Tax Initiatives

Jersey’s Fiscal Strategy

In June 2004, the Finance and Economics Committee (F&E) of the States of Jersey (the Island’s legislature) lodged a proposition entitled ‘The Reform of Public Spending and Taxation’. The proposition represented the culmination of a six-year consultation process, and set out the Committee’s proposals for a framework for the future which will safeguard the Financial Services Industry as Jersey’s principal source of prosperity.

The proposition, which had been put forward as part of the Island’s response both to the EU Code of Conduct on Business Taxation* (see explanatory note below), part of the EU Tax Package and to emerging tax competition changes globally, asked the States, among others, to agree to the introduction of a 0% standard rate of corporate profits taxation and a 10% rate of corporate profits taxation for certain companies in the financial services sector, by 2008 for the first full year of tax assessment thereafter, ie. with effect from 1 January 2009.

The proposition was carried in the States by a substantial majority, and provides clear evidence of the strength of the Island’s political commitment to maintaining Jersey’s competitive position as a leading international finance centre.

In agreeing to the proposition, the States reaffirmed certainty for Jersey’s Financial Services Industry and its clients, and provided a secure basis on which to conduct future business.

Full details of the proposition [P.106/2004] can be obtained from: www.statesassembly.gov.je

Safeguarding the financial services industry in Jersey

In its proposition to the States, F&E stated that:

“The starting point for any long-term fiscal plan for Jersey must be the preservation and strengthening of the financial services industry. […]

The Committee has concluded that the future economic well-being of the Island is dependent on ensuring that Jersey is, and remains, internationally competitive as a place to provide international financial services.”

The 10% rate of taxation for local providers of international financial services will apply to most regulated financial services businesses which provide services from and have an established physical presence in the Island.

However, it is the intention of the proposed reform that certain types of regulated financial services activity (for example, client transaction entities involved in capital markets/securitisation structures, and certain types of functionary activity for collective investment funds) will be taxed at the general rate of 0%, in order to safeguard the competitiveness of those sectors.

Preserving the tax neutrality of Jersey vehicles and structures

Corporate entities

Providers of international financial services require the legal mechanisms to be able to deliver the type of financial services their customers require. One very important service is the provision of a corporate legal entity, resident in Jersey, which does not have its profits taxed in the Island. Such 'tax neutral' vehicles are currently available in Jersey through the Exempt Company structure, and are used in cross-border financial transactions, private wealth management structures and more widely.

However, the Exempt Company structure is not available to people resident for tax purposes in Jersey. International influence, particularly from the EU and the UK resulting from the initiative on harmful business taxation (known as the Code of Conduct on Business Taxation), means that Jersey no longer wishes to maintain a regime which includes any perceived discrimination between domestic and international customers.

In order to ensure that the providers of financial services can continue to offer the corporate vehicles they need for their international customers, the facilities of the existing Exempt Company structure will in effect be made available to residents as well as non-residents of the Island through a revised fiscal structure. This will be achieved by introducing a general rate of corporate profits tax in Jersey of 0%, thereby removing the discrimination between companies with resident and non-resident shareholders.

The 0/10 regime will also be designed to safeguard the other key elements of Jersey’s existing fiscal regime – for example, the intention of the reform is to ensure that it will continue to be the case that no withholding tax will be levied against interest payments or other distributions made by Jersey companies where that is (or would have been) the case under the present regime.

If you have any queries regarding these pages, please contact:

Martin De Forest-Brown
Director – International Finance
Policy and Resources Department
Tel +44 (0) 1534 440420
Email jr.harris@gov.je

Robert Kirby
David Wild
Technical Director
Jersey Finance Limited
Tel +44 (0) 1534 836004
Email robert.kirby@jerseyfinance.je

Other vehicles

A wide range of other vehicles are commonly used in the structuring of cross border financial transactions and in the provision of private client wealth management solutions. The most common of these are the trust and the Limited Partnership. All of these vehicles are currently tax neutral in Jersey and the intention of the reform is to ensure that they remain so following the introduction of the 0/10 Fiscal Strategy.

Explanatory note

*The EU Code of Conduct on Business Taxation

With the EU tax initiative there were two main concerns. One was that the Island’s favourable fiscal structure, with the exempt company and IBC facilities, would be eroded; the other was the extension to the Island of the EU proposals on the taxation of savings income and whether this would make the Island unattractive as a private banking centre both directly and indirectly (see separate page). In the event neither concern has been realised to the extent feared.

The Island has retained its existing exempt company facility until 2008 and the existing IBCs until 2011. In 2008 the Island will change from the present structure of a 20% tax rate applicable to all tax resident individuals and companies, and an exempt/IBC company facility for non-residents, to a new tax structure where companies generally (with certain exceptions) will be subject to zero tax and individuals will remain subject to 20%. This will mean that the zero exempt company facility will be replaced – but effectively maintained – by the introduction of a general zero rate of tax applying to resident and non-resident companies.

To limit/offset the reduction in income tax revenues that will arise from this action, the Jersey authorities have proposed that:

• certain companies (expected to be those regulated by the Jersey Financial Services Commission as financial services providers) will be subject to tax at the rate of 10% (which will be a corporate rate in line with that expected of competing jurisdictions such as Guernsey, the Isle of Man and Dublin);
• for companies owned by Island residents there will be a 'look through' provision to ensure that the owners of companies are not able to take advantage of that ownership to limit their personal taxation;
• the adoption of a low rate broadly based goods and services tax to provide alternative tax revenue.

The result is that the finance industry can look forward to the future with confidence and the Island will remain highly competitive in maintaining its role as a premium international finance centre.