There is an increasing need for businesses to ensure that they can demonstrate proper substance in the jurisdictions in which they operate. Many holding structures for active trading companies, cross border financing, asset holding or investment structures are coming under scrutiny by various tax or regulatory authorities around the world and Jersey is ideally placed to provide proper substance and a permanent establishment in a tax neutral environment.
Over the last decade Jersey has already seen many private equity, mining, natural resources, technology and other companies develop their businesses and operations in Jersey. Many of these initially started life with small sub-let premises or even just desk space with a company administration service provider in Jersey. Some have not needed to grow any further than having desk space and engaging a single part time employee but others have gone on to develop a significant presence with executive directors and a team of administration and industry experienced employees physically based in Jersey and operating from dedicated office premises.
The present Jersey government has a pro-business policy of encouraging new business to establish permanent physical offices and staff in the Island where that business is able to demonstrate that their presence will generate benefits to the Island. Those benefits normally include the creation of new jobs for local workers, the diversification of employment opportunities (both in and outside the Island) particularly those not normally found in Jersey and the provision of training opportunities for young workers. Although corporate tax in Jersey is 0%, the creation of new jobs will generate tax revenue for the Island through personal taxation of employees at the rate of 20% on income.
Although not widely publicised, in many cases, senior management of the entity have moved permanently to Jersey and Ogier has a dedicated team to advise them on the best path to follow in order to achieve this.
Ogier has developed close and good relationships with relevant Government departments in order to assist clients obtain the necessary approvals.
Advantages of creating a permanent establishment in Jersey
There are a number of commercial and structural benefits of using a Jersey company as part of creating a permanent establishment in Jersey. The reasons why Jersey will work well are summarised below.
- Pro-business government in Jersey.
- Good infrastructure and ease of access.
- Availability of office space and appropriately qualified staff. Jersey has many existing companies which utilise office space and part-time employees.
- Track record: As a reputable finance centre with the highest regulatory standards, finance professionals in Jersey are used to providing services to companies in all industry sectors.
- No specific local tax clearances or rulings need to be obtained.
- Low set-up and on-going administration costs.
- No tax leakage: Jersey companies are generally not obliged to make any deduction on account of any Jersey tax from any interest payments made by the Jersey company and there are no specific transfer pricing or thin capitalization rules in Jersey. It would not be usual to seek a tax ruling in Jersey for this type of entity.
- Easy capital extraction: distributions from a Jersey company may be made out of any profit and loss or capital account of the company, other than the capital redemption reserve or the nominal capital account. Rules around redemption and repurchase of shares are also straight forward.
- Limited local compliance requirements: setting up a Jersey company which requires its own premises involves obtaining only one relatively straight-forward consent.
Double Taxation Agreements
It should be noted that, unlike the UK, Jersey has a much smaller network of double tax treaties and thus has limited treaty-shopping opportunities. This may restrict the ability to structure a deal to obtain tax benefits if, for example, the company suffers foreign withholding tax on loans or investments. However, this may be mitigated or solved by additional or alternative structuring which Ogier are able to assist via its own internal and external networks.
Ogier is able to offer a coordinated and comprehensive approach to the provision of legal services to businesses looking to create a permanent establishment in Jersey. Our experience in having advised many clients who have taken this route as well as the relationships we have with Government and other necessary service providers, makes the whole process as smooth as possible.
We have particular offshore planning and implementation expertise, having worked alongside tax planning experts for a number of years. We have advised on and assisted with the implementation of various structures designed to create substance through the use of our offices and employees.
Ogier in Jersey provides:
- company formation advice
- corporate/finance legal advice
- assistance with local regulatory (Regulation of Undertakings) consents
- assistance with local property and employment matters
- liaison with other legal service providers, including banks, accountants and administrators
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.