Keith Dixon examines the Jersey finance industry which, in its sixth decade, continues to lead the way in offshore finance by constantly evolving its suite of services, products and practices.
Although the impact of the financial crisis of 2008 continues to be felt around the globe, Jersey has weathered the last four tumultuous years successfully and is now consolidating its position as one of the world's leading offshore financial centres.
This trend is best seen in the Island's growing presence on the international stage. For the second consecutive year Jersey was judged the ‘International Financial Centre of the Year’ in the Citywealth International Financial Centre Awards. In 2012 the Island achieved first place at the International Fund and Product Awards, was also voted Best Offshore Centre 2012 by Global Investor/ISF Management 2012 Awards and was named Outstanding International Wealth Financial Centre by the Private Banker International Awards.
Statistics collated by Jersey Finance (the Island's representative body for its financial industry) on the financial service industry, and published in its quarterly report for the period ended 30 September 2012, show that the Island's industry has remained stable and secure. That report notes that:
the net asset value of funds under administration increased by £0.1bn from £189.4bn to £189.5bn during Q3 2012;
the total number of unregulated funds increased to 175 during the third quarter;
the value of total funds under investment management increased by £0.2bn from £20.7bn to £20.9bn during the third quarter of 2012;
the total number of live companies stood at 32,628 at the end of September 2012; and
whilst the total value of banking deposits held by Jersey decreased marginally by £1.7bn from £150.4bn to £148.7bn during the third quarter of 2012, this was due mainly to the effects of a strengthening pound.
These are encouraging figures, particularly in respect to the funds sector. Specialist funds in asset classes such as hedge, private equity and real estate are flourishing in the Island's finance market; these alone represented 70 per cent of the total net asset value of funds under administration at the end of the third quarter, demonstrating Jersey's expertise in these asset classes.
Other official publications suggest that the Island has ridden out the worst of the global recession well. Inflation remained within government expectations; the Jersey Retail Price Index (RPI) (the government's measure for inflation) for the 12 months prior to December 2012 saw an increase of 2.1 per cent. The States Statistic Unit report, Jersey Economic Trends 2012, show that the Island once again produced an annual gross national income (GNI) of over £4 billion, maintaining 2008 levels after a decline in GNI in 2009. Jersey's GNI per capita still represents one of the world's highest. The trust and company administration and legal sub-sectors saw a growth in their net profits in 2011 of about a quarter (27 per cent) and a third (32 per cent) respectively. In addition the Jersey Business Tendency Survey published in December 2012, saw a significant improvement for the financial sector on the previous quarter. The Business Activity Indicator was positive for the first time in 12 months.
There is ample evidence to show that Jersey is not only maintaining its reputation within the global market but also enhancing it. The Island's high standing has been long recognised by the Global Financial Centres Index (GFCI). That organisation’s latest report (published in September 2012) continues to rank Jersey as the top leading offshore centre, a position which the Island has held for the past six GFCI publications.
In the first half of 2012 Jersey ranked 21st in the global financial institution rankings, however, in the second half of 2012 Jersey entered the prestigious "top 20" at 19th place in this much coveted and respected forum. Jersey was the only newcomer and offshore jurisdiction to enter into the top 20. By comparison Guernsey, the Cayman Islands, the Isle of Man and the British Virgin Islands ranked at 31st, 40th, 41st and 45th place respectively.
The Island was once again in GFCI's top 10 world locations for wealth management alongside cities such as London, New York and Hong Kong and the only offshore jurisdiction to feature in this category. Additionally the GFCI global market forecast is positive for all offshore jurisdictions with it predicting that they will become either “a little more or a lot more competitive over the next three years”.
Tax Information Exchange Agreements
Jersey continues to demonstrate its firm commitment and genuine desire to engage in international co-operation in addressing harmful tax practices through transparency with the exchange of information on tax matters and by building strong and mutually beneficial global relationships.
Since it signed its first Tax Information Exchange Agreement (TIEA) with the USA in 2002 Jersey has signed a further 31 TIEAs in total, a significant proportion of those with EU and G20 nations. The most significant TIEAs to be signed in 2012 were with Brazil and Latvia. TIEAs with Austria and Italy are expected to be signed in the first half of 2013. There are a further four TIEAs that have been initialled or agreed and are ready for signing and these are with Greece, the Republic of Korea, Spain and Switzerland. There are also a number of TIEAs in the pipeline; negotiations are well advanced with Belgium, Chile, Hungary, Kenya, Lithuania, Slovakia, Slovenia and Romania.
As a consequence of its commitment to openness in respect of tax (whilst at all times protecting the tax payers' privacy), Jersey has maintained its ‘white-listed’ status with the OECD. Since 2006 there have been 140 requests made under various TIEAs, 46 of which were made in 2012. In all cases Jersey does not comply with a request made under a TIEA as a matter of routine. Any application which is a ‘fishing expedition’ or which lacks the evidential support required by the relevant TIEA will be refused.
Double Taxation Treaties
In addition to TIEAs Jersey continues to build its network of Double Tax Treaties (DTAs). DTAs have now been signed, and are in force, with Hong Kong, Qatar, Singapore, Guernsey and the Isle of Man. A DTA with Luxembourg is on the cusp of execution. Further DTAs with Bahrain and the Seychelles are expected to follow in 2013.
Tax Regime Updates
Jersey's corporate taxation rules, the ‘Zero/Ten’ regime, are a viable, strong and easily understood regime. These rules were approved by the Council of Ministers of the EU in Brussels on 19 December 2011. The result of this decision is that the tax neutrality offered by the tax regime in Jersey has been confirmed as being compliant with EU code of conduct principles.
Funds and the AIFM Directive
The gross asset value of the fund sector in Jersey is valued at over £240 billion, an indication that Jersey has been a prominent player in delivering fund services since the 1960s. In particular the alternative asset classes remain strong in Jersey, representing around 70 per cent of the total funds business.
The introduction of the Expert Fund Guide in 2004, which streamlined the approval process for many specialist funds, enabled the Island to compete effectively for hedge fund, private equity and other specialist funds business alongside other comparable centres. Jersey has since extended the streamlined approval process for simple permits for functionaries of certain non-Jersey domiciled funds and introduced a fast track process for close ended collective investment funds listed on recognised exchanges.
The publication of the European Commission's Level II implementation rules in respect of the Alternative Investment Fund Managers Directive (the ‘Directive’) has not caused any difficulty for the Island. Jersey Finance's recent press statements opine that it will be "business as usual for fund business in Jersey throughout 2013 and beyond".
From July 2013 Alternative Investment Fund Managers (AIFMs) domiciled in Jersey will, under proposed new regulations, be able to elect to comply with regulations equivalent to those corresponding to the Directive, whether on a select basis, to comply with the transparency/disclosure and control provisions of the Directive, or more generally. Whereas, AIFMs domiciled in the EU will need to apply to be authorised under the Directive and to comply fully with its terms subject to certain grandfathering provisions, maximum thresholds (€500 million ungeared and €100 million geared AUM) and exemptions.
Jersey as a non-EU 'third country' for the purposes of the Directive will not need to comply with the Directive when it comes into force for EU Member States in July 2013. Instead Jersey will, at least until 2018, continue to facilitate funds business as normal within the EU through national private placement regimes. Jersey's fund regulator is already fully engaged with the regulators of Member States where Jersey funds are marketed to finalise the individual agreements required for this.
Jersey is also committed to introducing the option of a fully Directive-compliant regime and obtaining an EU-wide passport to allow managers to market alternative funds to investors across the EU by 2015 (which is the earliest permissible date for 'third countries').
At the same time, as a non-EU jurisdiction Jersey is able to offer fund managers a further choice, the option of maintaining a separate regime outside the scope of the Directive. This will be attractive to managers who neither want to access EU capital nor operate in the EU.
Accordingly, Jersey is ideally placed to continue to facilitate alternative investments funds business into Europe through national placement regimes while at the same time being able to offer flexibility to fund managers seeking to remain outside of Europe by maintaining a completely separate regime outside of the AIFM.
New Structures, Products and Markets
There have been a number of significant enhancements to Jersey's offering of structures and products in the past year.
Firstly, changes were made to the Trusts (Jersey) Law 1984 during 2012. The Trusts (Amendment No 5) (Jersey) Law 2012 came into force on 2 November 2012 in order to make Jersey an even more attractive destination for private wealth management. In broad outline the amending legislation brought about the following beneficial changes to Jersey proper law trusts.
A professional trustee now has a statutory right to receive reasonable remuneration for its services where the trust instrument is silent in this regard.
There is now an absolute limitation period of 21 years for bringing any breach of trust against a trustee from the date in which the breach occurred (save for actions brought against a trustee in respect of fraud).
The position has been clarified in respect of chain indemnities whereby a former trustee now has a statutory right to enforce a term of an indemnity conferring any benefit on it irrespective of whether or not it is a party to the indemnity in question.
The law now expressly permits a trustee to enter into a contract with itself in its capacity as trustee of two or more trusts.
Jersey's domestic conflict of law provisions have been clarified in that any questions regarding the variation of Jersey trusts by foreign courts and the nature and the extent of any beneficial rights or interests in the trust property of Jersey trusts are also exclusively matter of Jersey law.
Whilst predominantly known for its trust law expertise, Jersey continues to promote the Jersey law foundation (a ‘creature of statute’, which came into being in July 2009) as an alternative wealth holding vehicle. This new product continues to gain momentum as a versatile general purpose investment holding vehicle. There are now just over 200 foundations registered in the Island, about 90 of which were incorporated in 2012.
Secondly, Jersey updated its Limited Liability Partnerships (‘LLP’) Law on 16 January 2013. LLPs were first introduced into Jersey law in 1997 but there was little enthusiasm for the new entity owing to a requirement contained in the original statute which obliged the LLP to maintain a bond worth in excess of £5,000,000. The changes made to the 1997 statute in early 2013 sweep away this onerous requirement and introduce a new, more commercial, form of creditor protection through annual solvency statements. A consequential amendment to the Jersey income tax law, which came into effect on the same date as the amendment to the LLP law, confirms that profits and gains arising from the international activities of a non-Jersey resident partner in a Jersey LLP are not subject to taxation in Jersey.
Given that Jersey also recognises limited partnerships, incorporated limited partnerships and separate limited partnerships, the revised LLP Law means that Jersey can offer a full suite of limited partnership vehicles each with its own helpful, and commercially attractive, features.
Whilst there have been no significant changes to Jersey's company law in the past 12 months, Jersey Finance announced in February 2013 that the Company (Jersey) Law 1991 will be updated in 2013 through a planned program of amendments designed to ensure that the Company Law remains at the forefront as a world leading and versatile piece of usable legislation. Likely amendments will include:
increased flexibility on the movement of funds between profit and capital accounts;
the removal of vestigial rules on commissions and discounts;
the provisions of an out of court alternative to facilitate reduction of capital; and
regulation-making powers which will lead to the introduction of formal demerger procedures for companies.
The Jersey company is a fundamental part of the offshore financial industry. There are 95 Jersey companies listed on the worldwide stock exchanges including London, Hong Kong and New York, with a combined market capitalisation of over £153 billion. Jersey also has the greatest number of FTSE 100 listed companies registered outside of the UK. It is envisaged that the amended legislation will only serve to make Jersey an even more attractive corporate destination.
Jersey's long term commitment to the Indian market place was reaffirmed through a Jersey Finance led visit to Mumbai and Delhi in December 2012. India remains a key long-term market for Jersey with India looking to Jersey to assist its expanding middle class with sophisticated succession planning and wealth management expertise particularly in the use of foundations.
In February 2013 Jersey launched a ground-breaking pension scheme for expatriates by a UAE bank. NBAD Trust Company (Jersey) Limited, a wholly owned subsidiary of the National Bank of Abu Dhabi PJSC (NBAD) launched its Wealth Builder Plan, the first ever pension scheme for expatriates by a UAE Bank. The scheme allows employers in the UAE the ability to offer their expatriate staff enhanced corporate savings and pension options having been specifically designed for domestic and multi-national companies that employ expatriates. Cleary this is a strong reflection both of Jersey's strong relationship with the UAE and Jersey's international wealth expertise.
Looking forward in 2014 and beyond, Jersey plans to consolidate and build upon the platforms in place through the opening of offices and representations in Abu Dhabi in the Gulf, Mumbai and Delhi in India and Hong Kong and supported by the formation of new community groups for these regions as well as Russia. It is also planned that finance representatives will travel to Saudi Arabia for the first time to extend Jersey's global reach.
Jersey's finance industry continues in its sixth decade to offer an attractive, stable, secure and tax neutral business environment in an increasingly uncertain and complex world. By constantly updating and evolving its suite of services, products and practices, it has demonstrated a strong commitment to the finance industry and in doing so has consolidated its position on the global stage.
Keith Dixon Senior Associate
Carey Olsen Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Jersey, Cape Town, Hong Kong, London and Singapore.