This briefing sets out Jersey's adoption of rigorous international tax and regulatory standards, which, in conjunction with local tax laws, make the jurisdiction an ideal location for investment funds, companies and other investment and finance vehicles. Jersey is a leading global finance centre with top-tier financial services professionals. With over 800 years of independence, the island is a politically stable and economically secure jurisdiction that facilitates investment in a tax-neutral environment whilst maintaining best-in-class regulatory standards.

Tax-efficient jurisdiction

As a Crown Dependency, Jersey enjoys significant autonomy from the United Kingdom ("UK"). With this comes the ability for the island to self-administer internal affairs, as well as international relationships with foreign jurisdictions and economic blocs (with the UK's consent). Consequently, the island's tax regime is entirely independent and distinct from that of the United Kingdom. The States of Jersey ("States"), the islands' parliament, set the tax laws. And just as the island is self-governed, it is also self-funded, raising funds through taxation.

Jersey is a tax efficient jurisdiction, with a standard corporate income tax rate of 0% applicable to most income. Certain businesses conducting regulated activities, including certain banking, insurance and fund administration businesses, attract tax of 10% on the income from those activities, and a further select set of businesses operating in other sectors, including telecommunications, large retail, and those who import and/or supply gas or hydrocarbon oil incur tax at 20% on the income from those activities. There are no capital gains, value-added or sales taxes relevant to financial services.

The relatively simple tax structure means that the island has not been compelled to offer tax incentives or tax rulings in order to attract businesses. Although Jersey can be described as a low-tax jurisdiction for companies, the Government of Jersey have taken many steps to ensure that the relevant tax laws and policies adhere to numerous international tax and regulatory standards. Jersey has been "whitelisted" by both the Organisation for Economic Co-operation and Development ("OECD") and the European Union ("EU") as a result. Jersey also has a broad general anti-avoidance rule, which prevents the avoidance of local tax.

Adoption of economic substance requirements

At the end of 2017, the EU's Code of Conduct Group ("Code Group") assessed Jersey's standards in respect of tax transparency, fair taxation and anti-base erosion and profit shifting ("BEPS"). The Code Group raised no issues in respect of the island's standards in respect of tax transparency and compliance with the anti-BEPS measures. In response to the Code Group's request regarding substance, particularly given Jersey's prevailing corporate income tax rate of 0%, the island (along with a number of other offshore jurisdictions) adopted local economic substance requirements for companies with effect from 1 January 2019, and extended these economic substance requirements to partnerships with effect from 1 July 2021.

The economic substance legislation requires companies which derive income from certain specific activities (including finance and leasing activities) and which are tax resident in Jersey to demonstrate they have sufficient substance in the jurisdiction. The economic substance legislation also requires partnerships that are treated as resident for substance purposes in Jersey to demonstrate they have sufficient substance in the jurisdiction (partnerships continue to be transparent for income tax purposes and so whilst in-scope partnerships must demonstrate substance they do not become subject to income tax). In all cases, substance can be shown by demonstrating the entity is directed and managed in the island, that its core income generating activities take place here, and through having adequate employees, premises and expenditure in the jurisdiction. As a result of implementing economic substance requirements in Jersey, the Economic and Financial Affairs Council of the European Union has confirmed the island as being a cooperative jurisdiction in respect of good tax governance, and the jurisdiction is not "blacklisted" as non-cooperative.

Adoption of BEPS minimum standards

Jersey has been an Associate and Member of the OECD's BEPS Inclusive Framework since 2016. The island has adopted the Country-by-Country reporting regime ("CbCR"), which applies to multinational groups with consolidated group revenue of EUR 750m or more, and has required full reporting under CbCR in respect of accounting periods commencing on or after 1 January 2016.

Jersey has also adopted the spontaneous exchange of tax rulings, and was among the first jurisdictions to sign the OECD's Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in June 2017 ("MLI"), which is a treaty designed to expedite the implementation of the double tax treaty-related BEPS recommendations into double tax agreements ("DTAs") between participating states. The MLI contains provisions to prevent hybrid mismatches and treaty abuse, therefore restricting persons from potentially exploiting differences in tax regimes between different jurisdictions and artificially lowering their tax bill.

Adoption of international tax information reporting and transparency rules

Jersey was among the first jurisdictions to adopt the US Foreign Account Tax Compliance Act ("FATCA"), implementing it in June 2014. The island was also an early adopter of the OECD's Common Reporting Standard ("CRS"), which it implemented in January 2016. Under FATCA and the CRS, financial institutions in Jersey, including banks, custodians and investment funds, are subject to due diligence and reporting requirements in relation to certain account holders and investors who are, or are entities that are controlled by, one or more natural persons who are, residents or citizens of the United States or residents of a jurisdiction that has adopted the CRS, unless a relevant exemption applies. Financial institutions in Jersey annually report the relevant information to the island's revenue services, which then exchange that information with the relevant tax authorities in the US and in the CRS jurisdictions.

To strengthen the CRS regime and go beyond the BEPS minimum standards, Jersey has also adopted the OECD's Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures, which compels promoters and implementers of CRS avoidance arrangements and offshore structures designed to mask beneficial ownership, as well as service providers, to disclose information on such arrangements to the island's revenue services which will then exchange information with the relevant tax authorities of other jurisdictions.

Tax information exchange agreements ("TIEAs"), DTAs and the OECD's Convention on Mutual Administrative Assistance in Tax Matters (the "MAC")

Jersey has signed 38 TIEAs, all of which are in force, including agreements with the UK and the US. TIEAs allow for the exchange of information (on request) in connection with tax investigations, and so differ from the CRS where such information exchange is automatic. DTAs are agreements for the prevention of double taxation between two jurisdictions. Jersey has 15 full DTAs in place, (including a full DTA with the UK) and 12 partial DTAs.

Jersey has also been subject to the OECD's MAC since 1 August 2014. The MAC is a comprehensive multilateral instrument that facilitates international co-operation on tax matters, ranging from exchange of information (both automatic and on request) to recovery of foreign tax claims. Currently over 140 jurisdictions participate in the MAC.

Adoption of the highest level of international regulatory standards

The Jersey Financial Services Commission ("JFSC") is committed to ensuring that the island's regulatory regime adheres to the highest international standards. There is no banking secrecy in the island, and Jersey is a world leader in the regulation of fiduciary services providers.

International Monetary Fund

Between October and November 2008, the International Monetary Fund ("IMF") conducted a formal evaluation of Jersey's financial supervision and criminal justice framework. The IMF reported that Jersey was among the top jurisdictions for compliance. The island was assessed as having a high level of compliance with the 25 Basel Core Principles for Effective Banking Supervision, and with the 28 Insurance Core Principles of the International Association of Insurance Supervisors ("IAIS").

Combatting financial crime

Jersey is renowned as a global leader in fighting financial crime, with advanced protections in place to prevent money laundering and to combat the financing of terrorism.

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism ("MONEYVAL") undertook a review of Jersey's measures to prevent money laundering and to fight the financing of terrorism in 2015. It found that the island was compliant or largely compliant with 48 out of 49 FATF recommendations. The report noted that: "Jersey's combination of a central register of the UBO with a high level of vetting/evaluation not found elsewhere and regulation of TCSPs of a standard found in few other jurisdictions has been widely recognised by international organisations and individual jurisdictions as placing Jersey in a leading position in meeting standards of beneficial ownership transparency."

In 2015, EU Comissioner Pierre Moscovici made clear how Jersey's commitment to fighting financial crime was viewed from outside. He said: "I very much welcome the active engagement of the Channel Islands in the key initiatives involved in the fight against tax evasion, fraud and abusive tax avoidance in which they are important partners of the EU. Their commitment to the adoption of the Common Reporting Standard on automatic exchange of information, alongside the EU Member States, is particularly positive."

Beneficial ownership information

In 2017 Jersey created a centralised and non-public register of the beneficial ownership of Jersey legal persons.

Resident agents are required to collect information on the ultimate beneficial owners of companies, incorporated limited partnerships, limited liability partnerships and foundations (with a few exceptions for entities listed on a stock exchange or regulated and/or supervised by the JFSC), and trustees are required to hold ultimate beneficial ownership information on trusts. This beneficial ownership information is reported to the island's registry which maintains central registers of beneficial owners that can be accessed by government agencies, tax authorities, regulators and law enforcement.

Jersey is committed to compliance with FATF Recommendations on transparency and beneficial ownership of legal persons and legal arrangements, reflected also in the EU 4th AML Directive. The island has committed to the initiative to develop and implement a new global standard for the automatic exchange of beneficial ownership information.

Jersey is also developing legislation to enable real-time (or near real-time) reciprocal access to beneficial ownership information by EU tax and law enforcement authorities.

Jersey has adopted data protection legislation that is equivalent to the GDPR

Jersey is among a small group of jurisdictions that has been recognised by the European Commission as meeting current EU data protection standards and granted equivalence ("adequacy"). The island implemented the new GDPR standards on the same timetable as EU Member States (by May 2018).

Membership of International Organisations

To support the JFSC's commitment to ensuring Jersey's regulatory regime meets international best practice, the JFSC is a member (or is in association with) a number of international organisations, to further international cooperation and best practice. In addition to those referred to above, such as MONEYVAL, these international organisations include:

  • The International Organisation of Securities Commissions (IOSCO);
  • The International Association of Insurance Supervisors (IAIS);
  • The Group of International Insurance Centre Supervisors (GIICS); and
  • The Group of International Finance Centre Supervisors (GIFCS) - through its membership of GIFCS, the JFSC works with The Basel Committee on Banking Supervision and FATF.

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.