The benefits of doing business with Jersey are well known – but why does this Island in the middle of the English Channel appeal to multinational corporations as a jurisdiction of incorporation for their parent companies?
Jersey is a leading jurisdiction of choice for multinational corporations requiring a parent/holding company. Given its strong corporate governance and regulation, it is a highly reputable jurisdiction that is regularly acknowledged by independent assessments, including the Global Financial Services Index (GFSI).
Jersey's political and economic stability is well respected and supported by the calibre of professionals working in the Island, strengthening the first class service already provided by its financial service providers.
Additionally, Jersey's physical proximity to the United Kingdom and Europe bridges the time zone gap with the USA and Asia, which can be essential for working with and fostering close relations with cross-border groups and corporations.
The Island's government, trade and industry representatives have worked hard to ensure Jersey's reputation is maintained and promoted. Influential bodies such as the Organisation for Economic Cooperation and Development (OECD) and International Monetary Fund (IMF), regard Jersey as a compliant and cooperative jurisdiction for information exchange and transparency.
Jersey's tax neutrality is a major draw for multinational companies and many joint ventures, when it comes to structuring. Jersey offers a relatively straightforward income tax regime where the general corporate income tax rate is 0% (although higher rates of 10% and 20% apply in certain circumstances) and there are no taxes imposed on capital gains. Furthermore, there are no withholding taxes applied to dividends or interest on loans and no stamp duty or transfer taxes in Jersey on the issue or transfer of shares in a Jersey company. This creates a relatively low cost of compliance and allows multinational corporations to structure their global businesses in a tax neutral manner by using a well regarded jurisdiction.
Yet why specifically does this offshore finance centre appeal to those seeking to incorporate a parent company? Jersey's financial service providers and external legal and tax advisers ensure proper corporate governance, management and control is maintained in the Island. This is required by those blue chip multinational corporations and institutional investors, who wish to maintain best practice and will be a consideration when deciding on a jurisdiction for structuring and operating across borders.
Jersey has a well established and robust legal framework which is in line with the UK's Companies Act 2006 and protects many of these cross border companies from unpredictable local laws where the activity is carried out. This makes the Island particularly appealing to institutional investors and blue chip companies by providing a law that they are familiar with but with the added flexibility to adopt and enhance regulatory standards. Jersey's highly regulated and skilled workforce may come at a higher price than those in some other offshore finance centres but a price that the majority of clients are happy to pay, for the peace of mind it affords. They expect the best quality work and have confidence that Jersey's workforce will deliver.
Jersey companies have a well established presence throughout recognised stock exchanges across the globe - from New York and London to Hong Kong. Jersey's credit rating of AA/A-1+ by Standard & Poor's, is another draw for many blue chip companies when considering the structuring of business and achieving the highest possible valuation.
The Companies (Amendment No.11) (Jersey) Law 2014, which came into force on 1st August 2014, also provides significant benefits. The amendment increases flexibility within Jersey's company law regime. In summary, the key changes are as follows:
Reduction of capital
Companies may now reduce capital without court approval. A special resolution must be passed and filed with the Registrar, together with a director's solvency statement. This process is in addition to the retained court approval process.
It is now clear that a distribution that does not reduce the net assets of a company is not subject to the statutory distribution regime. Whether a reduction occurs will be dependent on the company's accounting principles and relevant to many group transactions; ordinarily an 'upstream' guarantee by a subsidiary will not be a distribution because of its contingent nature.
Any breach of duty by a director may now be authorised or ratified by resolution of the shareholders, subject to a cash-flow solvency test.
Ratification of Distributions
On application to the court, unlawful distributions may be ratified where certain solvency conditions are satisfied and the court deems such ratification not to be contrary to justice.
Share Commissions and Discounts
A company may now pay commissions in connection with share subscriptions and may issue shares at a discount.
Share Redemptions and Buy-Backs
It is now clear that a company may redeem or buyback its shares in cash or in kind, or a combination of the two.
Transfers between accounts
Credit amounts may be transferred to a stated capital account (for no par value companies) or a share premium account (for par value companies and otherwise than from its nominal or capital redemption account).
Written resolutions of members need not be signed by all shareholders but only the required majority of those entitled to vote. All shareholders must receive a copy of such resolutions.
A company may now set different thresholds for passing different special resolutions, subject to the continued two-thirds minimum requirement. Private Company AGMs - Unless provided for in its articles, there is no requirement for a private company to hold an AGM.
Private/Public Company Determination
In determining whether a company has more than 30 members (and is thus regarded as a public company), the number of persons to be discounted has been extended to include directors or employees of group companies.
The aforementioned points are not a finite list of the changes made by this amendment. Additional matters included within the amendment and indeed subordinate legislation could, of course, be of great importance depending on the specific circumstances of a structure.
Jersey's well earned reputation as a leading and cooperative international finance centre has helped to consolidate its reputation and standing as the jurisdiction of choice for the incorporation of multinationals' parent companies.