Foreword John Rhodes Stonehage Law Ltd Australia Clayton Utz Allan Blaikie & Andrew Sommer Austria Dorda Brugger Jordis Rechtsanwaelte GmbH Paul Doralt & Martina Znidaric Bermuda Conyers Dill & Pearman Alec R. Anderson Canada Miller Thomson LLP Martin J. Rochwerg, Mary Anne Bueschkens & Rahul Sharma Cayman Islands Collas Crill & CARD Antony Duckworth & Wendy Stenning Cyprus Andreas Neocleous & Co LLC Elias Neocleous & Philippos Aristotelous England & Wales Macfarlanes LLP Jonathan Conder & Oliver Court France UGGC Avocats Line-Alexa Glotin Germany Flick Gocke Schaumburg Dr. Christian von Oertzen Gibraltar Isolas Peter A. Isola & Adrian Pilcher Greece Elias Paraskevas Attorneys 1933 Dimitris E. Paraskevas, John G. Mazarakos, Ioanna A. Kombou & Ioannis A. Sarakinos Guernsey Carey Olsen Laila Arstall India Khaitan & Co Bijal Ajinkya & Shabnam Shaikh Ireland Matheson John Gill & Allison Dey Israel Alon Kaplan Advocate, Herzog Fox & Neeman Law Office Meir Linzen, Guy Katz & Eran Lempert, Aronson, Ronkin-Noor, Eyal Law Firm Lyat Eyal Italy Carnelutti Studio Legale Associato Luca Arnaboldi & Gilberto Comi Jersey Carey Olsen Paul Matthams & Keith Dixon Malta Fenech & Fenech Advocates Rosanne Bonnici & Paul Gonzi Mexico Jáuregui y Del Valle, S.C. Miguel Jáuregui Rojas Monaco Donald Manasse Law Office Donald Manasse The Netherlands Arcagna Arnold van der Smeede New Zealand TGT Legal Pravir Tesiram Portugal Cuatrecasas, Gonçalves Pereira Diogo Ortigão Ramos & Maria João Ricou Singapore Allen & Gledhill LLP Sunit Chhabra & Mark Li South Africa HR Levin Attorneys Hymie Reuvin Levin & Gwynneth Louise Rowe Spain Cuatrecasas, Gonçalves Pereira Florentino Carreño & Carlos Ferrer Switzerland Lenz & Staehelin Jean-Blaise Eckert United States Kozusko Harris Duncan Stephen K. Vetter & Eric M. Dorsch Private Client Tax Jurisdictional comparisons Third edition 2015 General Editor: John Rhodes Stonehage Law Ltd
Transcript
Foreword John Rhodes Stonehage Law Ltd
Australia Clayton Utz Allan Blaikie & Andrew Sommer
Austria Dorda Brugger Jordis Rechtsanwaelte GmbH Paul Doralt & Martina Znidaric
Bermuda Conyers Dill & Pearman Alec R. Anderson
Canada Miller Thomson LLP Martin J. Rochwerg, Mary Anne Bueschkens & Rahul Sharma
Published in April 2015 by Thomson Reuters (Professional) UK Limited trading as European Lawyer Reference Series
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United States Kozusko Harris Duncan Stephen K. Vetter & Eric M. Dorsch 467
Contacts 485
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Foreword
ForewordJohn Rhodes Stonehage Law Ltd
Welcome to the third edition of Private Client Tax in the European Lawyer Reference Series. In the foreword to the first edition in 2010, I recounted how, against the advice of my peers, I had opted for a career on the private client side of the City of London law firm I joined after studying law at Cambridge. This proved to be an immensely stimulating choice, opening a world of challenging clients and problems with which I am still engaged some 47 years later.
Anyone opening this volume needs no convincing about the relevance and excitement of acting for wealthy private clients. Amongst them we count the wealth and job creators, whose role in our societies has never been more important than today.
Politicians spend at least as much time in aeroplanes as private client lawyers, but swept along in their motorcades from one meeting to another they fail to pick up the essential message that what western economies need at this stage of the cycle is less government interference, regulation and taxation and more stimulus from entrepreneurs. This is despite the clear evidence of history that countries adopting a tax-cutting, smaller government approach by and large provide more choice and a better standard of living for their citizens. In the foreword to the second edition in 2012, I questioned whether the policies advocated by François Hollande would serve his country well. The outcome is clear whatever statistics you choose – the French economy, his popularity rankings, or the number of his countrymen who have recently brought their families and their ingenuity across the Channel to England.
The simple truth is that western governments have become addicted to spending more than they raise in taxes. This, combined with dramatic increases in longevity, is a toxic brew, leaving them with two obvious solutions: increasing taxes or cutting expenditure, neither of which appeal to their electorates. But whatever combination of these two main policy strands governments adopt, the third weapon in their arsenal is making dramatic improvements in tax collection. In the years since our first edition was published, the focus on this last subject has been unrelenting, with the US authorities taking the lead after finally and very publicly losing patience with those who brokered the “banking secrecy” model. A new era of transparency has been ushered in via multiple Tax Information Exchange Agreements, complex Foreign Account Tax Compliance Act regulations and headline-grabbing penalty settlements paid by Swiss and other banks for encouraging past tax evasions.
All this was predictable, and indeed predicted by me and others from the early 1990s onwards. Some banks have responded by significantly reducing
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the services provided for wealthy international families. All such families have to rethink their objectives and their strategies depending where they and their assets are located. One function of this volume is to enable such families and those who advise them to keep abreast of developments in this respect.
One general comment I would make is that, whilst it is still possible for families to organise their affairs so they quite legitimately pay well under the standard level of tax levied on permanent residents of the main western jurisdictions, it will undoubtedly become increasingly difficult to maintain such a lifestyle. This is a result not only of the greater transparency I have already mentioned, but also of hardening attitudes even in those jurisdictions which have traditionally welcomed foreign wealth, such as the UK and Switzerland. In the 2014 UK Autumn Statement, the cost of the Remittance Basis Charge for non-UK domiciled taxpayers was increased, for those who have been resident in 17 of the past 20 years to £90,000 a year. Already we see clear evidence that only the extremely rich are prepared to pay such an annual levy. In Switzerland, the November 2014 referendum on the forfait has allowed cantons to continue that regime if they so wish, but the mere fact that the question was ever put to a country-wide vote underlines a general perception that too much wealth has become concentrated in the hands of too few. This same theme was highlighted by President Obama in a recent major speech and I am told also lies behind current political unrest in Hong Kong, where wage earners can no longer afford to live centrally.
Does all this mean that if the very wealthy are to head-off a concerted attack they should willingly contribute more generously towards their share of the social contract?
As before, the authors of our different chapters are all experts in their own jurisdictions. One sure sign of competence is an ability to distil a complex subject down to its essentials. That you will find here. None of the chapters however is intended to provide more than an overview: any detailed case will have to be analysed on its own facts. But the list of authors here provides a ready guide to those who are well able to undertake that task, jurisdiction by jurisdiction and across jurisdictions too.
The publishers and I were delighted with the enthusiastic reaction received to the first and second volumes, which has given us the confidence to move ahead with the third. I have no doubt it will be similarly well received. Thanks are due to all our contributors for making time in their busy schedules to enable us to do this.
John RhodesLondonMarch 2015
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Jersey
JerseyCarey Olsen Paul Matthams & Keith Dixon
1. NON-TAX ISSUES1.1 Domestic law1.1.1 Briefly describe your legal system and its originsJersey law is broadly similar to English law in some areas but differs substantially from it in many important respects.
The original source of much of Jersey law, the customary law of Normandy, dates from the 10th century. Since then Jersey law has developed away from its continental base and in recent years (particularly in tort, criminal, commercial and company law) has adopted many English legal principles. This process was largely brought about following the adoption of English as the main language in Jersey and the increasing number of Jersey advocates throughout the 19th and 20th centuries choosing to undertake their legal training as barristers or solicitors in England and Wales, Scotland or Northern Ireland, prior to being called to the Jersey Bar.
Jersey law is also found in statute. Although the British Crown retains power to legislate for Jersey on matters of international relations and national security, the freedom of Jersey to legislate for itself in domestic matters (including taxation and fiscal control) by the UK is well established by a series of Royal Charters and long-standing convention. Therefore enacted law most often originates with the States of Jersey (the States) leading to royal sanction by Her Majesty in the Privy Council.
1.1.2 What is the scope of your succession law?Jersey’s inheritance laws originate from Norman customary law. Unlike England, Jersey operates a forced heirship regime in the succession of movables. It also has separate succession rules for movable and immovable property and for testate and intestate estates. It is generally considered though that ownership of any property which is owned jointly by two or more persons will automatically pass to the surviving owner(s) on the death of any party outside of the ambit of Jersey’s inheritance laws.
Succession to movable property situated in Jersey is governed as a matter of Jersey law by the lex domicilii (the law of the deceased’s domicile at the date of death), whereas the succession to immovable property is governed by lex situs (where the property is situated).
In the intestate succession of immovable property the Wills and Succession (Jersey) Law 1993 (as amended) (the Succession Law) provides that the immovable estate devolves equally between the heirs-at-law and such heirs take as tenants in common. Under article 5 of the Succession Law where a spouse/civil partner dies intestate as to the matrimonial home
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(a defined term), unless under the provision of articles 6 or 7 the surviving spouse/civil partner is entitled absolutely to the matrimonial home, the surviving spouse/civil partner shall be entitled to a right of life enjoyment of the matrimonial home. Article 6 of the Succession Law states that where a spouse/civil partner dies intestate as to immovable property, the surviving spouse/civil partner shall be entitled absolutely to the whole of the immovable estate where there is no issue of the deceased, and to an equal share of the whole of the immovable estate with each of the surviving children of the deceased where the deceased leaves issue.
As regards the testate succession of Jersey immovables, a testator can leave his Jersey immovable estate by will almost entirely as he/she wishes, except that in the case of a married person or a person in a civil partnership, the surviving spouse/civil partner will have a right of “dower”, that is a life interest in one-third of the deceased’s immovable property at the date of death which will rank in priority to any dispositions made by will.
In the case of a Jersey domiciled person owning movable property, article 7 of the Succession Law provides that where that person dies intestate leaving a surviving spouse/civil partner but no issue, the surviving spouse shall take the whole of the net movable estate. Where the deceased leaves a surviving spouse/civil partner and issue, the surviving spouse/civil partner shall be entitled to the household effects, other movable estate to the value of £30,000 and half of the rest of the net movable estate and the issue shall take the other half of the rest of the net movable estate. If the person dies leaving issue only then the estate passes to the issue and if more than one then in equal shares as tenants in common.
Lastly, the Succession Law restricts the ability of a Jersey domiciled person to dispose of their movable property where that person is survived by a spouse/civil partner and/or issue. In such case, the testator generally has a completely free power of disposition by will over only one-third of his or her net movable estate.
1.1.3 When are individuals and their property subject to succession rules?As discussed above, succession to movable property situated in Jersey is governed as a matter of Jersey law by the lex domicilii (the law of the deceased’s domicile at the date of death), whereas the succession to immovable property is governed by lex situs (where the property is situated).
1.2 Private international law1.2.1 What is the jurisdiction of local courts in international disputes?Not being a member of the EU, Jersey does not fall under the Brussels regime, nor does Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters apply. Jersey private international law instead draws upon English common law principles. For example, questions as to which court has jurisdiction and what the applicable law might be in any given dispute would be answered in light of prominent English cases such as Spiliada Maritime Corp v Cansulex
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Ltd [1987] A.C. 460 and Konamaneni v Rolls-Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269.
1.2.2 What approach do local courts take to conflict of laws?See above 1.2.1. In addition, article 9 of the Trusts (Jersey) Law 1984 (as amended) and article 32 of the Foundations (Jersey) Law 2009 specifically state that all questions relating to trusts and foundations governed by Jersey law are to be determined by Jersey law without reference to the law of any other jurisdiction.
2. TAXATION2.1 What are the criteria for liability to main taxes?Apart from the taxation of income derived from the development and/or rental of land and buildings situated in Jersey and income arising from a source in Jersey, the basis of assessment for Jersey tax for both individuals and companies is the test of residence in the year of charge. The year of charge is the calendar year from 1 January to 31 December.
IndividualsResidency status for the purpose of Jersey income tax is dependent on a number of factors including: • The person’s intention upon arrival in the island.• The length of the person’s visit(s) to Jersey. • The frequency of those visits.• Whether or not the person maintains a place of abode in Jersey which is
available for his/her use.All income that arises in Jersey is taxable in Jersey whether or not the
recipient is resident or non-resident unless specifically exempted. If a person is ordinarily resident for tax purposes, then his/her non-Jersey income will be liable to tax in Jersey.
A person will not be regarded as being resident for tax purposes if: • He is a visitor who maintains no place of abode in Jersey.• He spends less than six months in Jersey during the calendar year. • His visits to the island are not habitual year-on-year.
If the person does not maintain a place of abode in Jersey which is available for his own use, the Comptroller will regard that person as becoming resident if: • He visits Jersey year on year.• His annual visits are for a substantial period of time.
A substantial visiting period is considered to be an average of three months or more per year and “habitual” after four years.
If the person’s intention is to take up permanent residence from the start, then the Comptroller will treat that person as being ordinarily resident in Jersey from that date, regardless of the number of days spent in Jersey.
Lastly, if a person maintains a place of abode in Jersey which is available for his own use, he will be regarded as being resident for any year in which he stays in that property, even if it is for one night.
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A person resident only in one year of charge then solely or principally resident in the next year of charge is treated as having taken up “permanent residence” and is thus principally resident in that earlier year of charge. If an individual takes up, or ceases to be solely or principally resident in Jersey part way through a year of charge, his income will be examined on a time basis so that only income arising whilst resident in Jersey is assessable to Jersey tax.
CompaniesThe basis for taxation of companies is residence. A company is resident in Jersey for tax purposes if it is incorporated or controlled in Jersey.
2.2 What are the relevant main taxes in your jurisdiction?The principal direct tax in Jersey is income tax, applicable to individuals and companies resident in Jersey on their worldwide income. For individuals, income tax is charged at a flat rate of 20% of assessable income (less personal and other allowances and deductions). For most companies, the standard rate of income tax, currently 0%, applies. Income from certain types of banking business and the carrying on of regulated “financial services business” (a defined term) are subject to the company intermediate rate, currently 10%. Utility companies (waterworks, gas, electricity and telecoms services companies) are taxable at the company higher rate, currently 20%.
Jersey has no taxes chargeable upon capital or wealth. There is no gift tax or inheritance tax but stamp duty on a sliding scale is payable on grants of probate.
Income tax on resident only individualsIf a person becomes fully resident for tax purposes, he will be liable to tax on both Jersey and non-Jersey income. However, if a person is not ordinarily resident in Jersey, income which arises from sources outside of Jersey is chargeable to tax only on the amount of that income that is received in, or remitted to, Jersey.
Taxation of solely or principally resident individualsThese are taxable on worldwide income. Double taxation relief may be available.
Taxation of non-resident individualsA non-resident is taxed only on Jersey source income but certain types of income are disregarded for the purposes of calculating the liability.
Income in the form of distributions (both actual and deemed from Jersey companies), interest, royalties and directors’ remuneration, are all paid to non-residents without deduction for tax in Jersey.
This does not apply where the non-resident individual carries on a business in Jersey through a permanent establishment in Jersey and the income is part of the assessable income of that permanent establishment. “Permanent establishment” includes a branch, factory, shop or building
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site and a place of management. A body’s directors regularly meeting in a particular place does not, in itself, make the place a permanent establishment of that body. It is a question of fact whether a business is carried on and each case should be analysed accordingly.
Taxation for companiesJersey currently operates the “0-10” regime. The rate of tax is 0% for most companies, provided the income does not include income from:• Certain banking business as defined (which is taxed at 10%).• Income arising from the carrying on of regulated activities by a licensed
fiduciary (financial services business, as defined) (which is taxed at 10%).• Trading activities of regulated utilities (waterworks, gas, electricity and
telecoms services companies) (which is taxed at 20%).• The ownership of land and buildings situate in Jersey (which is taxed at
20%).If a company resident in Jersey is able to confirm to the Comptroller of
Taxes in Jersey that the company has no Jersey resident beneficial members, Jersey employees (other than local directors), has made no qualifying loans and has no source of income which would give rise to a liability to pay tax in Jersey, the company will not be required to submit annual financial statements to the Comptroller of Taxes as a matter of course.
With effect from 1 January 2013 the deemed distribution regime which attributed income of a company to Jersey resident individuals who had a beneficial interest in the company, was repealed.
Goods and services taxJersey introduced a goods and services tax (GST) on 1 May 2008. Under Jersey’s GST law, there are three categories of goods and services, collectively known as “supplies”, namely: • Standard-rate supplies: The majority of goods and services supplied for
use or benefit in Jersey, including imports, are classified as standard rate supplies and are taxed at the standard rate (currently 5%) of their selling price. Any standard-rate supplies below a certain level (currently £240) are not subject to GST by concession.
• Zero-rated supplies: These are taxed but, for social or economic reasons, the rate of tax is set at 0%.
• Exempt supplies: For social, economic, or difficult to tax reasons, such supplies are not taxed. This category includes the provision of goods and services to any “international services entity” (ISE), a business that mainly services non-residents of Jersey.
Document duty on purchase of real propertyTransfers of real property are generally subject to document duty of roughly 3% of the value of the property transferred. Where the property includes a dwelling, reduced rates may apply, depending upon the purchase price. Purchases of any real property by means of share transfer are also usually subject to land transaction tax (LTT). The rates of the LTT are
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generally equivalent to purchase of equivalent real property, with the same concessions and exemptions.
Import dutiesThere are duties upon alcohol, tobacco and petroleum spirit.
Social security contributionsSocial security contributions are payable in Jersey by employed persons, self-employed and non-employed persons depending on their gross earnings. Long term care contributions became payable by individuals in 2015.
2.3 Enforcement/collection of taxes2.3.1 What are the basic procedures for collection and enforcement?Personal tax returns are issued at the beginning of the year following the relevant year of charge and must be completed within the specified time limit. The filing deadline is 6pm on the last Friday in May and an automatic penalty of £250 is imposed after that deadline expires. The Comptroller of Taxes is responsible for issuing the returns, the assessment and the collection of tax. Taxpayers may appeal against assessments to the Commissioners of Appeal. Determinations by the Commissioners of Appeal are subject to appeal to the Royal Court and thereafter to the Court of Appeal. Penalties may be incurred for failure to deliver a completed return and surcharges are imposed upon late payment of tax. Unpaid tax, surcharges or penalties may be pursued like any other civil debt.
Income tax instalment systemAn employer is obliged to deduct tax at source from employees’ earnings and benefits in kind at the correct rate for each employee according to that person’s valid effective rate notice. If the employee does not have a valid effective rate notice then the employer must deduct tax at the default rate of 20%. Every individual is required to complete a tax return that will form the basis of an assessment to tax and will include details of other assessable income received and claims for allowances or deductions. The tax return is filed on an annual basis and will relate to the previous calendar year. Any additional tax is payable following the issue of an assessment in accordance with the statement that accompanies the assessment.
Retention taxAlthough not a member state of the EU, Jersey, in common with certain other jurisdictions, entered into agreements with EU member states on the taxation of savings income earned in Jersey by residents of such states. Retention tax, which was an alternative option in place of automatic exchange of information, was abolished with effect from 1 January 2015. From that date onwards paying agents in Jersey must automatically report to the Comptroller of Taxes in Jersey any interest payment which falls within the scope of the Council Directive 2003/48/EC on taxation of savings income in the form of interest payments (the EU Tax Savings Directive).
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2.3.2 To what extent is non-compliance an issue?Whilst the majority of Jersey taxpayers pay their tax, a small minority do not. Tax evasion is illegal.
Several years ago the Comptroller of Taxes’ Office introduced a specialist unit to address domestic tax evasion, and also tax avoidance. In a recent press statement the Comptroller advised that the specialist unit found £10 million worth of undisclosed income in 2013, but added that he could not tell how much more was outstanding. Similar amounts had been recovered in previous years. Official figures record that the Comptroller of Taxes’ Office settled 226 income tax investigations in 2014, collecting an extra £1.6 million in tax and issuing £119,000 in late payment fines.
2.3.3 In which circumstances can default result in imprisonment? A person who fails to make a return without reasonable excuse or provides information which he knows or has reasonable cause to believe to be false, deceptive or misleading is guilty of an office and may be prosecuted at the discretion of the Comptroller of Taxes, which may lead to conviction, a fine and/or imprisonment.
2.3.4 What are your laws on extradition for tax offences?There are no specific laws that deal with extradition for tax offences. However, extradition in Jersey is governed by the Extradition (Jersey) Law, 2004 (the Extradition Law) which is closely modelled on the UK’s Extradition Act 2003. The Extradition Law is based on judicial surrender between States and mutual respect between democratic countries.
Under the Extradition Law a person can be extradited to a “designated territory” that is, a territory listed within the Schedule to the Extradition Law, in respect of alleged criminal conduct which occurred whether in a designated territory, Jersey or elsewhere. Designated territories are separated into two different categories under the Extradition Law.
Schedule 1, Part 1 includes Australia, Russia, the USA, Hong Kong and most European countries. Schedule 1, Part 2 includes Mauritius, Monaco, Panama and Singapore.
The key point is that for the Part 1 countries there will be no opportunity for the Jersey courts to test the evidence in Jersey or even see that evidence.
Interestingly, Jersey has not followed the UK exactly in its choice of category 1 and category 2 territories.
2.3.5 Have there been any recent changes of behaviour by tax authorities?No, there have been no recent changes.
2.3.6 Are there any voluntary disclosure or amnesty programmes?No, there are no voluntary disclosure or amnesty programmes relating to Jersey tax. Further, the Comptroller of Taxes has the power to make adjustments in respect of a tax liability where the effect of a transaction is the avoidance, reduction or deferral of tax liability.
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3. EXEMPTIONS AND/OR EXIT TAXES FOR NEW IMMIGRANTS AND EMIGRANTS3.1 Which taxes are relevant in your jurisdiction?There are no specific exemption and/or exit taxes for new immigrants and emigrants. However, if an individual takes up, or ceases to be solely or principally resident in Jersey part way through a year of charge he will be assessed to tax in jersey on income arising whilst he is resident Jersey.
4. USE OF ASSET HOLDING VEHICLES4.1 Which vehicles are available in your jurisdiction and how are they treated by the courts?TrustsTrusts are used extensively in Jersey for the purposes of tax-efficient structuring and estate planning and are principally governed by the Trusts (Jersey) Law 1984 (as amended) (the Trusts Law). The methods for creating a Jersey proper law trust are flexible and any property may be held on trust except Jersey situs immovable property. Jersey also permits the establishment of trusts for charitable and/or non-charitable purposes.
In the absence of beneficiaries or charitable purposes, it is necessary that an enforcer be appointed to ensure the terms of any non-charitable purposes are carried out correctly by the trustee.
Some further features of the Trust Law are:• Trusts can exist indefinitely.• The reservation or grant of certain powers by or to a settlor or third
parties is expressly permitted.• There is no public register of trusts in Jersey.
Taxation of trustsJersey resident trustees are, in strictness, chargeable to tax in respect of all the income arising to them in that capacity.
However, by concession, the taxation of the trustees reflects the tax position of the beneficiaries of the trust and, where the beneficiaries include legal bodies, the ultimate individual beneficial owners of those legal bodies. Therefore, the tax treatment of the income arising to the trustees will reflect the tax treatment which would have applied to the beneficiaries (or the ultimate individual beneficial owners of any legal bodies which are beneficiaries) if the income had arisen to them directly.
Where either all of the life tenants of a trust (that is, beneficiaries having a right to trust income as it arises) or all of the beneficiaries of a discretionary trust: • Are non-Jersey resident individuals.• Are legal bodies ultimately wholly owned by non-resident individuals.• Are Jersey charities exempt from income tax under Article 115 of the
Income Tax (Jersey) Law 1961 (as amended), by concession the trustees will not be taxed on any non-Jersey source income and certain statutory exemptions will be treated as being available to the trustee.
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Those statutory exemptions include an exemption from Jersey income tax for: • Jersey bank interest.• Any distribution received from a Jersey resident company which is made
out of profit/gains taxed at the rate of 0% in the company.• Interest paid by a Jersey resident company.
Where a Jersey resident individual is entitled to income from any part of the trust as it arises, is a beneficiary of a discretionary trust, or the ultimate beneficial owner of an interest in a legal body which is a beneficiary, the concessional exemption granted above will be restricted.
In situations where the trustees of a trust are unable to identify fully the residence of all of the beneficiaries/ultimate individual beneficial owners of legal bodies which are beneficiaries of the trust but are satisfied, beyond reasonable doubt, that (i) there are more than 10 individuals that are beneficiaries/ultimate beneficiaries of the trust, and (ii) in accordance with the terms of the trust more than 90% of the trust income will be ultimately distributable to the beneficiaries, whom they have verified as non-resident, then the trustees will be taxed under this concession as if all of the beneficiaries/ultimate individual beneficial owners of legal bodies which are beneficiaries are non-resident.
In any other case, the trustees are advised to approach the Comptroller of Taxes on a case-by-case basis setting out the full facts for a determination.
Where the settlor of a trust is an individual resident in Jersey at the time the trust is created, or when further property is added to the trust, or when any settlor becomes resident in Jersey, the concession will be available, provided that:• Written application is made accompanied by a copy of the trust
instrument and by an explanation of the purpose of the trust.• The trust is irrevocable.• The settlor and their spouse/civil partner are irrevocably excluded from
benefitting from the trust.• The reduction or avoidance of a Jersey tax liability was not the main
purpose, or one of the main purposes, of the creation of the trust.Where the settlor is a legal body and any Jersey resident has any interest
in that legal body, the trustees are advised to approach the Comptroller on a case-by-case basis setting out the full facts for his determination.
CompaniesThere are five types of company in Jersey, all with varying structures and liability.
Company limited by sharesThis is the most common type of company in Jersey. A company limited by shares must have shareholders whose liabilities for the company’s debts are limited to the amount unpaid on shares held by them. Pursuant to the Companies (Jersey) Law 1991 as amended (the Companies Law) a company limited by shares may have a minimum of one shareholder and one director.
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A company must have a memorandum of association which sets out the basic constitution of the company. Articles of association must be filed at the time of incorporation which may be specific to the company or a set of pro forma model articles may be adopted. There is no requirement for a company to have an authorised share capital.
Companies limited by guaranteeA company limited by guarantee has members whose liabilities for the company’s debts are limited to the amount the member undertakes to contribute to the assets of the company in the event of it being wound up. Such companies are generally used for charitable purposes.
Unlimited companiesThe members of an unlimited company have unlimited liability for the company’s debts. These are typically used in intra-group reorganisations and restructurings.
Hybrid companiesIt is possible to form a hybrid company, that is to say one which is a combination of the above entities having guarantee members, unlimited members and, if the company has a share capital, shareholders.
Cell companiesJersey adopted the concept of cell companies on 1 February 2006. A cell company is one whose assets are kept in separate cells, which operate under the same administration. A cell company can ringfence part of its assets so that the creditors of a cell have recourse only to the assets of that cell. They will have no claim against the assets of any other cell, nor against the non-cellular assets of the company. There are two types of cell companies available in Jersey being, incorporated cell companies and protected cell companies. Both are frequently used in Jersey’s thriving fund sector. Insurance companiesThe Jersey insurance sector can be divided broadly into two main areas:• Domestic insurance comprising local insurers, overseas insurers,
recognised insurers and intermediaries who advise on or arrange contracts of insurance in Jersey.
• International insurers, comprising captive insurers, protected or incorporated cell companies and life assurance companies who arrange contracts of insurance from within Jersey, covering international risks.
All insurance entities (domestic and international) operating from Jersey require an insurance business permit. There are two categories of insurance business permit. Category A permits cover those insurance companies that are already authorised to carry on insurance business by a jurisdiction outside of Jersey; all other insurance businesses intending to carry on insurance business in or from within Jersey require a Category B permit. In both cases, there is a policy of selectivity which means that
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the fitness and propriety of the intended shareholders, directors, officers, insurance managers and/or general representatives is critical to the success of an application for a licence. Information provided with the application concentrates on determining whether the following criteria are met:• The applicant is fit and proper.• The insurer’s plan is commercially acceptable.• Management and control are resident in Jersey.
On applying to the Jersey Financial Services Commission (the JFSC) for the licensing of an insurance company, a fee is payable, which is determined by the type of company and licence required. Each year, the licensed insurer must file an annual return and a copy of its accounts with the JFSC at which time an annual fee is payable depending upon the type of company and licence required.
Taxation of insurance companiesIn practice, an insurance company may be subject to one or more of the three applicable rates of Jersey income tax, depending upon the source of income namely:• Income from the carrying on of business as a financial services company
(as that term is defined in the Income Tax (Jersey) Law 1961) (which is taxed at 10%).
• Income from all other businesses, offices and employments and other sources (which would be taxed at the company standard rate, currently 0%).
• Income from the ownership of land and buildings situated in Jersey and the trading activities of regulated suppliers of utility services (which is taxed at 20%).
PartnershipsJersey allows the creation of general, limited, limited liability, separate limited, and incorporated limited partnerships.
General partnerships exist between persons carrying on business in common with a view to profit. Jersey courts would generally adopt English common law principles on any matter relating to a Jersey law general partnership.
The Limited Partnerships (Jersey) Law 1994, Separate Limited Partnerships (Jersey) Law 2011 and Incorporated Limited Partnerships (Jersey) Law 2011 provide for the registration in Jersey of limited partnerships (LPs), separate limited partnerships (SLPs) and incorporated limited partnerships (ILPs) respectively which may be formed for the carrying on of any lawful business within Jersey or elsewhere. An LP consists of one or more general partners who are jointly and severally liable for all debts of the partnership and are responsible for the conduct of the business of the partnership, and one or more limited partners who invest a specified sum in the capital of the partnership and are not liable for any debts of the partnership beyond the amount they have contributed.
Unlike LPs, SLPs and ILPs both have distinct legal personality, that is, both SLPs and ILPs are “persons” distinct from their partners. Accordingly,
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SLPs and ILPs are, for example, able to contract, hold property, sue and be sued purely in their own name. This is in contrast to LPs which may only do so through their general partners.
Further, Jersey’s ILP legislation ensures that an ILP established in Jersey has the characteristics of a body corporate (for example, perpetual succession – it exists irrespective of the fate of its partners) whilst retaining core partnership characteristics to retain tax transparency.
The limited, limited liability (see below), separate limited and incorporated limited partnerships are required to be registered in Jersey and to maintain a registered office in Jersey and in many respects are treated in a similar manner to a company. However, the limited partnership is not treated as a separate entity for tax purposes and the rules applicable to partnerships described above apply to the partners of a limited partnership.
Partnerships are usually constituted by written agreement between the partners. The business name of the partnership must be registered at the Companies Registry in Jersey. There are no restrictions regarding the nationality of the partners, and a company, whether Jersey incorporated or not, can be a partner. A partnership is dissolved on the death of an individual partner, unless the partnership agreement states otherwise. Limited, limited liability, separate limited and incorporated limited partnership structures in Jersey are often used where a fiscally neutral base is required.
Jersey extended its regime of partnership structures in 1997 to include limited liability partnerships with the introduction of the Limited Liability Partnerships (Jersey) Law, 1997 but no limited liability partnership was in fact formed under that law until 2013, when it was updated and amended. The key features of a Jersey limited liability partnership structure (LLP) are currently that:• It is a body corporate with unlimited capacity and its own legal
personality is separate from that of its members. • It may be formed in Jersey to carry on lawful business with a view to
profit, or any other lawful activity. • A member is not liable for any debt of the LLP, or of any other member,
by virtue solely of their membership of it. • A member’s liability to contribute its funds, and specifically a shortfall
on its winding up, will be limited to whatever the member has agreed with the other members or with the LLP to contribute.
• It owns assets and is subject to the duties and liabilities of the business to the exclusion of its members it carries on business itself with the members acting as its agents.
• A private written agreement must govern the rights and duties of the members as between themselves and the rights and duties between the members and the LLP itself.
• It is not a partnership for the purposes of Jersey partnership law, which does not apply to it.
• It will be transparent for Jersey income tax purposes so that each partner is assessed separately on his share of the partnership’s profits.
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Taxation of partnershipsAs indicated, each partner is assessed separately on his share of partnership profits. This includes each partner’s share of any investment income or capital allowances due to the partnership. On any change in the partnership, the commencement and cessation provisions applicable to a sole trader are applied.
Any income derived from international operations of a LP, SLP, ILP or LLP in which an individual who is not solely or principally resident in Jersey or a company which is not resident in Jersey, is a limited partner, is not regarded as arising or accruing from a source in Jersey. Any interest paid to that limited partner under any such limited partnership arrangement is also not regarded as arising or accruing from a source in Jersey.
Foundations The Foundations (Jersey) Law, 2009 (the Foundations Law) introduced a new type of entity, the foundation, into Jersey’s legal landscape in 2009.
A Jersey foundation is similar to both a company and a trust in some respects. It resembles a company in that it is a body corporate (albeit one without shareholders) and is governed by a council in accordance with its charter and regulations in much the same way that a company is managed by its board of directors. It is akin to a trust in that a foundation must have one or more objects which may be a purpose (charitable or non-charitable) and/or be for the benefit of one or more beneficiaries.
Although it shares these characteristics, it is neither a company nor a trust: it is best described as a distinct legal structure which has been introduced to serve different purposes. Some of the key features of a Jersey foundation are as follows: • They are ideally suited for private wealth management, succession
planning structures and charitable giving.• They appeal to and are readily understood by those from a civil law
background.• They are very flexible – the Foundations Law permits a substantial
degree of bespoke adaptation.• They have legal personality and may contract or sue, in their own name.• There is no segregation of legal and beneficial title, as with a trust.• The founder can restrict the flow of information regarding the
foundation and its property to the beneficiaries.• They are private structures.• Although they require registration only a very limited amount of
information needs to be placed in the public domain.
5. PHILANTHROPIC AND CHARITABLE OPTIONS5.1 Is there a compulsory registration system for charities?Under the Non-Profit Organizations (Jersey) Law 2008 all non-profit organisations (NPOs) established in or administered in or from Jersey whose gross annual income exceeds £1,000 must register with the JFSC. An NPO is defined as any organisation established solely or primarily for
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charitable, religious, cultural, educational, social or fraternal purposes with the intention of benefitting the public or a section of the public, and it raises or distributes funds in pursuance of those purposes. Failure to register constitutes an offence and may make the NPO subject to prosecution and, if convicted, liable to a fine.
In addition in November 2014 certain parts of the Charities (Jersey) Law 2014 came into force. When all of the statute is in force, which is likely to be in the first half of 2015, Jersey will have, for the first time, a system of registration for charities. Registration will not be compulsory, but entities which do not register will not be able to refer to themselves as “charities” and may not be able to obtain exemptions from taxation.
5.2 Are there any tax reliefs available?Whilst NPOs are subject to income tax, registered charities benefit from an exemption to income tax if and so far as the income is applied to charitable purposes only.
5.3 Are there any particular distribution requirements and can domestic charities apply funds outside your jurisdiction?Distribution by charities and NPOs must be in accordance with the terms governing their constitution. Subject to such terms, domestic charities may apply funds outside Jersey.
6. REGULATORY ENVIRONMENT6.1 What is the financial environment like for funds and other investment vehicles?Jersey’s taxation regime is designed to ensure that Jersey meets international standards and obligations for the conduct of business.
It remains the case that Jersey-based investment vehicles including investment funds may be free of tax in Jersey on non-Jersey source income and gains. In the case of companies, including funds established as companies, there is a general corporate tax rate of 0% (subject to limited exceptions) and Jersey residents are taxable on distributions which include repayments of share capital and loan repayments.
6.2 What is the impact of anti-money laundering legislation on professional/banking confidentiality?In accordance with Recommendation 20 of the Financial Action Task Force on Money Laundering and Terrorist Financing and the 3rd EU Money Laundering Directive, anti-money laundering legislation applies to financial services business as well as certain non-financial business, such as auditors, accountants and tax advisers.
Firms and their staff are legally protected from breaking any obligation of confidentiality when making disclosures to the Joint Financial Crimes Unit pursuant to anti-money laundering legislation.
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6.3 Is it necessary to comply with tax and other information exchanges?While Jersey is not within the EU’s fiscal territory it agreed to introduce the same measures as the EU Savings Tax Directive, by entering into a series of bilateral treaties with EU member states and introducing new domestic legislation. Where an individual recipient of an interest payment is resident in Jersey, the measures reflecting the Directive are only relevant if the interest payment is cross-border and falls within the scope of the Directive. From 1 January 2015 paying agents in Jersey must automatically report to the Comptroller of Taxes in Jersey any interest payment which falls within the scope of the Directive. The alternative option to deduct and pay over retention tax has been repealed and has been replaced by an automatic exchange of information regime.
On 24 March 2014 the Council of the European Union formally adopted a directive to amend the EU Savings Tax Directive. The amendments significantly widen the scope of the EU Savings Tax Directive. EU member states are required to adopt national legislation to comply with the amended EU Savings Tax Directive by 1 January 2016. The amended EU Savings Tax Directive is anticipated to be applicable in EU member states from 2017. Jersey, along with other dependent and associated territories, will consider the effect of the amendments to the EU Savings Directive in the context of existing bilateral agreements and domestic law.
6.4 What is the impact of US and other FATCA rules?On 13 December 2013, the Chief Minister of Jersey signed an intergovernmental agreement with the US (US-Jersey IGA) regarding the implementation of the US law provisions commonly referred to as Foreign Account Tax Compliance Act (FATCA), under which certain disclosure requirements will be imposed in respect of certain holders of financial accounts who are, or being entities are controlled by one or more, residents or citizens of the US. The US-Jersey IGA is implemented through Jersey’s domestic legislation, in accordance with guidance which is currently published in draft form.
On 22 October 2013 the Chief Minister of Jersey signed an intergovernmental agreement with the UK (UK-Jersey IGA) under which certain disclosure requirements will be imposed in respect of certain holders of financial accounts who are, or being entities are controlled by one or more, residents of the UK. The UK-Jersey IGA is implemented through Jersey’s domestic legislation, in accordance with guidance which is currently published in draft form.
On 13 February 2014, the Organisation for Economic Co-operation and Development (OECD) released the Common Reporting Standard (CRS) designed to create a global standard for the automatic exchange of financial account information, similar to the information to be reported under FATCA. On 29 October 2014, 51 jurisdictions signed the multilateral competent authority agreement (Multilateral Agreement) that activates this automatic exchange of FATCA-like information in line with the CRS.
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As at the date of writing, both Jersey and the UK have signed up to the Multilateral Agreement, but the US has not. Early adopters who signed the Multilateral Agreement (including Jersey) have pledged to work towards the first information exchanges taking place by September 2017. Others are expected to follow with information exchange starting in 2018. Guidance and domestic legislation regarding the implementation of the CRS and the Multilateral Agreement in Jersey are yet to be published in final form.
7. KEY PLANNING POINTS FOR LONG TERM RESIDENT FAMILIESJersey estate planningThe absence of capital taxes means that local taxation is not a consideration in estate planning for Jersey residents.
The type of structure used will depend upon such considerations as the residence and domicile of the estate owner and his dependants and the nature and location of the assets. Tax neutrality, coupled with simple and flexible trust and company laws, has created the following examples of uses for Jersey structures:• Investment/property holding (to minimise transfer fees and duties).• Asset protection (to protect against creditors, exchange control, forced
heirship, and so on).• Foreign capital gains tax mitigation for certain types of assets.• Foreign inheritance tax planning.• Confidentiality.
In addition: • UK anti-avoidance provisions have less impact for persons resident but
not domiciled in the UK, and such persons may be able to mitigate their tax liability by keeping income and/or gains outside the UK.
• Tax-efficient arrangements can still often be made for the benefit of people who are not closely related to the benefactor.
• Incentive schemes established by companies for the benefit of employees may be more tax-efficient if established offshore.
• People who expect to realise substantial capital gains on certain types of assets or who already have substantial income generating assets may wish to move offshore a number of years prior to realising such gains.
• Wealthy individuals who spend only short periods of time in any particular jurisdiction and/or negotiate special arrangements with domestic tax authorities may find that Jersey is a suitable place for them to hold their investments.
• The availability of the High Value Residency Status (see section 8) makes Jersey an attractive jurisdiction in which to establish residence.
Pension arrangementsJersey has a number of reciprocal pension arrangements with different jurisdictions. Jersey’s legislative framework for pensions enables pension arrangements to be structured in Jersey to meet a variety of requirements.
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Relief is given for income contributed to approved occupational or personal pension schemes by Jersey residents.
Significant changes were introduced to the taxation of Jersey pension schemes by an amendment to the Income Tax (Jersey) Law 1961 which came into force with effect from the tax year starting on 1 January 2015. There is now no limit on the amount a person may pay into his or her pension scheme save that the amount of those contributions which may be deducted for tax purposes cannot exceed (i) the lower of £50,000 less the pension holder’s “excess income” if any; and (ii) the pension holder’s “relevant earnings” in the year of assessment, less any “excess income”. “Excess income” means broadly the amount by which a person’s income for a year of assessment exceeds £150,000. Accordingly, there will be no relief on pension contributions if a person’s income exceeds £200,000 as the excess income will exceed £50,000.
Tax rules exist concerning the repayments of contributions and the taxation of such repayments, also on the taking of lump sum commutations in lieu of pension income.
8. KEY POINTS FOR MIGRATING AND TEMPORARILY RESIDENT FAMILIESHigh value residencyJersey has strict rules concerning who can live and work in the island with four particular categories being entitled, licensed, entitled to work and registered.
However, rules also exist for the Chief Minister of Jersey to grant “entitled” status where satisfied that it can be justified: (i) on social or economic grounds or both and (ii) as being in the best interests in the community.
Factors to be taken into account when considering applications for “entitled” status under the High Value Residency Regime include the individual’s contribution to local tax revenues, the business and social background of the applicant and the potential benefit that could arise as a result of the individual taking up residence in the island, for example, by establishing a profit-making business which would employ local people, and other general benefits. Applicants are normally required to demonstrate that they are able to generate sufficient income so that at the present tax rate of 20%, the annual income tax payable by them is at least £125,000, that is, a liability generated by qualifying sources of income of at least £625,000 every year.
The Chief Minister may also take into account other aspects (other than tax contributions) including voluntary work or business contribution to the community, and whether or not any actual or potential media coverage of the activities of the individual could be negative or positive for the island.
If a high value resident is granted “entitled” status, they may buy or lease property as a principal place of residence in the island and it will normally be stipulated that this should be a high value property.
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Housing and employment There are strict controls on who may occupy dwellings and obtain employment in Jersey.
The legislation was amended in July 2013. There are now four categories of residential status as follows:
Residential status
Definition Housing Work
Entitled 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
Licensed Someone who is an essential employee
Can buy, sell or lease any property, apart from first time buyer restricted or social rented housing, in their own name if they keep their “licensed” status
Employer needs a licence to employ a ‘licensed’ person
Entitled to Work
Someone who has lived in Jersey for five consecutive years
Can buy property jointly with an “entitled” spouse/civil partner. Can lease “registered” (previously “unqualified”) property as a main place of residence
Can work anywhere and doesn’t need a licence to be employed
Registered Someone who does not qualify under the other categories
Can lease “registered” property as a main place of residence
Employer needs a licence to employ a “registered” person
9. FORTHCOMING LEGISLATION AND OTHER CHANGES Review of European Savings Tax DirectiveThe scope and operation of the European Savings Tax Directive has been significantly widened as a result of changes agreed by the Council of the European Union on 24 March 2014. The amended EU Savings Tax Directive is anticipated to be applicable in EU member states from 2017.
Jersey, along with other dependent and associated territories, will consider the effect of the changes to the Directive in the context of existing bilateral treaties and domestic law and the regime of automatic exchange of information established pursuant to intergovernmental agreements with the US and the UK and the OECD’s Common Reporting Standard.
Financial Services OmbudsmanJersey passed new legislation to introduce a Financial Services Ombudsman in 2014. The legislation is due to come into force in 2015. The Ombudsman will have powers to investigate and determine individual customer complaints regarding financial services provided in Jersey.
Jersey Financial Services CommissionPO Box 26714-18 Castle Street St HelierJersey JE4 8TPT: +44 (0) 1534 822000E: [email protected]: www.jerseyfsc.org
Social Security Department PO Box 55Philip Le Feuvre HouseLa Motte StreetSt HelierJersey JE4 8PET: +44 (0) 1534 445505E: [email protected]: www.gov.jeInformation regarding the various international tax agreements currently in force in Jersey – www.gov.je/TaxesMoney/InternationalTaxAgreements/Pages/default.aspx.
Contact details
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Contact detailsGENERAL EDITORJohn Rhodes Stonehage Law Ltd15 Suffolk Street London SW1Y 4HG United KingdomT: +44 20 7087 0087F: +44 20 7087 0004E: [email protected]: www.stonehage.com
THE NETHERLANDSArnold van der SmeedeArcagnaMuseumplein 5 E & F1071 DJ AmsterdamThe NetherlandsT: +31 20 305 0850F: +31 20 305 0855E: [email protected]: www.arcagna.com
UNITED STATESStephen K. VetterKozusko Harris Vetter Wareh Duncan LLP1666 K Street, N.W. Suite 400Washington, DC 20006USAT: +1 202 457 7209F: +1 202 318 4451E: [email protected]: www.kozlaw.com
Eric M. DorschKozusko Harris Vetter Wareh Duncan LLP575 Madison Avenue, Suite 7DNew York, New York 10022USAT: +1 212 405 4770F: +1 212 214 0855E: [email protected]: www.kozlaw.com
