Fiscal benefits
Jersey offers a low tax regime for corporate entities and individuals, with its highest income tax rate set at 20%. There are no wealth taxes such as inheritance tax or capital gains tax and the tax system includes other attractions such as generous rules for the taxation of employee share ownership, Social Security payments capped at a low level and no stamp duty on equity transactions. There are changes afoot in line with Jersey’s ongoing focus on remaining competitive with other jurisdictions. Income tax rates for corporate entities will be reduced to 10% or even 0% in certain circumstances.
An important feature of most investment funds is their tax neutrality, and Jersey offers a range of vehicles specifically designed to meet this objective. Accordingly, it is most common for the fund vehicle itself to be outside the scope of Jersey taxation (with any tax liability instead falling upon the individual fund investors). A Jersey resident hedge fund promoter/manager will be subject to Jersey taxation on taxable profits arising from its business in the normal way. A key criterion for any new business seeking to establish a presence in Jersey is the expected level of tax contribution.
In many instances, individuals who are hedge fund managers will also benefit from the favorable ‘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, the UK. Furthermore, Social Security payments in Jersey are low compared to many jurisdictions.
There are provisions for high net worth individuals re-domiciling in Jersey. They fall under Category 1(1)K of Jersey's current Housing Law and a key consideration in the granting of 1(1)K licences is the expected level of annual tax contribution to be made by the applicant. To meet the current requirements, applicants are generally to generate sufficient income so that their annual tax contribution is in the region of £100,000. For many, the more likely applicable housing regulation will be Category 1(1)J, or an “Essentially Employed” individual, which gives many of the advantages mentioned above without having to demonstrate the same level of high net worth.