HEADQUARTER COMPANIES IN JERSEY

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1 HEADQUARTER COMPANIES IN JERSEY - FOR NEW BUSINESS START-UPS AND COMPANIES IN GROWTH PHASE Howard Consulting Ordnance House 31 Pier Road St Helier Jersey JE4 8PW

2 Introduction There is a growing appetite amongst businesses which operate internationally or on a cross-border basis to set up their ultimate holding company or headquarters operation in a jurisdiction such as Jersey which can provide an ideal environment to incubate entrepreneurial business start-ups as well as existing businesses which are set on a growth trajectory. The focus in this context is on establishment in Jersey of management and control operations for businesses which undertake the bulk of their trading or investment operations outside Jersey. The following pages explain: Why Jersey is an ideal location for creating a permanent establishment base for corporates How a business can migrate to Jersey and incorporate in the Island The business licensing regime in Jersey for businesses which wish to create an office presence in Jersey Certain features of Jersey company law which make relocating to and operating from Jersey attractive for corporates The ability to list Jersey companies on stock exchanges around the world The corporate taxation regime in Jersey The personal taxation in Jersey and rules for individuals moving to Jersey with their business Further more detailed information and specific advice on establishing a presence in Jersey is available by contacting Simon Howard at Ordnance House, 31 Pier Road, St Helier, Jersey JE4 8PW, Channel Islands Tel: or by simon.howard@howard.je This document is a brief guide to the subject matter covered and is not intended to be a detailed or comprehensive treatment of the topic. It should not be treated as investment, legal or taxation advice. You are recommended to take professional investment, legal, taxation or other appropriate advice before pursuing any particular course of action. March

3 Creating a Permanent Establishment in Jersey Flexible and modern company and commercial laws allow new businesses to be commenced by incorporation in Jersey or to migrate and re-domicile into Jersey from other jurisdictions where they may have originally started their business activities. As these companies grow and achieve commercial success they can convert to public company status under Jersey law, seek listings for their securities on recognised stock exchanges around the world and ultimately emigrate or re-domicile out of Jersey to other jurisdictions if their business strategy or other factors dictate they should move their central management and control and legal domicile elsewhere. Regional and global tax initiatives including those begun by the OECD on Base Erosion and Profit Shifting are seeking to counter tax planning activities by many large multi-national trading brands which organise to shift their trading revenues out of higher tax jurisdictions. One of the likely consequences of these initiatives will be a need for all businesses, large or small, to demonstrate that they do have a real presence and proper substance in the jurisdictions in which they operate including international finance centres which may host holding company or headquarters operations. Jersey is ideally placed to offer an environment where new business start-ups and companies in growth phase can create a permanent establishment and real substance to support executive decision-making and control for their businesses. Over the last decade Jersey has already welcomed many private equity and fund management businesses, IT start-ups and natural resources and mining companies which have established headquarters operations or management presences in the island. Often these businesses will commence life in Jersey renting desk space and IT support for a handful of employees from an existing company administration service provider in Jersey or will lease small office premises and then expand their footprint over time. Personnel for these offices will typically be a combination of hires from the local financial services sector and relocation to Jersey of one or more directors or senior management personnel. Key factors which make Jersey so attractive include: zero rate of corporate tax for most businesses (other than certain financial services companies which are subject to a 10% rate) modern and flexible legislation and adherence to the rule of law a good supply of infrastructure resources including office space and support services a well developed professional services sector with high levels of expertise 2

4 a skilled local workforce of 12,000 employees within the financial services sector a government which is committed to encouraging businesses to locate to Jersey proximity of Jersey to London and the European continent and the ability to deal with New York and Hong Kong in the same business day long-standing economic and political stability 3

5 Structuring the Business Holding Arrangement In principle foreign companies can conduct business from Jersey and there is no mandatory requirement that a business be owned by a Jersey company. However in practice it will often make the provision of local business support and professional services easier if a Jersey domiciled entity is used. New Business Registration: New businesses can be incorporated at inception as Jersey registered limited liability private or public companies. An alternative legal form would be a Jersey registered limited liability partnership (LLP). Migration into Jersey of Existing Businesses: Where a business already exists as a company in a jurisdiction outside Jersey and that jurisdiction permits re-domiciliation (or emigration) of its companies, the existing company may be able to apply to re-domicile into Jersey and become re-registered as a Jersey company. Interposing New Holding Companies: Alternatively where there is an existing operating company or group of companies outside Jersey it may be easier to set up a new Jersey holding company which will sit above the existing non- Jersey companies. The new holding company arrangement could be implemented by a share for share exchange or by using a scheme of arrangement procedure which would involve court applications and approval. 4

6 Business Licences in Jersey Any new business or undertaking which wishes to establish a real presence in Jersey through the occupation of office premises and the employment of staff needs to apply for a licence from the Jersey government under the Control of Housing and Work (Jersey) Law In granting these licences the authorities need to be satisfied as to the likely economic and wider social return to Jersey from the business establishment. The economic return is usually derived from the personal taxes paid by employees engaged by the business in Jersey and its spend on business and professional support services. Activities generating local social return from business sponsorship and bursaries to benefit the local community are also taken into account. Specific approvals are required where there is a desire to relocate one or more directors or senior personnel to the island to direct or manage the business. These requests are scrutinised on a case by case basis and a strong case needs to be made out albeit the local authorities recognise that it will often be necessary to bring in specific expertise from outside Jersey to support specialised business functions. No government fees are levied for the issue of these business licences. The turn-around time for application is normally two to three weeks. The Jersey government has a dedicated unit called Locate Jersey which promotes inward investment into the island and is available to advise on requirements to ensure a successful licence application. Their website is located at Other registrations or licences in Jersey may also be required from the Jersey Financial Services Commission if the new business is going to conduct a regulated activity such as investment management or insurance business. Separate information on regulatory licensing for financial services businesses can be provided on request. Where proposed business activities fall within a list of sensitive activities as defined by the Companies Registry in Jersey (see Appendix I which lists these sensitive activities) more detailed information may need to be provided before the Companies Registry will permit a Jersey company to be registered to carry on the proposed business activity. 5

7 Jersey Company Law Jersey company law is modelled on English companies legislation and is set out in the Companies (Jersey) Law 1991 which is updated every few years by the legislature in Jersey. Jersey corporate law is more flexible and streamlined in a number of areas by comparison with English companies provisions; for example: Directors duties: Jersey company law contains a statement of directors duties, which are to act honestly and in good faith with a view to the best interests of the company, and the exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. The more extended list of directors duties now provided for under the Companies Act 2006 in the United Kingdom is not replicated in the Jersey law. Jersey also has market abuse and insider dealing provisions which are modelled on English law. Distributions: Jersey companies (including public companies) can make dividend distributions out of any source (other than, in the case of par value companies, out of the nominal capital account or any capital redemption reserve) provided that the company is solvent and will be able to carry on its business and discharge liabilities as they fall due for 12 months after the distribution. The ability of Jersey companies to make distributions from a wider range of sources may be an advantage where there is a need to maintain a consistent level of dividend payments. Redemptions/purchases of shares: Jersey company law permits redemptions and purchases of own shares out of any source, including capital as well as profits, subject to a solvency test (which is similar to the test for distributions) by both private and public Jersey companies. Again this may give an edge to Jersey public companies over companies incorporated in other jurisdictions which only permit private companies to repurchase shares out of capital. Financial Assistance: There are no restrictions in Jersey on the giving of financial assistance in connection with an acquisition of shares by either a Jersey public or private company. Treasury shares: Jersey corporate law permits a company to hold its own shares in treasury. There is no restriction on the amount of shares which can be held in treasury (unless the articles of association contain a restriction). Takeover related provisions: Jersey company law contains takeover rules, scheme of arrangement provisions as well as squeeze out provisions which are modelled on their UK equivalents. Pre-emption rights: Jersey company law does not contain statutory preemption rights in favour of shareholders in relation to issues of shares. 6

8 Neither does Jersey corporate law have any binding statutory rules regarding directors authority to allot shares. However, in relation to main board listed companies, pre-emption provisions and authorities to allot are normally included in the articles of association of the Jersey company to provide investors with equivalent protections to those which would apply under UK companies legislation. Prospectus rules: Jersey has its own prospectus rules, but in practice these do not tend to require disclosure of any information beyond that which would be required in a UK/Prospectus Directive compliant prospectus. The process for obtaining approval for a prospectus in Jersey from the Registrar of Companies is simple and speedy. Disclosure regime: Jersey company law does not have any statutory regime for disclosure and transparency of share interests in publicly listed companies, but in practice for main board listed companies the articles of association will incorporate rules to give effect to disclosure and transparency requirements of the relevant stock exchange. Special resolutions: Under Jersey company law, special resolutions require a two-thirds majority (not 75% majority as under UK companies law). However, Jersey law permits companies to increase the threshold, so it can be set at 75% to replicate UK companies law, if desired. UK Takeover Code: The UK City Code on Takeovers and Mergers applies to Jersey companies which are listed on London s Main Market and to other Jersey public companies that are centrally managed and controlled in Jersey. Migration and Merger: If the laws of its country of incorporation permit, an existing foreign company can migrate to Jersey and re-register as a Jersey domiciled company. Also new rules now allow a foreign holding company to merge with and continue as a Jersey company which provides alternative restructuring options. 7

9 Listing Jersey Holding Companies Jersey public companies are popular as listing vehicles for international businesses which choose to use a Jersey holding company. Jersey companies are already listed around the world from New York (NASDAQ) to London (Main Market, AIM and PLUS), Amsterdam (Euronext), Toronto (TSX and TSXV), Stockholm (Stockholmborsen) and Hong Kong. Closer to home Jersey companies are also listed on the Channel Islands Stock Exchange (CISX). CREST: Jersey company law includes uncertificated securities regulations which enable electronic trading of shares of a Jersey company through CREST. Stamp Duties: There are no stamp duties in Jersey or similar taxes on the issue or transfer of Jersey company shares. In addition no UK stamp duty should arise on transfer of shares of a Jersey company with a London listing if the transfer is implemented in Jersey where the definitive register of shareholders will be located for the company. 8

10 Corporate Taxation in Jersey Rate of Tax: Under the zero/ten tax regime in Jersey, the standard rate of corporate income tax applying to Jersey resident companies or non-jersey resident companies that have a permanent establishment in Jersey is 0%. A 10% rate applies to companies conducting certain regulated financial services business. A 20% rate applies to certain utility companies providing services in Jersey. Capital gains are not taxed in Jersey. Withholding Tax: Dividends paid to Jersey residents and non-residents are not subject to any withholding tax in Jersey. Interest paid by companies to Jersey residents or non-residents is not subject to withholding tax in Jersey. Royalties paid by companies to Jersey residents or non-residents are not subject to any withholding tax in Jersey. Other Taxes on Corporates in Jersey Payroll tax: under the income tax instalment system (ITIS) companies are obliged to deduct income tax from payroll on behalf of Jersey employees and remit this to the tax office in Jersey on a monthly basis. Real Property Tax: a real estate tax, based on the rateable value of local property, is imposed on both the owner and occupier of land and buildings in Jersey. Social Security: employer companies are required to make social security contributions of 6.5% of an employee s salary up to a standard earnings limit of 3,834 per month. There is a 2% employer contribution rate on employee salary above the standard earnings limit up to an upper earnings limit of 12,686 per month. Goods and Services Tax: A Goods and Services Tax (GST) applies on the provision of most goods and services in Jersey at a rate of 5%. Some supplies may be zero-rated or exempt. A special regime (International Services Exemption (ISE)) applies to entities whose activities are predominantly undertaken outside Jersey. On payment of an annual application fee, an ISE is classed as a non-taxable person for the purposes of GST and does not need to charge GST on supplies it makes nor should it suffer GST on supplies it receives. 9

11 Personal Taxation and Moving to Jersey Jersey is not a full member of the European Union but it does apply equivalent principles of freedom of establishment and free movement of EU citizens subject to local licensing requirements in relation to the occupation of residential property in Jersey which are administered under the Control of Housing and Work (Jersey) Law Non-EU citizens must apply for a work permit under Jersey s immigration rules which operate on the same basis as those in force in the UK. Individuals who are resident in Jersey are subject to Jersey income tax on their worldwide income at a headline rate of 20%. A special regime applies to high net worth individuals who wish to relocate to Jersey. Under the present high value residency rules the high net worth individual must make a minimum tax contribution in Jersey of 125,000 - the first 625,000 of their assessable income is taxed at 20% with the balance of their worldwide income being taxed at 1%. 10

12 Appendix I The following list of activities are regarded as sensitive by the Jersey authorities and where any Jersey holding company or any of its group companies inside or outside of Jersey will engage in any of these activities the Jersey authorities require full disclosure of the circumstances before a decision can be taken regarding acceptance of an incorporation request for a Jersey company: banking; deposit taking; insurance; investment management or advisory services; financial consultancy; trustee or nominee services; share and commodity dealing and broking; corporate director services; underwriting; asset management ; money broking; general insurance broking; life assurance agency services; certain trading activities which are quasi-investments such as container leasing, sale or leasing of overseas realty development, time share activities any dealings in arms or the supply of technology or spare parts connected with defence; provision of audit and accountancy services; provision of professional legal services; holiday or travel companies which intend to deal direct with the retail customer; 11

13 non-resident companies offering tuition either directly or by correspondence leading to a diploma on completion, which are not recognised by an Education Authority; any company which is to be exempt for income tax purposes and is to have a wide share ownership, or is to be listed on a stock exchange or dealt in on the unlisted or over-the-counter markets; a company which is to sell goods by mail order ; companies which manufacture, market or sell unlicensed pharmaceutical goods, particularly to third world countries. The list of sensitive activities applies equally to e-commerce related activities including gambling. Advice should therefore be sought for the incorporation of any company involved with internet activities which are not covered by the current list. Headquarter Companies in Jersey Marketing 12