In 2009 Jersey added to its tool kit of wealth planning and financial vehicle structures by introducing the Foundations (Jersey) Law 2009 (the Law). As of December 2020, 400 foundations had been registered with the Jersey Financial Services Commission (JFSC). Philanthropic foundations are estimated to make up one third, and the rest are part of charitable, private equity, or private wealth asset holding structures.
A foundation is a legal person which acts in its own name through 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 operates in a trust arrangement.
The Foundations tool kit was strengthened with the addition of conversion, merger, and continuance regulations[i] and in 2015 the Minister published an updated list of foreign recognised entities that may merge with or continue (migrate) as a Jersey Foundation. These are attractive options for families / HNWIs who have structures in the relevant jurisdictions which may no longer be suitable homes for their planning. Take Liechtenstein as an example. Under pressure from the EU and to avoid being labelled an “uncooperative jurisdiction”, Liechtenstein agreed to make necessary changes to its tax laws by December 31, 2018. Structures in existence at the time have been given a grace period - the anti-avoidance regulations introduced as from 1 January 2019 will apply to these structures as of 2022. The changes will affect the tax exemption on dividends and capital gains as well as the tax deductibility of depreciations and capital losses resulting from the sale of participations. According to the new rules, dividends and capital gains are treated as taxable income if they derive from investment/participation in a foreign company, more than 50 per cent of the income arises from a “passive business activity” (i.e. not from actual economic activity), and the dividend-distributing company is taxed at a lower rate. In addition, depreciations on participations and capital losses are added back to the taxable income.
With the loss of such exemptions and related tax planning efficiencies, clients are looking to move their Liechtenstein foundations elsewhere – and Jersey is an attractive destination. The Foundations merger / continuance regulations allow for a seamless transfer or conversion of the 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, which is 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 in detail 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 any particular reason for publicity (such as for charitable objectives) the Charter will not, however, usually disclose the identity of the Founder or any Beneficiaries. Historically it has not disclosed the identity of the first Council members. However, by way of the introduction of the Financial Services (Disclosure and Provision of Information) (Jersey) Law 2021, which came into effect on 6 January, the following information relating to individuals who are ‘Significant Persons’ (in relation to Foundations, its council members) will be included on the JFSC public register:
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
Incorporation of a Foundation is undertaken by a ‘Qualified Person’ i.e. an individual or corporate entity licenced under the Financial Services (Jersey) Law 1998 to conduct the relevant financial service (trust and company business). The Council itself 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 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. The Law provides that the council members shall (mirroring Jersey trust law):
Despite the apparent mirroring of trust law principles, any persons (e.g. members of the council or a guardian) appointed under the regulations 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, release or excuse a person appointed under the Foundation from any liability for that person’s fraud, wilful misconduct or gross negligence.
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 types of structures are fundamentally different. A Foundation Beneficiary has no interest in the Foundation or its assets and unless the Charter or Regulations provide otherwise, a Foundation has no obligation to disclose any information concerning the Foundation, its administration or its assets to any person (including any Beneficiary).
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. He or it may have powers akin to that of a protector of a trust.
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 assessed to Jersey income tax (on that income). Where a company receives income from a Foundation, this will be chargeable to tax at 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
As mentioned above, the Continuance Regulations also permit the continuance of certain ‘recognised entities’ (incorporated outside Jersey) as Foundations incorporated under the Law; and the Foundations (Mergers) (Jersey) Regulations 2009 permits the merger of such ‘recognised entities’ (as well as Jersey companies) with Jersey Foundations.
The following classes of body corporate are ‘recognised entities’:
Procedure For Continuance Or Merger
The process of continuance or merger is undertaken by a Qualified Person acting on behalf of the entity that wishes to merge or continue in Jersey and is relatively easy to follow from the regulations with the right advisors in place. Apart from the documentary agreements and filings, the following 3rd party notifications must be complied with.
The JFSC will set the fees and determine the level of information required. With the Island’s professionals it acts as gatekeeper to maintaining and protecting the Island’s integrity and it is that blue chip integrity that attracts respected successful families and entrepreneurs to the financial services offered within the Island.
[i] However, of these, 224 remain active with 177 having been deregistered / dissolved.
[ii] Foundations (Continuance) (Jersey) Regulations 2009 and Foundations (Mergers) (Jersey) Regulations 2009.
[iii] It can be downloaded from the JFSC companies register on payment of a small fee.
[iv] Income Tax (Jersey) Law, 1961.
Craig is Partner at Dickinson Gleeson in Jersey, specialising in Trusts and Private Client matters, as well as Insolvency. Craig practiced as an attorney in South Africa from 1994 to 2001 before moving to Jersey in 2002. He requalified as an English solicitor in 2004 and as a Jersey advocate in 2009.