Jersey Foundations - An Update

Since then, foundations have been used as an additional wealth planning and financial vehicle structure; a foundation’s advantages being that it offers a malleable combination of trust and company features, whilst retaining a high degree of confidentiality and potential efficiencies.  As of June 2022, 422 foundations had been registered with the Jersey Financial Services Commission (JFSC).  Philanthropic foundations are estimated to make up one third, and the remainder comprise an eclectic mix of charitable, private equity, private wealth asset holding structures (including private trust companies) and pension/employee benefits structures.

A foundation has legal personality and acts in its own name by its Council, much like a company acts through its board of directors.  It is sometimes described as a ‘trust that works like a company’ but there is no segregation of legal and beneficial title as there would be in a trust.

The foundations tool kit was bolstered with the addition of conversion, merger, and continuance regulations[i] and the Minister has published an updated list of foreign recognised entities that may merge with or migrate as a Jersey Foundation.  These are attractive options for families, HNWIs and indeed corporates who have structures in the relevant jurisdictions which may no longer offer the same advantages that they once did.  Liechtenstein is one such jurisdiction - under pressure from the EU to avoid being labelled an “uncooperative jurisdiction”, Liechtenstein agreed to make changes to its tax laws. Structures in existence before the start of 2019 were given a grace period - the anti-avoidance regulations introduced as from 1 January 2019 apply to these structures as of this year.  These changes will affect the tax exemptions relating to dividends and capital gains as well as the tax deductibility of depreciations and capital losses resulting from the sale of participations.

The loss of these tax exemptions and related planning efficiencies means many clients are looking to move Liechtenstein foundations elsewhere – and Jersey remains an attractive destination.  The foundations merger / continuance regulations allow for a seamless transfer or conversion of a Liechtenstein structure to a Jersey Foundation without any change to its legal person status, contractual rights and obligations or original date of incorporation.  More on the procedure and list of foreign recognised entities below.

Some Foundation Basics

A Jersey foundation’s constitutional documents comprise (1) the Charter, a public document[ii] containing basic information as to the name (the word ‘Foundation’ or its equivalent in a different language must be included), objects (i.e. charitable, non-charitable, philanthropic etc.), initial endowment, if any (not a formal requirement), term of existence (usually indefinite) and mechanism and rights on a winding up; and (2) the Regulations, a private document which sets out the terms on which the foundation’s assets are held and to be administered, including the powers of and mechanisms for changes to the Council, identify who may benefit (albeit it is not a formal requirement to have a class of beneficiaries identified at the outset), rights to information etc, and the identity of the Guardian (the person whose duty it is to enforce the foundation and ensure it functions as per its objectives – essentially, the overseer of the Council - much like an enforcer in a purpose trust).

Public Information And Form

A Foundation’s Charter is mandatory but, unless there is a particular desire for publicity, will not usually be publicly available.  Since the enactment of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2021 however, short form/redacted regulations must be filed.  These must include information regarding individuals who are ‘Significant Persons’, and information regarding:

• The appointment, retirement, removal and remuneration of Council members, the Qualified Member and Guardian.
• Whether any acts require third-party approval.
• The Council’s functions and if those can be delegated/carried out in conjunction with a third-party.
• Reimbursement of expenses.

The short-form regulations may contain other provisions, but these are not required by law.  There is no recommended statutory form for the Charter and Regulations (like there is for a Jersey company), but like trusts, their terms have largely become uniform with similar flexibility for governing the administration of assets.  A foundation’s terms depend entirely on its founder’s objectives and plans for the holding and management of wealth or investment interests.

Incorporation Of Foundations And Role Of The Qualified Person

A foundation can only be incorporated by a ‘Qualified Person’ i.e. an individual or company licensed under the Financial Services (Jersey) Law 1998 to conduct trust company business services.  The Council must include a Qualified Person.  Any change to the Qualified Member must be notified to the JFSC.

The requirement for a Qualified Person’s involvement is to ensure that Jersey’s comprehensive and stringent anti-money laundering laws are complied with in the establishment and administration of a Foundation.

The Founder

The founder is the person who instructs the Qualified Person to apply for the registration of the foundation; it could be the provider of the bounty but, as we regularly see, a founder need not contribute anything as foundations do not require an initial endowment.

The Council’s Role And Duties

The Council administers the affairs of the foundation; its duties (which mirror the statutory duties owed by trustees) are to:

• act honestly and in good faith with a view to the best interests of the foundation; and
• exercise the care, diligence, and skill that reasonable prudent persons would exercise in comparable circumstances.

Despite the close nexus with the trust laws, council members/the guardian of a foundation do not owe any form of fiduciary duty to the foundation’s beneficiaries.

The Law does, however, have an exculpation threshold - nothing in the Charter, Regulations or any contract may relieve a person appointed under the foundation from any liability for that person’s fraud, wilful misconduct or gross negligence.

Beneficiaries

The definition of a beneficiary under a foundation is broadly the same as under a trust i.e., a Foundation’s objects may be a person or class of persons. However, the rights of beneficiaries under the two structures are diametrically opposed.  A foundation’s beneficiary has no interest in the foundation or its assets and unless the Charter or Regulations provide otherwise a beneficiary has no right to call for information regarding the foundation, its administration or its assets.

Guardian

A Guardian must be in office at all times.  Unless he or it is the founder and the Qualified Person, a person cannot be a Council Member and Guardian.  The Guardian may have powers akin to that of a trust’s protector.

Taxation

A Jersey Foundation is treated as a corporate taxpayer for income tax purposes. Corporate tax standard rate is 0 per cent. Capital Gains are exempt from taxation.  A Jersey resident individual receiving income from a Foundation will be taxed on that income.  Where a company receives income from a Foundation, tax will be payable at either 0 per cent, 10 per cent or 20 per cent depending on whether it is a non-financial services company, a financial services company, or a utility company respectively[iii]. Where a non-Jersey resident receives an income distribution from a Jersey foundation, and the underlying income source of that distribution has been charged to tax on the foundation at 0 per cent, the Comptroller will not, by concession, seek to tax the non-resident in receipt of the distribution.  If the underlying source of the income distribution has been taxed in Jersey on the foundation at 10 per cent or 20 per cent, then the Comptroller will not seek to tax this income again on the non-resident; however, the non-resident will not be able to claim a refund of the Jersey tax suffered at source on the distribution received.

Conversion Of A Jersey Company To A Foundation

This is permissible under the Foundations (Continuance) (Jersey) Regulations 2009 (the Continuance Regulations) and involves a straightforward process of an application form, notice to creditors, and payment of the prescribed fee.

Merger And Continuance Of Recognised Entities To Jersey As Foundations

The Continuance Regulations also permit the continuance of certain foreign ‘recognised entities’ as Jersey Foundations; and the Foundations (Mergers) (Jersey) Regulations 2009 permits the merger of such ‘recognised entities’ (as well as Jersey companies) with Jersey Foundations.

Foundations/their equivalents from the following jurisdictions are classed as ‘recognised entities’:

• Anguilla
• Bahamas
• Guernsey
• Isle of Man
• Liechtenstein Stiftungs/Anstalts
• Malta
• Nevis
• Panama
• St Kitts

Procedure For Continuance Or Merger

Continuance or merger is undertaken by a Qualified Person acting on behalf of the entity that wishes to merge or continue and it is a relatively straightforward process.  Apart from documentary agreements and filings, the following third party notifications must be complied with.

1. Publication of a notice in the form determined by the JFSC.
2. The same notice to all creditors with claims exceeding £5,000, the registrar and the guardian.
3. The notice must:
   1. Specify the plan;
   2. Specify what it is and the originating jurisdiction;
   3. Confirm it will be solvent on incorporation as a Foundation;
   4. Note that any affected person may apply to court within 28 days.

The JFSC sets the fees and determines the level of information required.  With Jersey’s professionals, it acts as gatekeeper to maintaining and protecting the Island’s integrity and it is that blue-chip integrity that attracts successful families and entrepreneurs to the financial services offered from Jersey.

Footnotes:

[i] Foundations (Continuance) (Jersey) Regulations 2009 and Foundations (Mergers) (Jersey) Regulations 2009.

[ii] It can be downloaded from the JFSC companies register on payment of a small fee.

[iii] Income Tax (Jersey) Law, 1961.

Craig Swart
Craig Swart TEP is an Advocate of the Royal Court of Jersey and heads the private wealth team at Dickinson Gleeson. Craig advises trustees, directors, fiduciaries, settlors and beneficiaries in relation to a wide range of non-contentious and contentious matters involving trusts, companies, foundations and partnerships. He also has extensive insolvency and asset tracking experience. He is consistently ranked by the leading legal directories as a Leading Individual in the private client, trusts and tax sphere.

Pierre Ali-Noor
Pierre is a Jersey Advocate, as well as an English solicitor and barrister (the latter two currently non-practising) with a broad advisory private wealth and dispute resolution practice, with particular emphasis on trusts, fraud and investment disputes. Pierre is listed in the Legal 500 UK as a Rising Star for Dispute Resolution in Jersey which says that he “works extremely hard and with technical precision. One to watch for the future” and “has a great touch in client communication” (Legal 500 UK 2022). Previous editions have described him as “hard working, charming and diligent. He really gets into the meat of a case” (Legal 500 UK 2021) and as being “as smart as they come” and “a name to note” (Legal 500 UK 2018).