Offshore Services- Jersey

In recent years there has been considerable growth in the number of foreign-domiciled trading businesses choosing a Jersey company as a holding vehicle to list on AIM (a market of the London Stock Exchange).

Key Advantages of a Jersey Company

Using a Jersey company as the vehicle for an AIM listing may enable a foreign trading group to access the UK capital markets without becoming liable to UK tax. Other key advantages of using a Jersey company include the following:

• Jersey companies provide tax neutrality at holding-company level;
• Jersey companies do not have to make withholdings on account of tax when paying dividends;
• No stamp duty is payable on the transfer of shares in Jersey companies (this has been regarded as a significant benefit in some cases);
• Jersey companies law is based on English companies law, but tends to be more flexible;
• The UK Takeover Code applies to Jersey companies;
• Shares in Jersey companies may be held and traded in uncertificated form;
• Investors are familiar with Jersey as a well-regulated international finance centre;
• Jersey is in a convenient time zone, with a business day that begins before Tokyo closes and continues well into New York trading time; and
• Jersey is geographically close to Europe but independent from the European Union.

Introducing a Jersey Company to a Corporate Structure

There are three common scenarios:

• inorporating a new Jersey company and, by way of a group reorganization before listing (usually a share-for-share exchange), inserting the Jersey company at the top of the existing group structure so that it becomes the new holding company of the business to be listed;
• migrating an existing foreign holding company to Jersey so that it continues in existence as a Jersey-registered company; or
• if the initial shareholders know in advance of the desire to list (eg, in the case of a special purpose acquisition company), using a Jersey holding company from the outset.

Formation of a Jersey Company

It is possible to establish a Jersey company on a same-day basis. The articles of association should meet the requirements of the AIM listing rules and the CREST rules. If the company needs to be formed very quickly, it can be established with 'plain vanilla' articles and the AIM/CREST-compliant articles can be adopted at a later date prior to listing.

The company must be established as a public rather than a private company.

Circulation of Admission Document

The admission document describing the shares in the Jersey company will usually qualify as a prospectus for Jersey purposes. Therefore, the Jersey law governing the circulation of a prospectus will apply to the admission document. This law sets out the following requirements:

• The company must be a public rather than a private company;
• The Jersey registrar of companies must have given prior consent to the circulation of the admission document;
• The admission document must contain certain prescribed information and statements; and
• A copy of the admission document, signed by or on behalf of all the directors of the company, together with a signed copy of any report included in or attached to the admission document, must be delivered to the Jersey registrar.

Application for the Jersey registrar's consent is made to the Jersey Financial Services Commission (JFSC). The application process is straightforward and the JFSC has one week to review the admission document and issue consent. In most cases the review is completed within that timeframe and the Jersey approval process does not affect the timing of the admission to listing.

Content of Admission Document

Under Jersey companies law, the admission document must make certain disclosures and give certain investment warnings. These requirements are not generally regarded as onerous. The JFSC also has the discretion to consent to the circulation of an admission document where it does not comply fully with the content requirements, provided that such non-compliance does not affect the substance of the admission document and is not calculated to mislead. In general, ensuring that an AIM admission document meets the content requirements and securing any necessary derogations from the JFSC is unlikely to present material difficulty.

Preliminary Marketing of Shares

A Jersey company may undertake preliminary marketing of its shares using a draft admission document (ie, a preliminary or pathfinder prospectus) before obtaining the Jersey registrar's consent to its circulation as long as the usual 'red herring' language appears on the face of the document. This will usually state that the red herring does not constitute an offer or invitation to acquire shares in the Jersey company.

Proposed Amendments to Jersey Companies Law for 2007

The following amendments to Jersey companies law are under consideration and may become law as soon as the end of 2007:

• A court order will not be required for a reduction of capital in respect of no-par-value shares;
• Public companies will be able to dispense with the requirement to hold annual general meetings (although this would probably be inappropriate for a listed company);
• Annual general meetings or meetings convened for the passing of a special resolution may be convened at 14 days' notice (rather than 21 days' notice);
• The rules on making distributions are to be simplified;
• The financial assistance rules are to be abolished; and
• Treasury shares are to be introduced.

UK Takeover Code

The UK Takeover Code applies to Jersey companies if any of their securities are admitted to trading on a regulated market in the United Kingdom or any stock exchange in the Channel Islands or the Isle of Man. As AIM is not a regulated market, the code will apply to Jersey companies only if they are deemed by the Panel on Takeovers and Mergers to have their place of central management and control in the United Kingdom, the Channel Islands or the Isle of Man. It is proposed that the code will be put on a statutory footing in Jersey by way of the Companies (Amendment No 2) (Jersey) Regulations.

Shareholders will have the benefit of knowing that the code will apply to Jersey companies provided that the management and control of an AIM-listed company takes place in the United Kingdom, the Channel Islands or the Isle of Man. If it is desirable to avoid the application of the code, this can be achieved by ensuring that management and control take place outside the United Kingdom, the Channel Islands or the Isle of Man. In such cases the potential tax implications of management and control taking place outside Jersey will need to be considered.

Jersey Taxation

Jersey offers a relatively simple and favourable income tax regime. No capital gains, capital transfer or corporation tax is payable in Jersey and no stamp duty is payable in Jersey in respect of the transfer of shares in a Jersey company.

A Jersey company seeking a listing of its securities on AIM will generally apply for exempt company status. Companies with exempt status pay no tax in Jersey on income arising outside Jersey and, by concession, bank deposit interest arising in Jersey. However, if an exempt company carries on trading activities in Jersey through an established place of business in Jersey, income tax will be charged on the profits derived from such activities. However, exercising control of an exempt company by holding board meetings and entering into contracts and undertaking clerical or administrative activities in Jersey will not cause the company to have an established place of business in Jersey for this purpose.

Exempt companies that are not collective investment funds do not have to make any withholdings in respect of Jersey income tax from interest or dividend payments made by them to shareholders (whether resident in Jersey or not) or payments of directors' fees to directors not resident in Jersey.

The principal conditions for obtaining exempt status are as follows:

• Unless the company applying for exempt status is a collective investment fund, no resident of Jersey is permitted to have a beneficial interest in the company. Where more than 10 persons are beneficially interested in an exempt company, an interest of up to 10% of the shares will not be regarded as a beneficial interest for these purposes. Further, by concession, the holding of shares by a Jersey resident in an exempt company whose shares are traded on a recognized stock exchange (including AIM) is not regarded as a beneficial interest, provided that the holding is de minimis or clearance has been obtained from the comptroller of income tax. An application for clearance should be made so the company does not have to concern itself about Jersey residents acquiring its shares in the secondary market.
• An application for exempt status must be made before March 31 in the year of the tax assessment or within three months of the date of incorporation.
• Details of beneficial ownership of an exempt company must be supplied to the JFSC annually. This information is kept confidential.
• A fee must be paid in advance to the comptroller of income tax (currently £600 per year).

Provided that these conditions are met, securing exempt status is usually quick and easy.

The Jersey government has indicated that it intends to propose legislation to replace the exempt company by the end of 2008 with a general zero rate of tax.

Jersey Tax Residence

In January 2007 the Jersey Income Tax Law was amended so that Jersey incorporated companies will not be regarded as tax resident in Jersey if they are centrally managed and controlled outside Jersey in a country or territory where: (i) the highest rate at which any company may be charged to tax on any part of its income is 20% or higher; and (ii) the company is resident for tax purposes in that country or territory. This amendment should address any concern that may have existed in some jurisdictions that the payment of the exempt company fee to the comptroller of income tax may be treated as the payment of tax.

The change will be helpful for AIM-listed companies that do not wish to be tax resident in Jersey and do not wish to be Jersey exempt companies.

UK Taxation

It should be possible to structure a Jersey AIM-listed company so that it does not fall within the UK charge to tax as long as it is managed and controlled outside the United Kingdom.

Uncertificated Securities: CREST

Jersey companies listed on AIM can use the CREST system to hold and transfer their shares and other securities in electronic or paperless form. This is because CRESTCo Limited has been recognized as an overseas operator for the purposes of the Companies (Uncertificated Securities) (Jersey) Order 1999.

Administrative Requirements

Under Jersey companies law, a Jersey company must maintain its registered office and a share register in Jersey. Given the volume of trading in the shares of a Jersey-listed company, it will be necessary for the company to appoint a Jersey-based share registrar. In order to avoid UK stamp duty being payable on the transfer of shares in a Jersey company with an AIM listing, the register of members of the company must be maintained in Jersey. There is no Jersey legal requirement for the company to appoint Jersey-resident directors (unless it is a collective investment fund).

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