Jersey: Resilient Despite Challenging Economic and Global Conditions

By Wendy Benjamin, Partner, Appleby, Jersey (01/01/2012)


Jersey’s finance industry reached its 50 year milestone in 2011.  Half a century has passed since the repeal of the Island’s usury laws allowed merchant banks to first open offices here to service the banking and investment needs of expatriates and high net worth individuals.  Jersey soon offered extensive trust, wealth management and fund services.  The finance industry has flourished in the last 50 years but has continued to face challenging economic and global conditions during the last year. 


However, Jersey’s resilience as an offshore finance centre has been evident in the second half of 2011 with some positive indications.  The statistics collated by Jersey Finance, the representative body for the island’s finance industry, 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 eight per cent 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 per cent) during the third quarter to £167.3 billion with currency fluctuations accounting for a movement of 0.5 per cent.

Overall the statistics demonstrate some growth with particularly positive news for the funds sector.  It recorded 10.5 per cent year-on-year growth in the net asset value of funds administered in Jersey despite challenging fund-raising conditions.   However, the investment management sector reported a decrease of 6.3 per cent of the net asset value of funds under investment.  Nevertheless against a background of Eurozone crises, global austerity measures and sharp falls in financial markets indices such as FTSE100 (which fell by more than 15 per cent over the same period), Jersey has outperformed many of its competitors.  Hopefully, the results of the final quarter of 2011, once available, will show further encouraging signs.

Inflation remains within government expectations. The Jersey Retail Price Index for the 12 months prior to September 2011 stood at 5.4 per cent. The increase in Goods and Services Tax from three per cent to five per cent in June 2011 contributed 1.4 percentage points to the annual increase in RPI, the effects of which should be temporary.

The States of Jersey Statistics Unit report, Jersey Economic Trends 2011, show that the island produced an annual gross national income (GNI) of over £4 billion, a nominal annual increase of 11 per cent and a return to 2008 levels after a decline in GNI in 2009.   Jersey’s GNI per capita still represents one of the world's highest. However, the general business activity indicators cited in the Unit’s report show that the finance sector remains cautious about the economic outlook despite 32 per cent reporting an increase in business activity for the third quarter of 2011.


Global Recognition

Such statistics suggest that Jersey's global reputation and standing is helping it through the economic downturn. The Island has achieved global recognition for its financial sector regulation and supervision, which were found to be of a "high standard" and to "comply well" with international standards by the IMF report in 2009. Jersey is compliant or largely compliant with 44 of the 49 general FAFT recommendations, compared to Singapore and the USA at 43 and the United Kingdom at 36.

The latest Global Financial Centres Index published in September 2011 ranks 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, the Isle of Man at 40th, Cayman at 46th and Malta at 70th.  Jersey has also climbed into the top 10 locations in the world for wealth management and private banking services and is ranked ahead of many major European centres.  The Index report recognises the contribution that offshore centres make to global finance and notes that Jersey and Guernsey are working hard to change perceptions and “rise above” the status of offshore specialist centres by being seen as more diversified.


Tax Information Exchange Agreements (TIEAs)

A key element of Jersey's international strategy has been its development of its network of TIEAs. The OECD's initiative on harmful tax practices emphasises international standards of transparency and exchange of information on tax matters.  One of the ways in which these standards can be met is through TIEAs being entered into by jurisdictions to permit the exchange, on request, of information relevant to tax matters covered by the agreements.

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 this year include Canada, Indonesia, Czech Republic, South Africa, Argentina, India, Japan and Poland. There are another six TIEAs initialled or ready for signing including those with Austria, Brazil, Greece, Italy, Republic of Korea and Spain. There are more TIEAs in well advanced negotiations including Hungary, Lithuania and Slovenia. Partially as a consequence of its TIEA network, Jersey was one of the first offshore centres to be ‘white-listed’ by the OECD.

TIEAs aim to strike a balance between exchange of information and protection of taxpayer's privacy. Wholesale 'fishing exercises' are not possible under TIEAs. Information is not automatically exchanged following a request by a relevant jurisdiction. A request must be substantiated under TIEAs by the requesting jurisdiction providing information such as:

  • the identity of the person under examination;
  • the period for which information is requested;
  • the nature of the information requested; and
  • the tax purpose for which the information is requested.

Information is typically delivered by the Comptroller of Taxes in Jersey within 40 days of request, in the absence of any appeal. The taxpayer has a right of appeal to the Royal Court of Jersey. To date there have been relatively few cases of disclosures following the above proving processes.


Double Taxation Treaties

Jersey is also building its network of double taxation agreements (DTA). This year a new DTA with Estonia was signed following the DTA with Malta last year.  Further DTAs with Bahrain, Belgium, Hong Kong, Luxembourg, Singapore and Qatar are in negotiation.


Zero/Ten Tax Regime

The EU Code of Conduct Group met in Brussels in September to give further consideration to elements of Jersey's zero/ten tax regime. Under the regime there is a general corporate income tax rate of zero with a higher rate of 10 per cent applying to income arising from certain financial services and of 20 per cent applying to utilities carried on in the island and income derived from Jersey real estate.

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 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. 

The Code is not the only European issue that Jersey has continued to deal with this year. Another has been the AIFM Directive.


Jersey Funds & the AIFM Directive

The successful funds regime in Jersey has developed following changes of legislation and policy by the Jersey Financial Services Commission (JFSC) over the past decade. The success began in earnest with the introduction of the expert fund category, which is targeted at institutional, professional and sophisticated investors. Funds falling within this category benefit from a fast-track approval process and light regulatory touch from the JFSC.

Next came the introduction of a listed fund category (which recognises listings on AIM, Euronext, the London Stock Exchange, and other recognised exchanges) - the flexible and fast­-track approval process which had been achieved for Jersey expert funds was adapted for listed funds.

Then a new category of unregulated funds aimed at institutional and other eligible investors investing more than an initial US$1 million was introduced in 2008. Provided a fund can ensure compliance with this requirement, the regulatory obligations placed upon it in Jersey are minimal. In particular, an unregulated fund will not be required to appoint any Jersey-based service providers.

However, the EU Alternative Investment Fund Managers Directive (Directive) raises some issues for Jersey's funds industry. Constitutionally, Jersey is a self-governing dependency of the British Crown and is not part of the United Kingdom or the European Union. It has complete autonomy in relation to its domestic affairs, including tax and business law.   However, the ability to market funds domiciled in Jersey into the EU is an important element for the continued success of its funds industry. So it is essential that Jersey meets the criteria for ongoing market access into Europe.  

On 16 November 2011 the European Markets and Securities Authority (ESMA) published its final advice (the Advice) to the European Commission (the Commission) on implementing the Directive. In particular, the detailed obligations in relation to cash monitoring set out in the Advice will now be turned into implementing measures by the Commission, a task it is expected to complete by mid 2012.  Once the relevant regulations and/or directives have come into force, they will govern the manner in which EU-based custodians must operate.  Crucially however for Jersey, the EU cash monitoring requirements will then become the benchmark by which Jersey-based custodians are judged by ESMA if they are custodians of funds which want access to EU-based investors.  The question will then be: does Jersey regulation in relation to cash monitoring by custodians have the ‘same effect’ as EU regulation?  The answer is broadly ‘yes’, if ‘same effect’ means achieving the same outcome.  However, Jersey does not achieve the same outcome by detailed provisions of the sort set out in the Advice.   Jersey regulation operates at a more general level whereas the EU seeks to micro-legislate.  To the extent that there is a difference of opinion as to the effect of these approaches, the Jersey regime will have to be modified to accommodate the requirements determined by ESMA.


New Structures, Products and Markets

There have been no radical changes to Jersey's company law this 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 judgement in the case of the Re A Trust and the Re Lochmore Trust, 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. (It is also necessary under Jersey law to demonstrate that the gift would not have been entered into but for the mistake and that the mistake is of so serious a character that it would be unjust on the part of the donee to retain the gift.) 

In applications seeking to set aside a transfer of assets into trust, the mistake in question will often relate to the tax consequences of a transaction.  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.”

As an alterative to trusts Jersey is continuing to promote the recently introduced foundation, particularly in jurisdictions unfamiliar with trust law concepts.  Foundations are growing in popularity after an initially slow start.  Earlier this year the 100th foundation was established.

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.

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 new markets and 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 the UAE’s financial regulatory authorities demonstrate the enhanced relationship. 

The Abu Dhabi Bank was attracted to Jersey by the stability and security of a well established offshore financial centre that is ideal for its customers’ asset-holding, inheritance and estate planning.  The Memorandum of Understanding between Jersey and the UAE establishes a formal mechanism for the respective financial authorities to co-operate on supervisory matters and exchange of information.   Also encouragingly bank deposits held in the island originating from the Middle East and Far East grew in the third quarter of 2011 to £20.3 billion and £6.8 billion respectively.

Another good example of this is the increasing visibility of Jersey in Hong Kong. The promotional activities of Jersey Finance have included establishing in 2009 a permanent representative office in Hong Kong coupled with several delegations taking place in the region over the last two years.  Jersey companies were approved last year for listing on the Hong Kong Stock Exchange and a number of successful listings have followed. 

A similar pattern is emerging in India where Jersey Finance has appointed a representative team 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.  



Jersey’s finance industry continues in its 50th year to offer a low tax business environment with economic and political stability with easy access to London, Europe and further afield. Its evolving laws and regulations continue to address economic and political challenges and to support the island's premier position in international finance.