Jersey: Jersey's Finance Industry: Up To The Challenge

Last Updated: 22 February 2012
Article by Wendy Benjamin

Jersey's finance industry has flourished in the last 50 years but it has continued to face challenging economic and global conditions during last year, with some mixed results. The statistics collated by Jersey Finance which were released in December 2011 show that for the quarterly period ending 30 September 2011:

  • the net asset value of funds under administration in Jersey (excluding unregulated funds) increased by £1 billion during the third quarter to £197.6 billion;
  • the total number of regulated funds increased by 42 to 1365 and the number of unregulated funds increased by 8% to 147 over the third quarter;
  • the number of live companies on the register increased by 78 in the third quarter to 33,194;
  • bank deposits rose by £2.3 billion (1.4%) during the third quarter to £167.3 billion with currency fluctuations accounting for a movement of 0.5%.

Overall the statistics demonstrate some growth with positive news for the funds sector. It recorded 10.5% year-on-year growth in the net asset value of funds administered in Jersey despite challenging fundraising conditions. However, the investment management sector reported a decrease of 6.3% of the net asset value of funds under investment.

That was not the only negative statistic to emerge last year. The Jersey Retail Price Index for the 12 months prior to September 2011 stood at 5.4 per cent. Even though the increase in Goods and Services Tax from 3% to 5% in June 2011 contributed 1.4 percentage points to the annual increase, RPI is high. Unsurprisingly, the general business activity indicators cited in the States of Jersey Statistics Unit's report, Jersey Economic Trends 2011, show that the finance sector remains cautious about the economic outlook despite 32% reporting an increase in business activity for the third quarter of 2011.

International Standing

Nevertheless there were some highlights last year. The latest Global Financial Centres Index published in September 2011 ranked Jersey as the top offshore centre, a position it has held for the last five indices. Jersey is ranked 21st overall, ahead of its neighbour Guernsey which falls into 31st place.

A key element of Jersey's international strategy has been its development of its network of Tax Information Exchange Agreements (TIEAs). Jersey signed its first TIEA with USA in 2002. It has since gone on over the last nine years to sign another 26 TIEAs, many of which are with OECD member nations. The most recent TIEAs last year include Canada, Indonesia, Czech Republic, South Africa, Argentina, India, Japan and Poland and there are many more in the pipeline.

Zero-Ten Tax Regime

Another highlight is the outcome of the EU review of Jersey's zero/ten tax regime. The specific area under review as a potentially harmful tax practice was the deemed distribution provision applicable to Jersey resident individuals with shareholdings in Jersey companies. In order to meet fully the Code's criteria, Jersey decided to abolish the deemed distribution provision with effect from 31 December 2011. This move was approved by the EU Code of Conduct Group in September and ratified by EU Ministers on 19 December. Thus Jersey's zero-ten regime will continue in place offering a robust, competitive and efficient basis for international finance.

Legal Developments

There were no radical changes to Jersey's company law last year, except for cross border merger provisions which came into force in the Spring allowing Jersey companies and foreign companies to merge directly (either as a Jersey or a foreign company), without the necessity of a migration. In relation to trusts, interestingly in June 2011 the Jersey courts in the Representation of R declined to follow the English Court of Appeal decision in Pitt v Holt [2011] EWCA Civ.197 on the issue of mistake. Instead the Jersey Courts reaffirmed their earlier judgements in permitting a voluntary disposition, including a transfer of assets into trust, to be set aside by the donor on the basis that the transaction was entered into under a mistake as to the consequences of the transaction.

In applications seeking to set aside a transfer of assets into trust, the mistake in question will often relate to the tax consequences. In defending the decision not to follow the English Court of Appeal, Bailhache Commissioner stated "... in Jersey it is still open to citizens so to arrange their affairs, so long as the arrangement is transparent and within the law, as to involve the lowest possible payment to the tax authority. We see no vice in this approach."

Legislation introducing new incorporated limited partnership (ILP) and separate limited partnerships (SLP) came into force in 2011. ILPs are corporate bodies with separate legal personality whereas SLPs have separate legal personality but are not bodies corporate. As such they should be transparent for the purposes of UK income tax, corporation tax and capital gains. (ILPs lack transparency for capital gains.) The introduction of SLPs and ILPs broadens the range of limited partnerships available. Legislative changes have also been made to facilitate e-commerce and e-gaming which is attracting interest in the Island's offering.

New Markets

Aside from new structures and products such as reinsurance and insurance linked securities which the Island has begun to promote, Jersey has also been looking at increasing its visibility in key jurisdictions. A good example of this is the strengthening of Jersey's relationship with the Gulf region following the establishment of an office in Abu Dhabi by Jersey Finance. The approval and issue of a banking licence by the Jersey Financial Services Commission to the Abu Dhabi Commercial Bank, a major banking group from the region, and the signing of a Memorandum of Understanding between Jersey and UAE's financial regulatory authorities demonstrate the enhanced relationship.

A similar pattern is emerging in China and India where Jersey Finance has established a presence to develop relationships with regulators and businesses. As a result, the Island's finance sector has had increasing enquires about the use of Jersey companies for capital-raising from many Indian and Chinese businesses and bank deposits originating from these new markets are growing.

Jersey's finance industry continues in its fiftieth year to offer a favourable business environment with economic and political stability. Its evolving laws and regulations continue to address economic and political challenges and to support the island's position in international finance.

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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Wendy Benjamin
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