Jersey is the largest and most southerly of the Channel Islands off the coast of England 23 km off the west coast of France. It is one of the world's foremost offshore centers with a long history of security and stability. The authorities seek only the cream of the offshore business. There is a highly sophisticated infrastructure of trust companies, banking services, accountants, lawyers etc. An exempt company can pay a flat tax of GBP 500 and filing fee of GBP 120 per year. Beneficial ownership must be disclosed to the authorities prior to registration, however, absent evidence of criminal conduct is not to be disclosed. There is some controversy concerning whether disclosures were recently made following proper procedures.

Companies are registered under the Companies Law of 1991 in approximately 3 days. All company names must finish with the word "Limited" or "Ltd.". No par value and bearer shares are permitted. There is a capital duty of 0.5% and there is no restriction on where meetings are to be held. There is a double tax treaty with the U.K., Guernsey and a limited one with France.

Trusts may be formed using any name as there is no trust registry. Trust income outside of Jersey would not be subject to any Jersey tax.

Jersey is very useful for companies which need to deal with the public but is not appropriated for clients needing maximum privacy nor is it a low cost solution.

 

Jersey Abolish Corporation Tax Company Legislation

 

Corporation Tax Companies (CTCs) have existed in the Channel Islands of Guernsey, Jersey and Alderney since the 1930’s. Through September 1988 there were nearly 6,000 CTCs on Guernsey, 10.000 on Jersey, and another 195 on Alderney. CTCs could escape the Channel Island’s local 20% income tax in return for a fixed annual fee of £500. Such nonresident companies had to promise not to conduct business within the Island of registration and were required to be managed and controlled outside the jurisdiction.

 

By the end of 1994, Jersey could boast no less than 26,000 incorporated companies. In addition, there were a total of 78 banks registered on the island, nearly all of which are wholly owned or partly owned by the world’s foremost banking institutions.

 

During 1994 there were 3,370 new company formations – an increase of 10% over 1993. Approximately 60% of these new companies were formed for residents outside of Britain.

 

As a safeguard against unlawful activities by boiler-room operators, Jersey’s Financial services Department (FSD) require the identity of the real beneficial owner, but this information is kept confidential by the FSD and does not become a matter of public record.

 

According to Richard Syvret, director of the FSD, Jersey is considering even more controls to screen out undesirables. One proposal is to regulate fiduciaries that form and administer companies and trusts, but this proposal is proving controversial in both Jersey, Guernsey and the other Channel Islands.

 

Jersey companies are governed by the new Company Law of 1991 (as amended). Under the 1991 law both private and public companies are recognized. For tax purposes, there are two types of companies.

 

The Income Tax Company will either trade or be managed and controlled in Jersey and pays a flat tax at a 20% rate.

 

The Exempt company, which pays a flat rate of £500 (about US$780) per annum, cannot have its beneficial owner living or trading on the islands.

 

Exempt companies have many uses, including employment or constancy operations to avoid tax for salaried individuals, a moneybox company to act for other companies in a group, to protect assets from exchange control or repatriation of profits, or a holding company for international trading.

 

Jersey trusts are used in a variety of tax and estate planning procedures for private clients, and are often formed with an underlying Jersey company. Set up fees and annual management costs for a Jersey trust amount to about $500 minimum.

 

Jersey by the Numbers

 

Collective investment funds (December 1994) = £22 billion

Number of investment pools (December 1994) = 804

New Company incorporation’s in 1994 = 3370

Live Companies (December 1994) = 26,397

Bank deposits in Jersey (December 1994) = £64 billion

Total number of banks (December 1994) = 78

Gross Domestic Product per person (1993) = £15,955

 

Jersey’s 78 International Banks

 

In terms of statistics, Jersey can boast £22 billion pounds in collective investment funds, and £64 billion pounds are non-sterling bank accounts. While the figures for banking deposits alone don’t come close to the estimated $500 billion dollars in Cayman Islands banks, the numbers do represent a substantial amount when you include Guernsey’s bank deposits and investment funds.

 

Eight new banks were approved by Jersey’s Financial Services Department in 1994, bringing the total number of registered institutions to 78. The national origin of the banks setting up new operations in Jersey reflect the global spectrum, defying the view that Jersey is an offshore tax haven for UK institutions only.

 

Among the newcomers taking deposits were the head office of the British Bank of the Middle East (part of the Hong Kong and Shanghai Banking Group), the Union Bancaire Privee and the Banque Transatlantique (Jersey) Limited. These banks join blue chip banking institutions such as Barclays and Royal Bank of Canada.

 

Innovation in the banking world is growing in Jersey. Recently, the Royal Bank of Scotland announced that it was launching a 24-hour telephone banking service for offshore customers.

 

The fiscal services industry account for 52% of all of Jersey’s revenues.

 

The New Exempt Company

 

As from January 1, 1989 the old Corporation Tax Company Law has been repealed and a new vehicle – the exempt Company status the following conditions must be met.

Application for exempt status, together with payment of the exempt company tax of £500, must be made no later than March 31 in the year of assessment.
No resident of Jersey or Guernsey can have an interest in the company other than as a shareholder in, or debenture holder of, a body corporate, which:

(a)     has a beneficial interest in the company; and

(b)     is listed on a stock exchange.

disclosure of beneficial ownership must be made to the Commercial Relations Department to the satisfaction of that department.

 

Like the CTC, the exempt company provides a convenient tax-free vehicle for the private investment holding of stocks, bonds, real estate, private yachts, patent rights, etc.

 

Being classified as nonresident for tax purposes means that the following is true for exempt companies.

 

It pays no income tax on income arising outside the Island of registration.
It is not required to deduct Jersey (or Guernsey) income tax from payments of interest or dividends.
It does not have to make a return of income (except in the case of local bank deposit interest), and is not required to file accounts (except with respect to trade carried on through an established place of business).

 

Banking Intricacies and Oddities

 

If you incorporate in Jersey, bank interest earned on deposit in a Jersey bank will be taxable as “local income” at the 20% rate. Curiously, a Jersey company can avoid the 20% levy on its bank interest by keeping its bank deposits in a Guernsey bank. Guernsey bank interest is treated as “foreign source income” and is not held to be within the scope of the “local tax”. The situation works well in the reverse too, and a Guernsey company can receive bank interest from a Jersey bank without incurring a “local income tax liability.

 

Individual Tax Rate in Jersey

 

Jersey (population 81,000), Guernsey (population 60,000) and Guernsey’s sister isle of Alderney impose a 20% income tax on resident individuals.

 

Allowances in Jersey permit a family with two children to pay no tax if their income is below £13,900 (about US$24,000). In Guernsey a married couple with two children and income of £12,000 a year will pay a net £512 in tax. This represents a 31.7% improvement on their 1988 tax situation.

 

In 1989 Jersey’s government expected gross revenue of £181 million, of which £160 million will come from income taxes and the corporation tax.

 

Offshore Funds & Unit Trusts

 

Jersey is said to have about £22 billion under management in collective investments. But an additional £25 billion is thought to be held by Jersey’s COBO (Control of Borrowing) schemes, according to John Pallot, deputy director, investments and securities, of Jersey’s FSD.

 

COBO’s are investment schemes offered to less than 50 people. They are virtually like joint ventures, says Pallot.

 

The minimum subscription for such schemes is in the region of £2m to £5m.

 

There are about 450 funds holding assets of around £3.5 billion with Guernsey connections according to Nigel Taylor, Guernsey’s superintendent of investment business. Jersey has some 350 funds with assets of around £4 billion. Over 100 new offshore funds are expected to apply to the Guernsey Financial Services Commission and the SIB for authorization to market in the UK. This follows the granting of designated territory status by the UK to Jersey and the Isle of Man in 1986.

 

Business in the offshore tax haven of Guernsey is booming. The latest figures show that 123 funds authorized on the island of Guernsey at the end of 1989 were worth £2.56 billion and had 60,000 investors. Funds based in Guernsey and Jersey are free from attacks by the Inland Revenue. Profits accumulated and reinvested go untaxed to foreign investors, until remitted as a dividend or redemption – when they become taxable if the investor lives in a country that taxes foreign source income.

 

During the last three months of 1989, net new investment on Guernsey was £252,000,000, on sales of £512,000,000 and repurchases of £260,000,000.

 

Channel Island mutual funds and unit trust can trade the stocks of both UK, U.S. and Japanese issuers free from capital gains taxes.

 

Meanwhile, Jersey’s Article 131C of the Income Tax (Jersey) Law of 1961 came into effect on January 1, 1990. This new law is particularly attractive to U.K. expatriates employees and all individuals non-resident in the U.K. and Channel Islands. Under Article 131C individuals can effect personal pension plans with the following advantages:

 

Contributions need not be related to earnings. Any amount may be paid regardless of income.
The whole of the pension fund may be taken as a tax-free cash sum at any time.
Retirement can be at any age, as low as 20 and as high as 75.
The plan holder may return to the UK and retain the benefits accrued to date, and later take all benefits as a tax free lump sum at any time.

 

Non-Resident C.I. Trusts

 

The concept of trusts is based on English common law and has been fully recognized by the local courts, although the islands are not Anglo-Saxon common law jurisdictions. Non-resident trusts are the most common type chosen, even though for some time there was no codification of trust laws to guide the local courts. Jersey enacted a Trust (Jersey) Law 1984 giving jurisdiction over foreign and domestic trust administered from Jersey to the Royal Court of Jersey. A Jersey trust may now be formed for 100 years. The new law permits a trust or its terms to be revoked or varied.

 

The Trust (Jersey) Law 1984 was amended by the Trust (Amendment)(Jersey) Law 1989 and the Trust (Amendment #2)(Jersey) Law of 1991.

 

Non-resident trusts, where the grantor and the beneficiary are not residents of the Channel Islands, are not taxed. Neither is a tax levied on the distributions from the trust to the nonresident beneficiaries.

 

Nonresident trusts are a particularly attractive way for foreigners to hold assets in the Channel Islands, and they are in extensive use here. There are no tax consequences for the foreigner who settles an estate in trust, as there are no gift or estate taxes in the islands. Nonresidents are also not liable for local taxes, and the trust deed can be kept private, and drawn to protect against overseas expropriation, high taxation and exchange controls.

 

Discretionary Trusts & Fixed Interest Trusts

 

The offshore discretionary trust has been the vehicle of choice for private client planning for over 25 years. The trust industry in Jersey is said to be custodian to some £50 billion in assets, and the earnings from these funds provide significant revenues to the island’s financial industry.

 

There are about 200 trust companies on the island, ranging from small independent firms to major banks or professional institutions. The client base for trusts has shifted from mainly UK to a truly international spread.

 

The confidentiality between trustee and settlor is guaranteed in Jersey. While many jurisdictions require the registration of trusts, Jersey has turned its face against this and, therefore, a regulatory framework, which would impede trustee/settlor relationships and breach confidentially, has been deliberately left out of Jersey’s trust laws. In the Caribbean, the Bahamas are one lone example of a domicile where trusts do not have to be registered with the local government.

 

Company & Trust Tandem – Aka Tax Planning

 

According to David Boleat (President of JATCO – Jersey Association of Trust Companies), Jersey’s deputy director for the FSD, “Jersey trusts are used in a variety of tax and estate planning procedures for private clients and are often formed with an underlying Jersey company.”

 

The most popular types of trusts in Jersey are the fixed interest and the discretionary trusts.

 

In a discretionary trust, the trustee has wide latitude as to whom to pay income and capital out of a predetermined list of beneficiaries.

 

The person putting the assets into the trust (i.e. the settlor), normally also gives the trustee a letter of wishes regarding how trust assets are to be distributed.

 

In a fixed interest trust, the settlor predetermines disposal of the assets, including the entitlement of each beneficiary.

 

The settlor can be named in the trust deed or he can remain anonymous.

 

Set up fees and annual management costs amount to about £500 minimum.

 

The costs of administering a trust depends on a number of variables, including the complexity of the trust deed and the amount of work involved.

 

Corporate use of trusts in Jersey is becoming very popular for pension funds and off-balance sheet transactions.

 

“Purpose trusts are used in corporate structures as part of a larger arrangement.” according to David Boleat (President of JATCO – Jersey Association of Trust Companies).

 

Local Tax on Resident C.I. Companies

 

Companies that carry on business within their island of registration are required to pay a “local” income tax of 20% on their worldwide incomes.