Private Trust Companies in Jersey
During recent years professional trust advisers in Jersey have noticed a significant increase in the use of private trust companies (PTC) which act as trustee of family trusts, especially in those cases where the settlor of the trust wishes family members to retain a degree of involvement in decisions relating to the trusts.
The sole purpose of a PTC is to act as trustee of a family trust (or of a series of trusts, all for the benefit of different members of the family). The board of directors of a PTC will usually include both members of the family, possibly the settlor of the trust and other immediate family, and trusted family advisers. In this way the family can actively participate in the decisions that need to be taken by the PTC as trustee, including decisions relating to the control and management of companies owned by the trustee.
Whilst Jersey has become renowned as a jurisdiction for wealthy individuals to establish trusts in which they settle some of their wealth for estate, succession and tax planning purposes, there are a large number of people who are not familiar with trusts and who are reluctant to give third-party trustees control over their trust’s assets. For these people, a PTC over which they have some degree of control or influence, may be much more acceptable to act as the trustee of their trust.
Benefits of using a PTC
One of the benefits of establishing a PTC is that it should not be necessary for the settlor to provide a letter of wishes to the trustee. Whilst a letter of wishes is a useful guide to independent third-party trustees, it is a poor substitute for a thorough understanding of the needs and wishes of the settlor and beneficiaries. The board of directors of the PTC would normally include family members who are sufficiently close to the settlor and to other family members, to be able to ensure that the intentions of the settlor are observed. A PTC may also provide greater comfort for the settlor that his or her objectives in creating the trust will be met.
In choosing the board of directors of a PTC, the settlor may appoint family members who will at a future date become principal beneficiaries of the trust. In this way, the settlor is able to use the PTC as a vehicle to familiarise the family members with the wealth and business interests owned by the trusts and instruct them in the management of those assets.
There is another benefit of using a PTC that should not be underestimated, particularly in cases where the underlying assets are invested in private companies that are actively trading; a PTC is often better able to react promptly to a request for trustee approval for a major transaction (for example, a sale of an important part of the business owned by the trustees) than an independent, institutional trustee, which will often wish to examine the transaction in detail and probably take legal advice, before giving its approval. This can result in considerable delays to such transactions.
Directors of a Jersey PTC
One of the benefits of establishing a PTC to act as trustee of a family trust is that it is possible to choose the directors of the PTC; these are the people who will make decisions about how the PTC will exercise its discretionary powers and how it will manage the trust assets. Whilst the settlor may be one of the directors, consideration will need to be given as to whether or not this is desirable, especially if it may adversely affect the fiscal position of the trust; likewise, whilst other beneficiaries and family members may also be appointed to the board of directors, advice should be sought as to whether or not this will affect the tax position of the PTC or cause the trust itself to suffer adverse tax consequences.
Commonly, other family advisers, legal advisers, accountants, tax advisers and so forth, may also be appointed to the board of directors; whilst it is usual to have at least one director from the Jersey trust company which will be responsible for the administration of the PTC.
During 2006, Article 56 of the Trust (Jersey) Law 1984 was revoked. This removes the personal liability of directors of Jersey corporate trustees as guarantors in the event of a breach of trust by the corporate trustee.
Administration from Jersey
Commonly, when the settlor of a trust chooses Jersey law as the proper law of the trust, the intention is that the trustee will be a Jersey person or entity and that the trust will be administered in Jersey. Jersey trustees generally have to be licensed and regulated by the Jersey Financial Services Commission (JFSC), under the provisions of the Financial Services (Jersey) Law 1998; however, if the trustee is a Jersey PTC it may be exempt from the requirement to be licensed and regulated, so long as it falls within the scope of the exemption set out in the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000. This Order provides that the PTC must act as trustee solely of a specific trust or group of trusts; must not solicit or provide trust company business from the public; and must itself be administered by a registered trust company services provider within Jersey.
There is no requirement to submit to the JFSC or to any other statutory body in Jersey any reports or accounts of either the PTC itself or of the trusts of which it acts as trustee.
Ownership of a PTC
There are a number of ways in which a PTC may be owned: for example, the settlor may own it directly; or another member of the family may own it. A common solution is to have the shares of the PTC owned by Jersey trustees of a purpose trust, the sole purpose of which is to own the shares of the PTC for the benefit of the settlor and family members.
Jersey Company Formation
Jersey is a British Crown Protectorate. Effectively self-governing in all matters save defence, however, in theory ultimate power still rests with the British Parliament. Excellent efficiency. English speaking. Low individual and corporate taxation for residents. Residents are taxed on their worldwide income. Like the Isle of Man Jersey has greatly increased its due diligence requirements with all trust and corporate service providers now having to be licensed and "know their client". The Jersey Financial Services Commission is known for being very strict and is primarily seeking the high end of the offshore market. Unlike the Isle of Man, Jersey does not enjoy a Customs Union with the UK for VAT purposes (Protocol 3 of the Treaty of Accession, 1972). Significant number of ship and yacht registrations. Growing banking and insurance sector. 50% of GNP derives from financial and related services. Tax treaty with the UK with disclosure of information provisions with respect to UK residents. For certain inheritance tax purposes, British nationals may not be deemed to have lost their British domicile even if living in the Jersey. Apart from UK no other tax treaties.
LOCATION: Jersey is located just off the French coast beside Guernsey and Alderney.
RELATIONSHIP WITH THE U.K.: Under Protocol 3 of the Treaty of Accession, 1972,( a U.K. Statute ) Jersey and the other Channel Islands are part of the customs union and therefore must ensure a level of tariffs and duties consistent with those of the European Union. V.A.T. and EU “Directives”/”Regulations" do not apply. Politically, the legislative body is the "States". However, all long-term legislation must be ratified in the U.K. by convention. The United Kingdom Parliament does not legislate, although technically having the right to do so, without the permission of the Jersey Government. It will be noted that there is a distinction between the confidentiality rating for U.K. and non U.K. nationals (or, residents). The reasons behind this distinction are the same as for the Isle of Man, subject to the caveat that the Jersey Financial Services Department is notorious for its enforcement.
ADVANTAGES OF A JERSEY COMPANY:
The indigenous corporate tax rate for Jersey residents conducting business in or from the Island with a company is 20%. Where real or beneficial ownership does not so rest, the above tax rate will not apply, even if management and control is carried out on behalf of a non-resident. The taxation liabilities of non-indigenous companies are as follows:
EXEMPT COMPANIES: To qualify as a tax exempt company it is necessary to show that no beneficial ownership rests with a Jersey resident and that the objective of the business is not to penetrate the local market. Unlike Isle of Man Exempt Companies there is no legal necessity to employ local directors or a secretary, however, given that most clients wish to demonstrate indigenous management and control, such companies do generally have Jersey nominees. In lieu of local taxation, the company is liable to pay an annual exempt duty of Sterling £600.00. The application for this status must be made on, or before, the 31st of March of the year in which the exemption status is sought. For newly incorporated undertakings, which by definition may not even have existed in March, an application must be received within 3 months of the date of incorporation. In addition to the exempt duty there is also an annual filing fee of £150.00 to be paid each January to the Registrar of Companies. Late payment, i.e. after February, will result in heavy fines. Exempt Companies are ideal for passive activities such as holding property but are not generally suitable for trading activities (see Isle of Man Exempt companies above).
INTERNATIONAL COMPANIES: International Companies are deemed resident in Jersey for tax purposes. However, the tax actually paid will be negotiable provided all activities are outside of Jersey. The criteria for ownership is virtually identical to that for an Exempt Company in that there must be a declaration stating that beneficial ownership does not rest with a Jersey resident. The advantage of such a company over a standard Exempt undertaking is that it may benefit from Jersey's double taxation treaty with the United Kingdom and, perhaps, circumvent various high tax jurisdictions anti-avoidance provisions. Many such provisions only apply if a foreign company only pays a set duty in lieu of variable taxes. For income which is generated from activities which occur on the Island the full 20% Jersey tax rate will apply, however, where this is not the case there will be a sliding-scale of rates varying from 0.5% where profits are over £10,000,000.00 to 2% where they are less than £3,000,000.00. International Company status must be elected by the 31st of October of the year in which the favourable tax regime is sought. If, because of recent incorporation, this is not possible, then the election must take place within 3 months of the incorporation date. Finally, it should be noted that 'international' status can be applied for by non-Jersey companies which satisfy the standard management and control tests.
HOW TO INCORPORATE A JERSEY COMPANY
As with the Isle of Man, all Jersey companies are considered indigenous until an appropriate election is made. The governing legislation, principally the Companies (Jersey) Law of 1991, and formation procedures are almost identical for all types of undertaking. Nominees can be used for anonymity, although detailed information on the beneficial owners of the company must be supplied to the Financial Services Department. Further, if an intending Exempt or International Company trades before making an election, it could be fully subject to Jersey tax at 20% on its world-wide income.
Name: The name of the required company should be checked with the Financial Services Department. In the vast majority of cases the ending will be either 'Limited' or Public Limited Company. However, it is possible to use the French equivalent "avec responsabilite limitee".
Capital: There is no specific minimum capital requirement. In most cases, a registration agent will only issue two £1.00 shares. Share capital can be denominated in any currency. The maximum authorised capital available paying the minimum duty is Sterling £2,500.00. If sums are required over this amount, additional duty will be payable.
Registered Office: All Jersey companies require a local registered office for service of process.
Registered Agent/Nominees: Jersey companies do not need a local agent or nominee although such a structure may be advisable for tax planning purposes.
Board of Directors: Private Jersey companies only require one director. Directors must be real individuals and not corporate entities. There are no nationality/residence restrictions.
Shareholders: Jersey law requires a minimum of two initial subscribers, however, as stated above there need only be one director.
Books, records and seal: Full register of members and charges must be kept at the registered office in Jersey. Unlike the Isle of Man, an official company seal must be adopted.
Powers of attorney: All Jersey companies may grant a general or specific power of attorney to any person, to act on its behalf, to execute contracts, agreements, deeds and other instruments. These powers are not a matter of public record.
Bearer shares: Bearer shares are not available in Jersey.
Annual Meetings: All Jersey companies must hold an annual general meeting with no more than an 18 month gap between such meetings. Meetings can be held inside or outside of Jersey.
Trusts: Without doubt, Jersey is the most sophisticated and monitored offshore trust jurisdiction in the British Isles. Trustees tend to be of a high calibre. Trust law is based on that of England, although with far more favourable provisions. Anti-avoidance legislation in the UK can, however, affect their use.
ANNUAL FEES & GOVERNMENT TAXES
All Jersey companies must submit an annual return to the Registrar whether or not the company has traded. This demands full details on all capital, membership and officerial developments, if any, over the preceding year. The current filing fee is £150.00. If a company, which has not made an election, has conducted no business (business however including the activation of a bank account) no duty or general tax liability will exist. For International Companies, it should be remembered that once the election has been made the deposit against future taxes of £1,200.00, is not refundable even if the company lay dormant. For Exempt Companies, the £600.00 is, as already indicated, payable in advance. No rebates are given. All Jersey companies must maintain proper accountancy records. However, Exempt Companies do not have to file accounts. For indigenous and International Companies filed accounts do not need to be audited, unless the company is a PLC, provided appropriate amendments have been made to the articles of association.
Penalties for non-payment: As with most similar jurisdictions there are penalties for those who have not submitted their annual returns/duties on time. Late penalties are similar to those of the Isle of Man and Guernsey. Struck-off companies are difficult and expensive to reinstate.