to actively grow it from one generation to the next. Often, a crucial element of this success lies in the use of appropriate Jersey structures to control key areas of decision making – governance, education and communication. Governance helps determine how and when decisions are made and by whom. It helps to resolve disputes within the family and those between the family and a trustee, all of which can impact upon wealth preservation and growth. Good governance lies at the heart of effective succession planning and is an integral part of wealth structuring. The education of family members is not limited to the process of formal education. Rather, business oriented families need to establish their own values if they are to
be handed down. A trust structure can provide the perfect backdrop to achieve this, detailing any areas of education and experience that might be useful for family members to bring to bear upon the family business. Many families who run their own office prefer family members to have worked for a significant period in the investment industry for example, prior to entering the family business. In the more successful family dynasties there is a direct correlation between effort (in the family business) and reward. Whilst establishing open channels of communication within the family can help eliminate divisive behaviour, the same can be said of communication between trustees and individual beneficiaries. One of the perennial problems that trustees face is how much information they should pass to beneficiaries. On a practical basis it makes sense for trustees to engage with beneficiaries as early as possible, thereby allowing younger beneficiaries to understand why and how decisions are made. For the family seeking a successful succession strategy, a wide range of Jersey structures exist which can be adapted to suit the most complex family requirements, crossing continents, religious and cultural boundaries. Trusts, Foundations, Private Trust Companies and Sharia structures can all have a role to play. ■
Within the trust world there are countless stories of families “who create wealth through an entrepreneurial individual and lose it again within three generations ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Wealth Management
Structuring for wealthy international families Jersey’s ability to provide professional “expertise in the administration of tax efficient structures is just one of the reasons why affluent families choose Jersey firms to structure their wealth By Claire Cabot Business Development Manager, Moore Stephens Jersey
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Many international families require tax efficient structuring to protect and enhance their diversified private fortunes, which have accumulated over many years. The manner in which these assets are to be held and how the chosen vehicles are to be administered requires careful consideration of complex multi-jurisdictional issues.
offshore structures is vital to protecting the initial tax structuring. We often come across structures where the Trustees have not correctly segregated income and capital and this has had serious consequences for the ultimate clients. The administration of an investment portfolio catches lots of Trustees off guard.”
Numerous international families are in some way connected to the UK, from global entrepreneurs who relocate, to tax exiles from continental Europe. Having a property in London offers lifestyle benefits and it can be argued that Britain’s unusually favourable tax regime entices people to live there. International families choose Jersey as an offshore jurisdiction not only because of its symbiotic relationship with the UK and close ties with the City of London, but because of the professional expertise that Jersey has to offer in the administration of tax efficient structures for UK residents.
The accounting for investment portfolios is often key in the segregation of income and capital. There has to be physical segregation at all levels. The capital account must only ever hold clean capital and capital gains. All income, such as dividends and interest coupons, must be credited to the income account. Difficulties arise when income is incorrectly recorded in the capital account and bond interest is not properly accounted for. There can also be difficulties in holding particular assets where capital gains are taxed as income, either in whole or in part, such as offshore funds or bonds, and these must be managed carefully where the investments are not restricted.
Where there is a UK connection, whether as a result of the settlor or beneficiary, it is always prudent to have investment restrictions on the investment portfolio. Typical investment restrictions include: ■ No UK assets ■ Segregation of income and gains
Jersey continues to be a highly attractive offshore jurisdiction for many services and is now ranked in the top ten locations in the world for providing wealth management services. Jersey’s ability to provide professional expertise in the administration of tax efficient structures is just one of the reasons why affluent families choose Jersey firms to structure their wealth. ■
Valerie Watson, Partner of Moore Stephens London, commented: “Understanding the complexities that surround
We often come across structures where the Trustees have not correctly segregated “income and capital and this has had serious consequences for the ultimate clients ” www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Funds
Outsource to grow and go global
Finding an outsource “partner will allow you to contain costs and help with complex issues
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By Jane Pearce Group Director, Ogier Fund Services
Are you focusing on your traditional markets or seeking to expand internationally? Are you an investment fund manager with a global footprint who is seeing the best opportunities for growth in the current economic climate? Do you partner with professional service providers who have an existing global network and who can help develop solutions to complex business problems and guarantee service quality? Does this allow you to focus resource on core activities such as fundraising, investing, managing and selling businesses? The big growth opportunity for many investment fund manager firms is to find an entry into the emerging economies and provide their existing and new institutional investors with the sophisticated service that they are increasingly demanding in these new markets. International expansion is an attractive strategy as it allows firms to grow their business rapidly while continuing to do what they do best. It often makes sense to expand globally, rather than to diversify into local markets and risk a loss of focus. Strategic decisions are important of course but implementing them can be time consuming and difficult. Entering new markets (or becoming more efficient in existing ones) can be tough and many challenges in terms of HR, IT, accounting, regulations and risk management still have
to be wrestled with. IT costs are likely to spiral as firms develop technology to meet the reporting requirements and needs of their investors, regulators and shareholders in their traditional and new markets. IT spend, as a percentage of annual management fee, is therefore likely to increase and as a consequence there may be little appetite to invest capital to allow for ‘best of breed’ technology solutions to be purchased to deal with ever increasing demands. Finding an outsource partner will allow you to contain costs and help with complex issues. Selecting the jurisdiction in which to domicile your fund is also a key decision from an investor and regulatory perspective. Jersey has world-wide appeal as a jurisdiction for investment funds and managers. It is recognised by the International Monetary Fund as being in the ‘top division’ of global financial centres (both onshore and offshore) (September 2009) and is one of the leading European jurisdictions for the investment fund industry. Jersey has a finance industry and professional infrastructure that has a headcount in excess of 12,000 and has developed a breadth and depth in its expertise and range of services that many competitor jurisdictions are not able to match. The net asset value of investment funds administration in Jersey in September 2011 exceeded £197.6bn. ■
asset value of investment funds administration “Theinnet Jersey in September 2011 exceeded £197.6bn ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
An alternative destination for Alternative Investment Managers
N E P O
Locating here can increase your “business flexibility, help to grow your
Alternative Investment
Alterna Investmtive Manageent rs
business rapidly, bring the benefits of low taxation and offer you an enhanced quality of life in beautiful surroundings By Giles Adu Inward Investment Manager, Jersey Finance
Jersey is developing a nascent, dynamic, alternative investment manager community living and working in the island because it is a well regulated, low taxation, flexible jurisdiction. There is strategic government commitment and support to developing the alternative investment management industry further. Jersey is open for business. Investment management firms are very welcome to establish here and they are fully supported, from new start-up companies to established mature businesses. Jersey offers a hub of like-minded, dynamic individuals and organisations with the vision to develop and grow their operations.
” Taxation Corporate tax: One of the primary benefits of establishing an investment management business in Jersey is that company taxation is 0%. This enables significant reinvestment into the business to rapidly grow infrastructure resources, technology and specialist talent, which can propel growth faster as the manager becomes potentially investable by larger institutional investors. Personal tax: With a flat rate of 20%, high net worth individuals can effectively cap their tax payable at £125k. There is no capital gains tax, inheritance tax, wealth or gift tax.
Business environment
Lifestyle
■ Familiar: an English speaking, Anglo-Saxon business culture.
Jersey offers incoming residents a broad range of period and contemporary property to purchase or to rent, ranging from elegant Georgian period properties in town settings to properties in peaceful countryside settings or those overlooking pristine beaches or marinas.
■ C onnected: Jersey is a 35-minute flight from London Gatwick, so it is possible to be in central London by 09:15 and return home by 20:30. Direct flights are available to Paris, Geneva and Zurich, amongst others, and there are good connections to other financial centres. ■ F lexible: The specialist knowledge of incoming investment managers is welcomed and it helps to shape policy through industry bodies, legal and regulatory consultations and working groups, to take advantage of new market opportunities. ■ Talent: Jersey has a deep pool of skilled and experienced people to support and drive business growth.
Families have a wide ranging choice of excellent schools. State, private, state grammar, single sex, and coeducational schools are all available for pupils aged 3-18 years. Schools follow the UK curriculum to A Level and International Baccalaureates are also an option. Jersey schools enjoy excellent results and many are in the top quartile of UK performance at GCSE and A Level. Jersey has a sophisticated contemporary feel, which is international yet personal and friendly. Locating here can increase your business flexibility, help to grow your business rapidly, bring the benefits of low taxation and offer you an enhanced quality of life in beautiful surroundings. ■
www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Jersey’s TIEA with India
India
Tiea
The process has been designed to “protect the privacy and confidentiality of clients who have set up their affairs legally and correctly, but to identify those who have committed a fiscal crime By Neel Sahai Client Relationship Director, Minerva
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In 2002 political commitment was made in Jersey to reflect the OECD’s principles in promoting transparency and exchange of information relating to tax matters. Since then Jersey has signed over 25 Tax Information Exchange Agreements (TIEA’s), including one with India. What is a TIEA and what is its purpose? A TIEA is a bilateral agreement between two jurisdictions to establish a formal regime for the exchange of information relating to taxes. TIEA’s are generally based upon an OECD model agreement to facilitate a level playing field in terms of how information is exchanged. The purpose of a TIEA is to act as a tool in the fight against fiscal crime.
■ A statement that the requesting jurisdiction has pursued all means available in its own territory to obtain the information. As long as the above process is followed correctly, the information is provided by the Competent Authority within 60 days of the valid request being made. What does this mean for clients who base their affairs in Jersey? The process has been designed to protect the privacy and confidentiality of clients who have set up their affairs legally and correctly, but to identify those who have committed a fiscal crime.
How is information exchanged? Tax information exchanges are carried out by request only. There are strict criteria written into agreements stating explicitly that no ‘fishing expeditions’ are allowed. Information requests are sent to the ‘Competent Authorities’ of the respective jurisdiction and must include the following information: ■ The identity of the person under examination or investigation; ■ The information being sought; ■ The tax purpose for which it is sought; ■ G rounds for believing that the information requested is held in the jurisdiction; ■ T he name and address of any person believed to be in possession of the requested information, to the extent known; ■ A statement that the request is in conformity with the law and administrative practices of the requesting jurisdiction and the TIEA; and
There is concern amongst clients in India that the TIEA regime could be open to abuse by the Competent Authority, however the OECD and the Jersey authorities have carefully designed the process to minimise any risk of such abuse. What are the benefits of a TIEA? Jersey is highly ranked as a top tier international finance centre and it achieves this by complying with international rules, regulations and best practice. Many clients use Jersey as they feel reassured by this reputation. In order to retain this reputation, Jersey needs to demonstrate these qualities and this includes signing TIEAs. The Indian Government announced in their last budget the issuing of a blacklist called the Notified Jurisdiction list, made up of jurisdictions that are not effectively exchanging tax information. The penalties for being on this list are significant and include onerous reporting requirements and large withholding tax payments. By signing the TIEA, Jersey should not be included on this blacklist, resulting in significant benefits to clients who use Jersey legitimately. ■
If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Islamic Finance
Mudarabah and Jersey limited partnerships up JLPs that also qualify as mudarabah, “weByaresetting returning to the origins of the silent partnership concept as introduced into Western Europe along the ancient Islamic trade routes By Simon Howard Advocate, Howard Law
Islamic financing emphasises the importance of a genuine assumption of risk on the part of the financier to justify reward and a mudarabah is one of the legal forms used in Islamic financing to establish a risk-sharing venture. It is possible to establish limited partnerships in Jersey (JLP) that qualify simultaneously as mudarabah in accordance with the standards defined by Shariah Standard No 13 of the Accounting and Auditing Organisation for Islamic Institutions. Islamic origins of the limited partnership concept Structuring a JLP so as to qualify simultaneously with the requirements for a mudarabah reflects the closeness of these two concepts; indeed it points towards the almost certain fact that the commandite or limited partnership concept that has been developed across Europe since medieval times has its origins in the mudarabah. It was copied and developed as part of European commerce in the Middle Ages by Italian merchant venturers conducting business with Moslem traders in the Adriatic and Eastern Mediterranean. So, by setting up JLPs that also qualify as mudarabah, we are returning to the origins of the silent partnership concept as introduced into Western Europe along the ancient Islamic trade routes.
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the JLP and is responsible for managing the affairs of the partnership, while the Limited Partner provides the working or investment capital. Care needs to be exercised in adapting the partnership agreement so that it meets the express requirements for a mudarabah. The limited partnership agreement also needs to comply with the general tenets and principles of Sharia, including certainty of contract and fairness in dealings. The partnership activities need to exhibit the positive application of capital through transactions that are not associated with speculation or gambling. Investments in haram or prohibited activities, such as in pork, weaponry, alcohol or casinos, will not be permitted due to their detrimental social effects. Use of JLP as a mudarabah Jersey limited partnerships structured to comply with the requirements of mudarabah can be used for permitted activities, including passive investment or active trading on a profit sharing basis. They are flexible contract-based schemes that have the added advantage of tax transparency and a high degree of privacy for the partners’ risk/reward participation rights, elements that lie at the heart of the partnership agreement.
Key considerations Under these arrangements the General Partner of the JLP acts as the mudarib and the Limited Partner as the rab al-maal. The General Partner provides labour and skill to
They are a good example of the flexible structuring solutions that Jersey is able to offer, allowing the Occidental and Islamic traditions to combine in a fully compliant way to achieve an investment or business objective. ■
a JLP so as to qualify simultaneously with the requirements “Structuring for a mudarabah reflects the closeness of these two concepts ” www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
China
Solutions for high net worth individuals from China Chinese investors are particularly “concerned to ensure that their money is managed in a well regulated jurisdiction, where there is a strong corporate governance ethic and a robust regulatory regime By Naomi Rive Partner, Appleby
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With wealth accumulating at record speeds in China there is a real need for high net worth individuals and entrepreneurs to give consideration to their wealth management requirements. In Jersey we are well placed to assist with this. Not only do we have a sophisticated private client wealth management industry, which is cutting edge in terms of the structures that it can offer, we also have a substantial body of trust and legal professionals, an enviable regulatory regime and a leading court system. Trusts, companies, limited partnerships and foundations are just some of the varied structures that Jersey can offer, along with the establishment of private trust companies (PTC) and family offices for ultra high net worth families. Jersey law trusts continue to hold a number of attractions. They are the tried and tested option and, thanks to ongoing amendments to the Trusts (Jersey) Law 1984, remain responsive to the needs of modern day settlors and beneficiaries. A Jersey law foundation can be distinguished from a trust by its incorporated status and separate legal personality. These characteristics make a foundation more likely to be upheld and recognised in civil law jurisdictions that are not familiar with the trust concept and therefore they are of considerable interest to clients from civil law jurisdictions including China, Russia and most of continental Europe.
What is particularly attractive about foundations is that whilst they encompass many of the classic features of a company, they also retain the flexibility of a Jersey law trust. Whether you select a trust or a foundation, a PTC or an independent trust company, for a truly successful wealth management structure to be established, it is important that the trustee and the settlor of the trust share common values and understand the objectives for which the structure has been established. Consequently, wealth managers, lawyers and accountants in/from Jersey have, in recent years, invested considerable time and money by visiting China and seeking to understand the needs of the Chinese market. One theme that has emerged from these visits is that Chinese investors are particularly concerned to ensure that their money is managed in a well regulated jurisdiction, where there is a strong corporate governance ethic and a robust regulatory regime. Transparency is also key for Chinese clients, as is the quality of the legal and court system should this be called upon to resolve any issues that arise in future years. In these areas Jersey has led the way amongst the offshore jurisdictions and has received the highest praise and endorsements from organisations including the International Monetary Fund and the Society of Trust and Estate Practitioners. ■
Transparency is also key for Chinese clients, as is the quality of “ the legal and court system should this be called upon to resolve any issues that arise in future years ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Singapore
Singapore interest in Jersey wealth planning structures
There is a definite appetite in the “region for Jersey Foundations, not least for holding family businesses for which trusts may not be entirely suitable because of duties to beneficiaries By Richard Pirie Head of Fiduciary, Collas Crill
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Collas Crill opened an office in Singapore recently – the first Channel Islands law firm to do so – and since then has seen a great deal of interest in the various wealth planning structures that Jersey has to offer. While Singapore has its own statutory trust law, many Singapore residents seeking structure to their wealth consider it to be more constraining then enabling, and have therefore looked elsewhere. Jersey is attractive because it is perceived as safe. The high level of regulation is sometimes seen as a downside due to the various processes which have to be gone through, because the wealth that is sought to be structured is new entrepreneurial wealth made by people who are used to making decisions quickly and being able to implement them without delay. Therefore a degree of education is vital to convey that high regulation is a positive rather than a negative quality.
of information. A Jersey Foundation must have at least one Jersey regulated trust company with an additional category of licence as a Council member, and thus most, if not all of the administration will have to be carried out in Jersey. However, given the existence of a time zone overlap, which is not the case with Caribbean jurisdictions such as Cayman and the British Virgin Islands, this should not prove to be an impediment.
Foundations
Those best placed to offer this are service providers with offices in both jurisdictions, but it is also anticipated that alliances will be formed between Singapore based operatives and Jersey trust companies in order to be able to provide Jersey Foundations as part of their offering into an increasingly wealthy market place. There is no statutory restriction on Jersey Foundations being run in Singapore with the qualified member in Jersey but it must be remembered that Jersey must always be able to comply with all Tax Information Exchange Agreement obligations, so sufficient records must be kept in Jersey at all times.
There is a definite appetite in the region for Jersey Foundations, not least for holding family businesses for which trusts may not be entirely suitable because of duties to beneficiaries, and also due to concerns about the disclosure
It therefore seems likely that Jersey’s decision to bring in Foundations will prove to be a wise one, and the presence of Jersey firms in Singapore should enhance prospects in this rapidly growing market. ■
While Singapore has its own statutory trust law, many Singapore “residents seeking structure to their wealth consider it to be more constraining than enabling, and have therefore looked elsewhere ” www.jerseyfinance.je If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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Jersey Finance
Finance Update: For international investors and their advisors
Europe
A voice for Jersey in Europe The establishment of a formal “government office has been welcomed in Brussels as a sign of the seriousness of the Channel Islands in strengthening engagement with Europe
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By Steve Williams Director of European Affairs, Channel Islands Brussels Office
The Channel Islands Brussels Office (CIBO) opened in April 2011. It was established as a joint venture between the Governments of Jersey and Guernsey with a remit to promote the Channel Islands’ interests in Europe. This development is a clear symbol of the Islands’ ambitions to develop a distinct voice in international affairs, while the two Governments have decided that in responding to EU initiatives their political objectives are best served through joint representation of common positions.
investment funds from Jersey into the European economy (mainly via the City). We also place emphasis on the many areas outside financial services where Jersey already has an interest in engaging with Europe, for example concerning aviation and shipping links.
What this means for Jersey
Emerging EU rules that are coming about in response to the financial crisis, relating to insurance, banking and fund management, are of great interest. As this suite of new legislation takes shape, it is crucial that Jersey has a voice in Europe. Some of the legislation, like the Alternative Investment Fund Managers Directive (AIFMD), has been approved but key implementing measures, including on third country access, are still being finalized. New European bodies, such as the European Securities and Markets Authority (ESMA), have a leading role to play here. Other important legislation, including the new Markets in Financial Instruments Directive (MiFID), has only just been tabled by the Commission. These developments are highly relevant to the Channel Islands. At this key time, the Channel Islands are calling for such regulation to be proportionate and to maintain global competitiveness, and for the new rules (‘equivalence’) for access to the Single Market by third countries (like the Channel Islands) to be fair and transparent.
The presence of CIBO is having a positive effect on Jersey’s profile. There is a wider appreciation of Jersey’s position as a cooperative, well-regulated international financial centre, as measured by international standards (IMF/OECD). Equally, we are highlighting the strong net flows of liquidity and of
CIBO is working closely with government, regulators and industry to ensure that the Channel Islands' viewpoint is conveyed in a timely and effective way to the key decision makers and opinion formers. Thus the Channel Islands' voice in Europe is now stronger than ever before. ■
The 3 person team – Tom White, Senthia De Buyst and myself – has spent time building relations with key stakeholders in the Channel Islands (Ministers, policy officials, law officers, regulators, industry) to establish priorities and to discuss how CIBO can work most effectively. This has been mapped on to our external engagement in Brussels with decision makers in the EU institutions, including the Commission, the Member States (through their Permanent Representations in Brussels) and the European Parliament. The establishment of a formal government office has been welcomed in Brussels as a sign of the seriousness of the Channel Islands in strengthening engagement with Europe.
CIBO is working closely with government, regulators and industry to “ensure that the Channel Islands' viewpoint is conveyed in a timely and effective way to the key decision makers and opinion formers ” If you would like to contribute to the next issue of Finance Update please email: lucy.braithwaite@jerseyfinance.je
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