Jersey. Establishing an Investment Management Business in Jersey

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1 Jersey Establishing an Investment Management Business in Jersey

2 Jersey Page 1 Introduction Jersey is a world renowned centre for fund establishment, administration and management. Jersey is home to a wealth of professionals including law firms, accountants, auditors, administrators, custodians and banks, each with considerable experience in the establishment, day-to-day administration and management of hedge funds, private equity funds and property funds and fund management businesses. Jersey is a well regulated jurisdiction (it has recently been placed on the OECD's 'white list' of jurisdictions surveyed in implementing internationally agreed tax standards). The Jersey Financial Services Commission (the "JFSC") is a long-established and internationally recognised regulator and operates within a mature and appropriate regulatory and legislative framework for both investment managers and fund vehicles. Jersey provides a range of regulatory regimes for the establishment of funds of all types, be they hedge fund or private equity funds. In particular, the 'eligible investor' unregulated fund scheme recently introduced by the JFSC provides an efficient and cost-effective framework for the establishment of hedge funds in Jersey. When contemplating relocating an investment management business to Jersey, the considerations set out below should be taken into account. Tax Personal Income tax (which is charged at 20 percent (but subject to various reliefs) on income and has not changed since the 1940s) is the principal personal tax in Jersey. Goods and Services Tax (charged at 3 percent) was recently introduced although there is an exemption for international finance entities. There are no capital gains taxes, inheritance taxes, wealth taxes or death duties (save for stamp duty). Incoming high net worth individuals will pay income tax on non-jersey source income on a sliding scale at the following rates: (a) 20 percent on income up to 1,000,000; (b) 10 percent income tax on the next 500,000; and (c) 1 percent on any income over 1,500,000. However, with pre-residence tax planning the Jersey income tax liability can potentially be reduced to 100,000 per annum. Such high net worth individuals will also be able to buy and rent certain classes of property in Jersey without the need for housing consent (see below). Management company A fund management company (an "Investment Manager") established in Jersey will be subject to income tax at a zero percent rate or, depending on the regulatory treatment of the company, on 10 percent of its income (compared to 30 percent corporation tax in the UK). Certain concessions may also be negotiable with the Comptroller of Income Tax on a case by case basis. Fund vehicle Hedge and other fund companies are subject to a zero percent rate of income tax. Employee share schemes Jersey is generous when it comes to the taxation of employee share schemes and incentive plans. There is no stamp duty on the transfer of shares and social security liabilities are substantially smaller than other jurisdictions.

3 Jersey Page 2 Regulatory requirements for management companies Investment Managers domiciled in Jersey are required to be regulated by the JFSC and Walkers can assist in applying for and obtaining the necessary regulatory approvals. The approval process consists of the completion of a form in which certain information relating to the Investment Manager's business is provided to the JFSC, including the names of principals and the ownership structure of the Investment Manager, confirmation of the identity of the Investment Manager's auditors, details of the Investment Manager's regulatory history, details of the Investment Manager's outsourcing policy (if any), certain financial information, information relating to funds currently under management, etc. If a manager acts as the Investment Manager of or intends to manage non-jersey domiciled funds, a separate notification of the details of these funds must be sent to the JFSC. In order to be domiciled in Jersey, the Investment Manager must also demonstrate relevant experience of managing funds and that it is actively managed by at least two (where the Investment Manager cannot handle client monies) or at least three (where it can) skilled and experienced individuals. In addition, the Investment Manager is required to submit audited accounts to the JFSC and must comply on an ongoing basis with the Jersey 'Fund Services Business Codes of Practice' published by the JFSC, which contains requirements as to capitalisation of the Investment Manager (fully paid up share capital of 25,000), corporate governance, internal systems and controls, compliance and anti-money laundering systems, etc. The application process will generally take around six weeks and this application can be made at the same time as any other necessary applications. Fund establishment Two principal regulatory regimes are available for the establishment of hedge and private equity funds in Jersey. The 'expert regime' has a qualification allowing only expert investors to participate. Such funds are regulated by the JFSC. An expert investor generally means an investor that invests a minimum of US$100,000 in the fund. The JFSC's regulatory requirements include ensuring that: 1. certain prescribed details appear in the fund's offering document; 2. appropriate Jersey-based fund service providers are appointed to the fund; 3. certain requirements as to the regulatory status of the Investment Manager are met; and 4. the JFSC reviews the fund documentation prior to the grant of permission to launch the fund. Expert funds are also subject to continuing regulatory oversight by the JFSC. In contrast, the 'unregulated eligible investor' regime has no initial or continuing regulatory oversight by the JFSC and minimal or no requirements as to the content of offering documents and the identity or location of fund service providers. Only "eligible investors" may invest in the fund and an eligible investor generally means an investor that invests a minimum of US$1,000,000 in the fund and certain other professional investors.

4 Jersey Page 3 Establishing a business and hiring employees The establishment of a business in Jersey is governed by the Regulation of Undertakings and Development (Jersey) Law A licence pursuant to this law must be granted before an Investment Manager can start to operate or take on employees. The decision as to whether or not to grant such a licence is made with regard to the need to regulate and manage demand on Jersey's resources, including the expected contribution of a business towards the economic vitality of Jersey and the need to ensure that local people take part in such economic activity. A regulation of undertakings licence will take the form of a licence for an Investment Manager to take on a certain number of employees, for a set period, which includes employees from Jersey and from elsewhere. After a licence has been granted, an Investment Manager would be free to manage its employees as it sees fit within the terms of its licence and may apply for an increase in the employees it may take on at any time. Work permits are not required for the citizens of EU member states, although non-eu citizens will need to apply for permits. Living in Jersey Jersey is an island nine miles by five miles which has the same climate as Britanny in northern France, yet operates on Greenwich Mean Time. It has a population of approximately 85,000 and is a charming mix of English-speaking culture and French history. Outside of the thriving business/commercial centre of St Helier, Jersey is a patchwork of woods and fields and has 25 beaches, many restaurants (two of which are Michelin starred) and many sporting and cultural activities. In addition, Jersey has an enviable health and education system. Jersey boasts a comprehensive range of health and social services. The general hospital has modern healthcare facilities including an accident and emergency department and a critical care unit. The hospital provides a wide range of services although patients requiring specialist treatment are referred to the UK and such treatment is paid for by Jersey's Social Services department. Education in Jersey is of a high standard and examination results are similar to those in the upper 25 percent of UK schools. The Education Service aims to provide the highest quality of learning and leisure opportunities for everyone in Jersey. Property Ownership and occupation of residential property in Jersey is governed by the Housing (Jersey) Law 1949, and the Housing (General Provisions) (Jersey) Regulations 1970 (the "Regulations"). The acquisition and rental of Jersey property is restricted to local people and non-local people may only buy or rent if they are high net worth individuals as described above, or have a 'J Category' consent. Under the Regulations, 'J Category' consents can be granted to persons whose employment in Jersey is deemed to be "essential". The consent is granted to the employer, not the employee, and is conditional upon the individual remaining in the post for which the licence is granted. The majority of consents are not time limited but time restrictions may be imposed, particularly where less senior employees are involved. Jersey authorities have demonstrated a willingness to grant 'J Category' consents to employees of new businesses which meet the criteria for establishing a presence in Jersey, especially, if it can be demonstrated that the individual brings a particular area of expertise, or that the planned position cannot readily be filled from within Jersey's existing labour force.

5 Jersey Page 4 In practice, the factors taken into account in making an assessment include the economic contribution of the employer, the ability, qualifications and experience of the proposed employee, the importance of the post and the availability of suitable candidates from within the existing labour market. Approved essential employees are permitted to purchase and occupy accommodation which is not specifically restricted to persons with local residential qualifications; these are usually properties with a price in excess of 250,000. When a person completes a continuous period of ten years' essential employment in Jersey, he will acquire residential status in his own right. Root and branch reform of housing law has been approved by the States of Jersey which will replace the current housing legislation with a new migration policy, potentially an even more attractive regime for businesses wishing to set up in the Island. Travel Jersey is only 45 minutes via plane from London and one hour by boat from St Malo in northern France. There are several flights a day to London, Paris and other cities in the UK and regular flights to Dublin, Geneva and Zurich. Walkers' advice Walkers provides legal advice and assistance relating to the move to Jersey, applications for regulatory and housing permits in order to live in and establish a business in Jersey, conveyancing advice in relation to buying a property in Jersey and also advice relating to the establishment of funds in Jersey. In addition, Walkers can advise on the relocation of funds and Investment Managers to the Cayman Islands, the British Virgin Islands and Dubai. Walkers can also assist in connection with funds and Investment Managers relocating to Hong Kong and Singapore.

6 Jersey Page 5 For further information please refer to your usual contact or: Cayman Islands Roderick Palmer, Partner T: E: roderick.palmer@walkersglobal.com Ingrid Pierce, Partner T: E: ingrid.pierce@walkersglobal.com British Virgin Islands Tim Clipstone, Partner T: E: tim.clipstone@walkersglobal.com Hong Kong Denise Wong, Partner T: E: denise.wong@walkersglobal.com Singapore Ashley Gunning, Partner T: E: ashley.gunning@walkersglobal.com London Deborah Poole, Partner T: +44 (0) E: deborah.poole@walkersglobal.com Jersey Jonathan Heaney, Partner T: +44 (0) E: jonathan.heaney@walkersglobal.com Dubai Tim Buckley, Partner T: E: tim.buckley@walkersglobal.com Dublin Paul Farrell, Partner T: +353 (0) E: paul.farrell@walkersglobal.com The information contained in this report is necessarily brief and general in nature and does not constitute legal or taxation advice. Appropriate legal or other professional advice should be sought for any specific matter.