Benefits Of Using Jersey As A Domicile For Funds And Private Investment Structures

Why Jersey

For more than 50 years, Jersey has been at the forefront of the international financial services sector and has built a reputation as a world-class leader in the establishment of Investment Funds.

Founded on a stable political infrastructure, Jersey has successfully combined a reliable legal and tax framework with the ability to offer flexible regulatory products that are appropriate for the level of sophistication of the investor base and target audience. The experience and expertise within the Jersey finance industry has attracted global leaders in the fields of private equity, real estate, debt, venture capital and infrastructure, supporting the Island to continue to grow its specialism in various types of funds and private investment structures and to break new ground in emerging asset classes.

The Island is now home to a range of investment funds including a number of the world's "mega funds", not least, Softbank's USD97 billion Vision Fund LP. Since the introduction of the Jersey Private Fund (JPF) structure in 2017, Jersey has also seen a huge influx of interest from start-up fund managers, with more than 750 private funds established under this new simple, light-touch and cost-effective regime, which permits marketing to professional/eligible investors.

Jersey is politically independent and sits outside of the EU, although funds from the Island can be marketed to EU investors through the easy and cost-effective National Private Placement Regime (NPPR). In addition, Jersey is able to offer out of the AIFMD scope solutions for marketing to the rest of the world.

Jersey provides a tax neutral environment with no value added tax or corporate gains tax. The Island has been "whitelisted" for both OECD and EU tax transparency and economic substance compliance. Amidst a competitive marketplace of financial services jurisdictions and an increasingly global set of international rules, regulations and laws on transparency, substance and AML procedures, Jersey has built a reputation on the strength and rigour of its regulation. Jersey has a well-established financial services industry with experienced professionals across legal, accounting, administration, and non-executive directors. Speed of execution, evolving regulation and professional experience has led to its enduring success as an International Finance Centre.

Funds versus non-fund investment structures

Understanding whether an investment vehicle qualifies as a fund under Jersey law is essential, as it determines the applicable regulatory framework. In Jersey, a vehicle will be regulated as a fund only if it meets specific criteria, as outlined below.

An investment vehicle will be regulated as a fund in Jersey only when it is a scheme or arrangement for the investment of capital which:

1. has as its object or one of its objects the pooling of capital raised for the fund (in the case of a private fund) or the collective investment of capital acquired by means of an offer to the public of units for subscription, sale or exchange (in the case of a collective investment fund, CIF); and
2. its units are or are to be bought back or redeemed continuously or in blocks at short intervals upon the request of the holder and out of the assets of the fund, units will be issued continuously or in blocks at short intervals (in the case of a CIF), or the fund operates on the principle of risk spreading (in the case of a JPF or a CIF).

The following structures thus generally fall outside the Jersey funds' regulatory framework:

• vehicles which have a single investor;
• vehicles which hold a single asset;
• holding companies;
• joint ventures;
• securitisation vehicles (including issuers of debt securities);
• arrangements between persons who are connected to each other by way of a 'family connection'; and
• incentive arrangements between persons who are connected to each other by way of an 'employment connection'.

Our combined Jersey Investment Funds and Corporate team can assist with the establishment of joint ventures and asset-holding vehicles or advise on exemptions from fund regulation in the scenarios listed above. The team also work in collaboration with our Private Capital and Trust Group in assisting UHNWs, family business and family offices to determine the most appropriate structures for the protection and enhancement of wealth for future generations. In addition, our specialist Banking & Finance team is well versed in fund finance and leveraged and acquisition finance, and regularly acts for a broad spectrum of traditional and alternative lenders as well as sponsors and companies to support their investment activities.

Types of investment vehicles in Jersey

Jersey funds and private investment structures can be structured in a variety of legal forms. The most popular of these include companies (including single class, multi-class, umbrella, incorporated and protected cell companies), limited partnerships (including incorporated limited partnerships, separate limited partnerships and limited liability partnerships), unit trusts and limited liability companies (which could be treated as a partnership or a company for tax purposes).

The benefits to be gained by setting up an investment vehicle as a Jersey company (being one of the most popular choices) include, among other things, the following:

• company law in a number of jurisdictions, including the UK, requires that distributions are made only from "distributable profits", whereas directors of Jersey companies are able to pay a dividend provided that the company is solvent immediately after the payment of the dividend;

• the Jersey company regime allows for great flexibility in paying out capital, with reductions of capital, redemptions and share buybacks all being possible with the requirement that the company is solvent immediately following the capital reduction, redemption or buyback. Financial assistance is also permitted;
• no stamp duty is payable on the transfer or issue of shares in Jersey companies, and there is no capital gains tax or inheritance tax payable in Jersey. In addition, in the case of Jersey companies which are tax resident in Jersey, such companies are likely to be subject to a rate of income tax at zero per cent;
• if needed, establishing non-Jersey (e.g. UK) tax-residency for a Jersey company is straight-forward – Jersey companies can be tax resident in another jurisdiction where the central management and control of the company takes place, and where board decisions are taken, in such jurisdiction by a majority non-Jersey resident board of directors;
• companies in Jersey are not required to make any withholding or deduction on the payment of dividends or interest payments to non-Jersey resident shareholders or lenders;
• Jersey permits the incorporation of par value or no-par value companies. Mergers and amalgamations of Jersey companies are also possible.

Our team of experienced professionals can assist you in determining the most appropriate structure for your new fund or private investment structure.

For further information about some popular investment fund structures (which would also apply to non-fund investment structures) please see our guide on Jersey Investment Fund Structures - Which one to choose?

TISE listings

The International Stock Exchange (TISE), based in the Channel Islands, remains popular for debt listings where the quoted Eurobond tax exemption is sought (allowing interest payments to be made without deducting UK withholding tax).

Regardless of the debt issuer's jurisdiction of incorporation (or tax residency), TISE is used for tax efficient structuring of, amongst other things, high yield bonds and structured shareholder debt, often in the form of loan notes.

Walkers has significant TISE listing experience acting as listing sponsor to a wide variety of issuers of a broad range of instruments, including high yield bonds. For further information about our listings team, please see our update regarding TISE's new Equity Listing rules.

Recent investment and funds trends seen in the Jersey market

We currently witness the following key developments affecting investment structures:

• Many of the investment structures which we are seeing in the private equity, debt, venture capital, infrastructure and real estate space are set up as private investment vehicles (i.e. not "funds") in order to keep the costs and regulation to minimum.
• Jersey structures gain popularity for continuation vehicles and single-asset structures – particular trend from large US PE houses with Cayman/ Delaware funds. These vehicles are not 'funds' in Jersey because they involve a single asset or a single investor).However, in other jurisdictions, such structures might still fall within the definition of a fund.
• Many of the structures we are setting up across private equity, debt capital markets, and digital assets, have a "retailisation" flavour.
• Fund financing still frequently used by the fund managers, with many fund financing arrangements coming to the end of their maturity date and the managers looking to either re-finance or put a new line of financing in place.
• Steady interest in Jersey Private Funds (JPFs), being one of the most popular Jersey funds products, especially from new investment managers. The popularity of JPFs has been further boosted by several recent changes which removed the limit on the number of investors, expanded lists of professional / eligible investors and provided for a 24-hour approval timescale for processing the applications for the JPFs to be authorised by the JFSC. For further information about these changes, please see our update on key changes in the newly revised JPF Guide.

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.