Cayman Islands: Establishing A Hedge Funds Operation In Jersey

Last Updated: 12 May 2009

Introduction

Jersey is a world renowned centre for fund establishment, administration and management, Jersey is home to a wealth of professionals including law firms, accountants, auditors, administrators, custodians and banks, each with considerable experience in the establishment and day-to-day administration and management of hedge funds and hedge fund businesses.

Jersey is a well regulated jurisdiction (it has recently been placed on the OECD's 'white list' of jurisdictions surveyed in implementing internationally agreed tax standards). The Jersey Financial Services Commission (the "JFSC") is a long established and internationally recognised regulator and operates within a mature and appropriate regulatory and legislative framework for both investment managers and fund vehicles.

Jersey provides a range of regulatory regimes for the establishment of funds of all types. In particular, the 'eligible investor' unregulated fund scheme recently introduced by the JFSC provides an efficient and cost-effective framework for the establishment of hedge funds in Jersey.

When contemplating a move to Jersey, the considerations set out below should be taken into account.

Tax

Personal

Income tax (which is charged at 20 percent (but subject to various reliefs) on Jersey source income and has not changed since the 1940s) is the principal personal tax in Jersey. Goods and Services Tax (charged at 3 percent) was recently introduced. There are no capital gains taxes, inheritance taxes or death duties (save for stamp duty).

High net worth individuals will pay income tax on non-Jersey source income on a sliding scale at the following rates:

  1. 20 percent on income up to £1,000,000.00;
  2. 10 percent income tax on the next £500,000.00; and
  3. 1 percent on any income over £1,500,000.00.

Such high net worth individuals will also be able to buy and rent certain classes of property in Jersey without the need for a housing consent (see below).

Hedge fund management company

Management companies established in Jersey will be subject to income tax on 10 percent of its income (a substantial reduction from 30 percent corporation tax in the UK). Certain concessions may also be negotiable with the Comptroller of Income Tax on a case by case basis.

Hedge fund vehicle

Hedge fund companies are subject to a 0 percent rate of income tax on their income.

Employee share schemes

Jersey is generous when it comes to the taxation of employee share schemes and incentive plans. There is no stamp duty on the transfer of shares and social security liabilities are substantially smaller than other jurisdictions.

Fund establishment

Two principal regulatory regimes are available for the establishment of hedge funds in Jersey. The 'expert regime' has a qualification allowing only expert investors to participate. Such funds are regulated by the JFSC. An expert investor generally means an investor that invests a minimum of US$100,000.00 in the fund.

The JFSC's regulatory requirements include ensuring that:

  1. certain prescribed details appear in prospectuses;
  2. appropriate Jersey based functionaries are appointed to the fund;
  3. certain requirements as to the regulatory status of the investment manager are met; and
  4. a review of fund documentation by the JFSC occurs prior to the grant of permission to launch the fund. Expert funds are also subject to continuing regulatory oversight by the JFSC.

In contrast, the 'unregulated eligible investor' regime has no initial or continuing regulatory oversight by the JFSC and minimal or no requirements as to the contents of prospectuses and the identity or location of functionaries. Only 'eligible investors' may invest in the fund and an eligible investor generally means an investor that invests a minimum of US$1,000,000.00 in the fund and certain other professional investors.

Establishing a business and hiring employees

The establishment of a business in Jersey is governed by the Regulation of Undertakings and Development (Jersey) Law, 1973. A licence pursuant to this law must be granted before the company can start to operate or take on employees.

The decision as to whether or not to grant such a licence is made with regard to the need to regulate and manage demand on Jersey's resources, including the expected contribution of a business towards the economic vitality of Jersey and the need to ensure that local people take part in such economic activity.

A regulation of undertakings licence will take the form of a licence for the company to take on a certain number of employees, for a set period, which includes employees from Jersey and from elsewhere. After a licence has been granted, the company would be free to manage its employees as it sees fit within the terms of its licence and may apply for an increase in the employees it may take on at any time.

Work permits are not required for the citizens of EU member states, although non-EU citizens will need to apply for permits.

Living in Jersey

Jersey is an island nine miles by five miles which has the same climate as Britanny in northern France, yet operates on Greenwich Mean Time. Outside of the thriving business/commercial centre of St Helier, Jersey is a patchwork of woods and fields and has 25 beaches, many restaurants (two of which are Michelin starred) and many sporting and cultural activities.

In addition, Jersey has an enviable health and education system. Jersey boasts a comprehensive range of health and social services including the general hospital which has modern healthcare facilities including an accident and emergency department and a critical care unit. The hospital provides a wide range of services although patients requiring specialist treatment are referred to the UK and such treatment is paid for by Jersey's Social Services department.

Education in Jersey is of a high standard and examination results are similar to those in the upper 25 percent of UK schools. The Education Service aims to provide the highest quality of learning and leisure opportunities for everyone in Jersey.

Property

Ownership and occupation of residential property in Jersey is governed by the Housing (Jersey) Law, 1949, and the Housing (General Provisions) (Jersey) Regulations, 1970 (the "Regulations"). The acquisition and rental of Jersey property is restricted to local people and non-local people may only buy or rent if they are high net worth individuals as described above, or have a 'J Category' consent.

Under the Regulations, 'J Category' consents can be granted to persons whose employment in Jersey is deemed to be "essential". The consent is granted to the employer, not the employee, and is conditional upon the individual remaining in the post for which the licence is granted. The majority of consents are not time limited but time restrictions may be imposed, particularly where less senior employees are involved. Jersey authorities have demonstrated a willingness to grant 'J Category' consents to employees of new businesses which meet the criteria for establishing a presence in Jersey, particularly, if it can be demonstrated that the individual brings a particular area of expertise, or that the planned position cannot readily be filled from within Jersey's existing labour force.

In practice, the factors taken into account in making an assessment include the economic contribution of the employer, the ability, qualifications and experience of the proposed employee, the importance of the post and the availability of suitable candidates from within the existing labour market. Approved essential employees are permitted to purchase and occupy accommodation which is not specifically restricted to persons with local residential qualifications; these are usually properties with a price in excess of £250,000.00. When a person completes a continuous period of ten years' essential employment in Jersey, he will acquire residential status in his own right.

Root and branch reform of housing law has been approved by the States of Jersey which will replace the current housing legislation with a new migration policy, potentially an even more attractive regime for businesses wishing to set up in Jersey.

Travel

Jersey is only 45 minutes via plane from London and one hour by boat from St Malo in northern France. There are several flights a day to London, Paris and other cities in the UK and regular flights to Dublin, Geneva and Zurich.

Walkers' advice

Walkers provides legal advice and assistance relating to the move to Jersey, applications for regulatory and housing permits in order to live in and establish a business in Jersey, conveyancing advice in relation to buying a property in Jersey and also advice relating to the establishment of funds in Jersey.

Jersey

Jonathan Heaney, Partner
Ian Gobin, Partner

Cayman Islands

Nick Rogers, Partner
Ingrid Pierce, Partner

British Virgin Islands

Richard May, Partner

Hong Kong

Carol Hall, Partner

Singapore

Ashley Gunning, Partner

London

Robert Duggan, Partner

Dubai

Rod Palmer, Partner

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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