Offshore Services- Jersey

Introduction

Jersey continues to attract interest from the fund management industry, in particular hedge fund managers. Recent changes to Jersey's taxation, regulatory and housing policies have made Jersey an ideal location for those seeking to establish an offshore base for their hedge fund business.

Those considering Jersey as a potential location may already have considered a number of factors, including:

• living in Jersey;
• taxation benefits;
• work permits and housing qualifications;
• office space and hiring staff;
• establishing Jersey funds;
• servicing non-Jersey domiciled funds from Jersey;
• obtaining regulatory approvals; and
• service providers resident in Jersey.

Personal factors such as schooling, housing and access to health services will weigh heavily on the decision to relocate. This update explores some of these practical considerations in more detail.

Taxation Benefits

Jersey is renowned for its taxation benefits. The only significant tax is income tax, which has been set at 20% since 1940. There are no taxes on capital gains, inheritances or gifts. For those establishing a Jersey hedge fund business, a potential starting point would be the incorporation of a Jersey-owned and operated tax resident company. The standard rate of income tax for such a tax resident company is 20%, although it is expected that it will be reduced to 10% from 2009. This rate is generally charged on the company's adjusted profits after deduction of allowable expenses.

In terms of personal taxation, a standard rate of taxation of 20% will generally apply, but certain high net-worth individuals who are new to Jersey may be granted various concessions in respect of their taxable income. For these individuals, income will be taxed on all of their Jersey source income at 20%. The first £1 million of non-Jersey source income will also be taxed at 20%; however, the next £500,000 may be taxed at 10% and non-Jersey source income above the £1.5 million level may be taxed as low as 1%.

Work Permits and Housing Qualifications

Permits to work in Jersey are not generally required for British citizens or nationals of a member state of the European Economic Area. Citizens of other territories must have a visa and work permit to enter Jersey for employment.

To manage housing supply, Jersey's housing laws place restrictions on the ability to purchase and lease private accommodation. Those seeking to relocate and employ other investment specialists from outside Jersey may be considered as 'essentially employed' under the housing regulations and, subject to obtaining the relevant approvals from the housing minister, may be able to live in controlled or qualified accommodation.

With regard to high net-worth individuals seeking to relocate to Jersey, the housing regulations contain provisions enabling certain persons to acquire and live in high-value controlled or qualified accommodation. These provisions relate to persons bringing "significant economic or social benefit" to Jersey.

To obtain such an approval, an application to Jersey's housing minister will be required; such application will entail a consideration of:

• the individual's business;
• his or her background;
• his or her personal circumstances; and
• the economic and non-economic benefits to Jersey if such residency were granted.

As part of the application process, the minister will also have regard to the total net worth of the applicant and will need to be satisfied that the latter has sufficient wealth to generate the expected future tax revenues.

Office Space and Hiring Staff

An undertaking (ie, a trade, business or profession) in Jersey which involves the employment of staff (including the principals if they are engaged in the business) or the use of premises usually requires a licence under the Regulation of Undertakings and Development (Jersey) Law 1973.

Applications for a licence will involve the submission of a business plan and will generally be granted if considered to be in Jersey's best interests, having regard to factors such as: (i) the number of persons to be engaged, the extent to which this involves employees with skills or experience readily available in Jersey and/or whether the job opportunities to be created could be filled directly or indirectly through the recruitment and training of local residents; and (ii) any other facts bearing on the economic situation of Jersey and on the general wellbeing of Jersey residents.

Jersey's capital, St Helier, has approximately 2 million square feet of office space of differing grades and sizes and varying lease periods. Local agents are able to assist in locating suitable office space depending on the needs of the business to be established. With regard to recruitment, Jersey's funds industry possesses a wealth of local specialist talent in the area of funds and investments, as well as administration. Hiring from the local population is actively encouraged by the Jersey authorities.

Establishing Hedge Funds

For those involved in establishing, managing or promoting new hedge funds, Jersey's expert fund regime (which is applicable to certain Jersey domiciled funds) remains a popular choice. Generally, such funds (which can be open or closed-ended) can be marketed to an unlimited number of expert investors (normally, with a minimum investment of $100,000) and benefit from a light-touch self-certification approach and streamlined regulatory authorization process.

Jersey's expert fund regime has resulted in an ever-increasing number of funds being domiciled in Jersey. Jersey has an equivalent regime for non-domiciled funds (eg, those established in the Cayman Islands), which means that a fund should not need to redomicile to Jersey as a result of the relocation to Jersey of any of its advisers or service providers.

Regulatory Approvals and Permits

Those seeking to establish a Jersey-resident entity acting in the capacity of manager, investment manager, investment adviser or distributor to a specific fund or specific funds must obtain a permit from Jersey's financial regulator, the Jersey Financial Services Commission.

For a start-up business, at least four weeks should be allowed for the commission's approval process. Generally, this will involve a preliminary application to provide the commission with certain information (eg, the names of the principals, their background and reputation, and the proposed activities of the business) in advance of the more formal application, which would usually include a business plan.

More general authorizations to act as investment adviser or manager (eg, authorization enabling an investment manager to take managed accounts) generally take approximately six weeks to obtain from the commission.

Jersey Service Providers

Jersey is internationally recognized for the quality of its professional services and service providers, and plays host to many of the world's leading banks and financial institutions. In terms of Jersey-resident service providers (whether legal, accountancy, fund administration, company secretarial or compliance services), Jersey's ample supply of high-quality, well-regulated service providers should ensure that a new entrant to the fund industry can be appropriately supported.

International Law Office