Funds
Analysis
Why Jersey is increasingly attractive to fund managers
Tom Amy, head of funds at Volaw, argues that the island offers considerable benefits
Jersey has a long history of serving the international financial services industry, demonstrated by the specialist knowledge and experience available from the island's lawyers, accountants, brokerage houses, international banking institutions and administrators. In particular, the island is targeting efforts to attract fund service businesses and develop itself as a European centre for funds activity.
Historically, investment managers have been structured without a physical presence in Jersey and a regulated administrator, such as Volaw Trust & Corporate Services Limited, would have assisted the manager in meeting many of the applicable regulatory requirements.
Most recently, investment management firms have sought to have a physical presence in Jersey and have obtained licences to open new offices, often to optimise tax efficiencies for their funds and management companies or simply because a lifestyle change is desired. This inflow of new businesses is consistent with Jersey's goal to encourage high value, low impact business to the island and the local authorities have made it easier for such businesses to establish a presence in the Island and for individuals to become resident.
Many London-based investment managers are likely to be impacted by HMRC’s review of the existing UK investment manager exemption. This currently enables certain non-UK residents, such as hedge funds, to appoint UK-based investment managers without rendering the fund UK resident or liable to UK tax.
As a result of this review by HMRC and the subsequent changes to eligibility rules, investment manager fee income and the employees will be subject to UK tax, however with the introduction of the zero-ten taxation regime, similar operations in Jersey which are regulated as fund service businesses (but do not undertake administration of custodian duties) will now qualify to pay Jersey tax at a rate of 0%.
For Jersey employees, there is no capital gains tax or inheritance tax and Jersey residents are subject to personal income tax at a rate of only 20% on worldwide income. Further, by becoming resident in Jersey, principle persons of the fund manager resident in Jersey may seek to have a significant proportion of their non-Jersey income taxed at a rate as low as 1%, subject to a number of conditions. The provision of employee benefits, including offshore employee benefit trusts and international pension structures, are often easier to implement offshore as UK employment tax legislation can be avoided, while social security payments are capped at a low level and there is no stamp duty on equity transactions.
When a principal person of the investment manager applies to become resident, the Jersey authorities will assess the individual's likely tax contribution. Residency will be granted when justified on social or economic grounds and the individual would normally be expected to make an annual tax contribution of £100,000 or more.
Individual employees of the investment manager will reside in Jersey on the basis that they are essentially employed and do not have to agree a minimum income tax contribution. In addition to the expected economic contribution of the employer, employees will need to demonstrate relevant qualifications and this will be particularly favourable if such qualifications are not readily available from the local employment market.
Combined with this favourable taxation environment, the island is a well-regulated offshore jurisdiction, less than a one-hour flight from London and close to Europe's other financial centres, has a high standard of living and a modern infrastructure. Furthermore, the introduction by the Jersey Financial Services Commission in February 2008 of a system that allows unregulated funds to be established in the island is a reflection of the island's growing maturity as a funds jurisdiction, following as it does the introduction of the expert funds, listed funds and non-domiciled funds regimes over the past five years. The unregulated fund is the next logical extension of the island's strategy to focus on niche, sophisticated products for high net worth and institutional investors, as opposed to retail funds.
The Collective Investment Funds (Unregulated Funds) (Jersey) Order 2008 was introduced in February 2008 and allows eligible funds merely to notify the Jersey Financial Services Commission of their establishment, rather than going through a full authorisation process. The speed and simplicity of the system provides Jersey with a significant advantage in competing with other European and offshore jurisdictions to become the funds jurisdiction of choice, particularly for private equity funds, hedge funds and other alternative investment funds for sophisticated investors.
The island is not a separate member state nor an associate member of the European Union. For the provisions of the EC Treaty relating to free trade in goods the island is within the Community but, for example, those relating to fiscal harmonisation and financial services, the island is treated as a third country. Fund service businesses in Jersey are therefore unaffected by EC fiscal harmonisation measures or the requirements of financial service directives (exchange of information agreements).
Volaw is fully regulated to undertake fund service business and is one of Jersey’s leading providers of fiduciary services, acting for individual, family, corporate and institutional clients. Volaw is closely associated with one of Jersey oldest law firms, Voisin, whose lawyers provide valuable support to our clients and the work we do. Together, Volaw and Voisin can advise on and co-ordinate the establishment of offshore funds and the structuring of investment management companies in Jersey, with or without a physical presence.
For further information, please contact Tom Amy (tamy@volaw.com), Volaw’s head of funds.
