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Expat Briefing Editorial Team, 16 October, 2013
Its taxes are low, its climate is clement, its financial centre is stable and growing, and it is but a short hop by plane from the global city of London or by boat to the gastronomic and cultural delights of Normandy. But is Jersey a suitable place to live for those considering expatriating? Or is the island a more suitable home for your finances, rather than you and your family, during an extended period of expatriation elsewhere in the world?
The largest and most southerly of the Channel Islands between England and France, Jersey is a self-governing British Crown Dependency, with a population of around 95,000 (July 2013 est.) people, which includes a small community of mainly British expats. Despite being only 45 square miles, it is as bustling and active as offshore jurisdictions many times its size, and the moderate climate means that outdoor activities such as golf, swimming, water-sports and cycling are enjoyed by all its citizens.
As is the case in all of the Channel Islands, Jersey is exceptionally politically stable, and relationships with the United Kingdom, (which is responsible for its external affairs, such as dealings with the European Union), and with its peers are always cordial and respectful. The currency is the Jersey pound, which is on a par with the British pound, and there are no exchange controls.
In terms of living costs, prices are broadly the same as in the UK, although there is some divergence. Certain items, for example foodstuffs, are more expensive as a result of the various costs incurred in transportation. However, other goods benefit from the lack of VAT (although a Goods and Services Tax was introduced at a rate of 3% in 2008, later increased to 5% in 2011), and the low level of excise duties on the island. Housing is one major area in which prices are usually significantly higher than in the United Kingdom.
Banking, Wealth Management and Asset Protection in Jersey
Although Jersey is widely recognised in the institutional investment world as one of the leading jurisdictions for pensions and insurance fund management, other areas of expertise are perhaps more of interest to expats, international consultants, and HNWIs.
Jersey is particularly well known for its banking and trust sectors, and the long established nature and popularity of these areas of expertise has meant that a good financial and business infrastructure has been established. The banking system is also extremely stable. Banking deposits have declined steadily since peaking at GBP212bn at the end of 2007, to stand at GBP150.4bn by the end of June 2012, an inevitable consequence of the financial crisis. However, the declining value of sterling and other currency movements have also been a major factor behind this trend. You are unlikely to lose your money in a Jersey bank however, and the Jersey deposit protection scheme provides individual depositors with protection for up to GBP50,000 in the event that a Jersey bank should fail.
The majority of the banks established in Jersey are branches or subsidiaries of the world's top banking establishments, and as previously mentioned, are in the main safe and well regulated, with capital adequacy levels not seen in many offshore jurisdictions. Advantageous tax treatment of interest income from Jersey bank accounts – excepting, of course, the Savings Tax Directive related retention tax – combined with this peace of mind, means that alone, or in combination with other offshore structures, bank accounts in Jersey are a good bet.
The efficient infrastructure, which includes internationally qualified IFAs, accountants, lawyers, and stockbrokers, is also an important factor, and they should be able to provide you with information and support both in deciding whether it is appropriate to locate your assets in Jersey, and in the succeeding years if you choose to do so.
Jersey can also be a beneficial location in which to establish an offshore structure, whether for the purposes of asset protection, or to serve as a business presence for global consultants and other such self-employed professionals.
Although having any sort of presence in Jersey, whether that is a bank account, a company or a residence there, may put you on the radar of the tax agency in your country of origin, tax evasion or money laundering via a Jersey offshore structure is actually very difficult to accomplish, as beneficial ownership for all Jersey based companies and vehicles must be disclosed to the authorities. However, it will never be disclosed externally except by order of the Royal Court. Not that we are in any way condoning tax evasion of course. But, tax minimisation, in conjunction with the laws of the island, remains eminently possible.
Probably the most appropriate vehicle in Jersey for expats or non-UK citizens in need of asset protection for estate planning or other purposes (and in addition to, or in combination with a Jersey bank account) is the Jersey trust. The normal form of trust in Jersey is a discretionary trust, and where the beneficiaries of the trust are non-resident, income arising from sources outside Jersey is not liable for income tax there, and neither are distributions to the beneficiaries.
Although the costs involved in setting up and maintaining a Jersey trust can vary considerably, the creation of such a structure is free from government duty at least. Trust law in Jersey explicitly excludes foreign inheritance laws, and except in cases of proven criminal wrongdoing, foreign judgements are rarely recognised.
The foundation may also be an attractive possibility. In introducing the Foundation, Jersey became the first Crown Dependency to offer the structure and according to Jersey Finance, there was keen interest in the new law from the start; five Foundations were established on the day that the law came into force and more than 40 registrations to allow practitioners to establish Foundations were approved in the week after the law was introduced.
Foundations have a long history in continental Europe. In medieval times they were used for charitable or religious purposes. They are now commonly used for wealth management, and residents of jurisdictions like the Middle and Far East are more familiar with foundations than with trusts, which do not exist in their legal systems.
The regulations permit foundations to migrate in and out of Jersey. They also provide for existing Jersey companies to convert to foundations.
Residence and Taxation
Residence in Jersey for taxation purposes is divided into three categories: Residence, Ordinary Residence, and Non-Residence. Few jurisdictions employ the concept of ordinary residence any more, but it is not complicated, and really just implies a greater continuity than simple residence. A person is considered to be Jersey resident for tax purposes if they are:
Income tax is levied at one rate of 20%, and resident and ordinarily resident individuals are subject to tax on their world-wide income. Resident but not ordinarily resident individuals are subject to tax on Jersey-source income and foreign income remitted back to the island, and non-resident individuals are taxed only on Jersey income, with interest payments from Jersey-based bank accounts exempted from this by concession (but see above regarding the EU's Savings Tax Directive).
Although social security contributions are payable, and property owners may be liable for some parish taxes, there is no property tax, capital gains tax, wealth tax, or estate tax payable in Jersey. These factors, combined with a special tax regime for ‘high value residents’ (explained in more detail below) may account for Jersey’s popularity as a destination for HNWIs.
A ‘zero/ten’ tax system for companies has applied from 2009. This was achieved by introducing a standard rate of corporate income tax of 0%, and a special rate of 10% for specified financial services companies, into the Island’s existing schedular tax system. Utility companies, rental income and property development profits continue to be charged at the standard income tax rate of 20%.
For more detailed information on liability for tax in Jersey, please visit the Lowtax Jurisdictions Guide.
The Savings Tax Directive
In May, 2002, it became clear that Jersey, along with its fellow UK dependent territories Guernsey and the Isle of Man, was ready to sign up to the EU information-sharing regime under Brussels’s Savings Tax Directive (STD) if that became necessary; but after the EU finally reached its compromise agreement on the Directive in early 2003, Jersey decided, along with Guernsey and the Isle of Man, to apply a withholding tax to the returns on personal savings for EU residents.
This is known locally as a 'retention' tax, and was levied at 15% from 2005, when the Directive came into force until 2007; from 2008 the rate was increased to 20%, and from July, 2011, it was increased again, to 35%.
After Guernsey and the Isle of Man both switched from the withholding tax system to information exchange in 2011, the Government of Jersey confirmed that it would follow suit on January 1, 2015. Jersey's chief minister, Senator Ian Gorst, said in 2013 that: “Having regard for the outcome of the European Union Council meeting in June this year, and the call of the G20 Finance Ministers at their meeting in July on all jurisdictions to commit to automatic exchange of information, we consider this is now the right time to announce the proposed change from the retention tax.”
Jersey As A Location For Career Expats And Retirees
Jersey, in common with some of the other island jurisdictions, for example Guernsey, the Isle of Man, Bermuda, and the Cayman Islands, has a good standard of living but limited space and resources as a result of a comparatively dense population.
Therefore, although it is possible to achieve short-term residence for employment purposes, or long-term residence if you are suitably qualified (in either the traditional or financial sense!), achieving permanent residence in Jersey is no mean feat.
For the majority of expatriates, the two issues mentioned above are inextricably linked, as there are really only two ways to obtain residence on the island; on economic grounds, or on employment grounds.
To potential high value residents, the Jersey Government offers a very personal, individual and confidential support mechanism. This is designed to make the application process as clear and speedy as possible while ensuring that all aspects are fully covered. All applications are dealt with through a single point of contact, the Director of High Value Residency. An initial response to an application is normally provided immediately, with a final response issued within 10 working days. Once approved, the service continues to provide full assistance to the newly resident, from providing information on housing and schooling to mooring your boat
Although there are no hard and fast rules about who will be accepted, and normally only 5 or 10 approvals have been granted each year, the following criteria may be considered when the application is being processed:
In addition to this, new residents accepted on economic grounds are expected to purchase a substantial luxury property, preferably with a value in excess of hundreds of thousands of pounds.
To meet the current requirements, applicants would normally be expected to generate sufficient income so that – at the present rates of tax – their annual tax contribution is in the region of GBP125,000. As part of the application process consideration will be given to the total net worth of the applicant (usually capital worth in excess of GBP10 million is preferred), in order to be satisfied that the applicant has sufficient wealth to generate the expected future tax revenues.
With effect from 1 July 2011, high value residents that are new to the Island will be taxed on the following scale:
The object of the reduced tax is to attract high net worth individuals to invest their wealth in the Island.
Non-HVRs do not have to agree a minimum income tax contribution with the authorities. These individuals are subject to Jersey's general income tax rules and will pay tax at a standard rate of just 20% on their worldwide income (including Jersey source income).
In many instances, managers will also benefit from the favourable ‘benefits in kind’ rules that apply, for example, to share incentive schemes and proprietary investments in funds managed by them. Generally, any initial benefit obtained when purchasing such shares will be taxable but the subsequent growth in value will be free of Jersey tax. Taken together with the Social Security benefits, this means the tax treatment of such benefits in Jersey is far more attractive than, for example, in the UK.
Social Security payments in Jersey are low compared to many jurisdictions and payroll savings can, therefore, be made by moving to Jersey.
Achieving permission to reside and work on the island is a less expensive business, certainly, but is still not easy! Nationals of EU member states have free right of movement in Jersey, and do not need to apply for work permits (non-EU member country citizens must apply for permission from a British Embassy or High Commission to reside and work on the island), but employers still need to apply for a license in order to employ them.
Residency rules have been tightened up in Jersey with the enactment of the Control of Housing and Work Law 2012, which came into effect on July 1, 2013. The law introduces registration cards so that employers, landlords and property agents can confirm a person’s residential status before they move into a property or start work in Jersey.
Under the new law, the system for residential qualifications has also changed. Four new categories have been introduced which determine where a person can live and work. These are explained in the following table:
Someone who has lived in Jersey for 10 years
Can buy, sell or lease any property
Can work anywhere and doesn’t need a licence to be employed
Someone who is an “Essential Employee”
Can buy, sell or lease any property in their own name provided that they retain Licensed status
Employer needs a licence which specifies the maximum number of Licensed employees permitted
Entitled to Work
Someone who has lived in Jersey for a continuous period of 5 years immediately preceding the date of issue of the card, or is married to someone who is Entitled, Licensed or Entitled to Work
Can buy property with Entitled spouse/civil partner. Can lease “registered” property (the new name for unqualified property) as a main place of residence
Can work anywhere and doesn’t need a licence to be employed
Someone who does not qualify under the other categories
Can lease “registered” property as a main place of residence
Employer needs a licence which specifies the maximum number of Registered employees permitted
Under the changes, all existing “A-H”, “A-J”, and “A-K” properties are classified as “Qualified” property. In general, all other property is “Registered”.
Jersey’s Advantages – A Summary
So is Jersey a suitable location for you and/or your assets? Should you establish a business presence there? It depends, of course, on your personal circumstances. However, due to a number of factors, including time zone, and language, which it shares with all of the Channel Island jurisdictions, Jersey is most suitable for UK (non-resident) expatriates, foreign residents living and working in the UK, expatriate consultants and business people and European citizens.
If you belong to any of the above groups, and have liquid assets which you would like to protect for the future, would like to establish a personal service company, or would simply like to take advantage of the tax advantages afforded to non-residents, then Jersey could well be ideal. Below are just some of the factors in Jersey's favour:
What About Jersey’s ‘Offshore’ Status?
Jersey has a reasonably settled relationship with the multilateral organisations of the moment, namely the EU, the Financial Action Task Force (FATF), and the Organisation for Economic Co-operation and Development (OECD), although there was some friction with the latter in the early stages of its 'harmful tax competition' initiative. In the OECD's latest listing of offshore jurisdictions in April 2009, Jersey was placed in the 'white' section of the three-tier classification.
The island is not a member of the European Union, and as such is not necessarily obliged to comply with the Union's various tax initiatives, although the UK often tries to exert pressure on it to do so. Recently the EU has been pressurizing Jersey (as well as Guernsey and the Isle of Man) to abandon their 'zero/ten' tax systems, under which non-financial companies pay zero tax, but after changes to the 'deemed distribution' regimes operated in the islands, their tax systems are now deemed to be in compliance with EU rules. Jersey has also just agreed to sign up to a new automatic information sharing agreement with the UK as part of the country’s renewed crackdown on tax avoidance.
Despite its close relationship with the UK, Jersey is excluded from most of the effects of Britain's accession to the EU, other than those concerning trade in goods. Its constitutional position in relation to Europe cannot be changed without the unanimous agreement of all EU member countries, which of course includes the UK, which never legislates regarding Jersey without consultation.
The bottom line is however, that Jersey is one of the most reputable and long-established offshore jurisdictions out there. Jersey was described on the occasion of the release of the first FATF 'uncooperative countries' blacklist as being in 'close to complete adherence' with the organisation's forty anti-money laundering recommendations, and due to the legal reforms put in place by the island’s Government since then, the jurisdiction is considered now as one of the most respectable all the offshore financial centres. Even David Cameron says so!
Because of the high standard of living, the relative wealth of the jurisdiction, and, of course, relatively low taxation, Jersey is quite a popular choice for high net-worth migrants in particular. But at the same time there are relatively few opportunities for obtaining permanent residence available. It is possible though; so if you have a substantial liquid net worth, and are prepared to contribute to the community, or if you are a skilled career expat, used to moving around fairly frequently, it could be just the place for you.
On the issue of whether Jersey is a good location in which to locate your assets and/or personal service company, however, there really isn't much dispute. Although obviously there are no guarantees in the offshore world, especially with the OECD vacillating on various issues, Jersey, in common with the other Channel Islands has a reasonably calm relationship with the major multilaterals, is politically stable, experienced in the areas of trust management, company formation and administration, and banking, and should present no problems in the areas of telecommunications or support services. It isn't the cheapest jurisdiction in which to locate an offshore vehicle, but neither is it one of the most expensive; all in all, Jersey strikes a good balance.