Wednesday, 4 January, 2017
It would be easy to think that there should be some pessimism within Vistra Jersey as to why new business may be difficult to attract offshore in the coming years and in particular during 2017.
One could consider that Brexit will take its toll on the presence of corporate and fund activity, especially where investments directly into the UK are concerned. One could also understand concerns surrounding corporates being more cautious about using tax efficient offshore structuring in light of the negative outlook on tax mitigation from the political class and wider press. As a result of this, the global tax landscape has been changing rapidly over the past several years (e.g., EU BEPS, UK DPT, etc.), placing more pressure on multinational companies to challenge their legal entity and supply chain structures.
In addition to this, the 2017 UK Finance Act is now confirmed to be implementing the various changes to UK legislation which will impact the offshore industry more than any previous Finance Act. The key changes which will directly affect many of our private clients, and therefore our business, are the changes to the non-domiciled status of clients and also the stripping of the last tangible advantages of holding UK residential property via offshore structures.
There is no doubt that these changes will have a material impact on Jersey’s current client base, but does this mean that there are no more viable reasons for clients using offshore structures? We do not think so.
With regards to corporates and fund structures, it will always be the case that despite the changing landscape, businesses and investment vehicles must be structured in an efficient way for financiers and investors alike. As a result, we are seeing an increase in the amount of corporate work we are undertaking in the Jersey office. Furthermore, structuring is not always tax driven and so the need for quality offshore jurisdictions within a structure may be required for many other reasons such as to ease access to capital markets or for assisting with the acquisition of debt.
With regards to the changes to the non-domicile rules, this will indeed affect existing clients who will become deemed domicile during the next year or so, but the new rules will also actually push these private clients into structuring early as they approach having been in the UK for 17 of the past 20 years. Non-dom settlors who settle offshore resident trusts before becoming deemed domiciled will not be taxed on trust income and gains that are retained in the trust, which suggests non-UK resident trusts could still offer considerable planning opportunities. During the past month we have taken on a number of large corporate clients, some listed and others forming part of large fund structures, who are interposing Jersey entities into their existing structures.
With regards to UK property, the general sentiment is that UK commercial property will remain a very attractive asset class and this is borne by the fact that this year we have taken on two potentially very large new structures in Jersey which have been put into place to acquire and develop commercial property. Furthermore, residential property in the UK is still highly sought after and already we are seeing new structuring ideas from big UK tax intermediaries which use offshore entities to mitigate inheritance taxes for at least one generation.
So having seen absolutely no decrease in appetite for offshore private client structuring (despite these issues first being raised over two years ago) nor for offshore corporate structuring (despite Brexit and other geo-political issues) why do we remain confident that Jersey will be a jurisdiction of choice?
There is certainly some suspicion surrounding the use of offshore finance centres and this has not been helped by the media coverage of the recent leaks of information from jurisdictions such as Panama and the Bahamas. However what has been interesting is that, rather than this having a negative impact on Jersey, this has actually enhanced Jersey’s reputation.
Jersey is one of the world's leading international finance centres. Reliability, political and economic stability, and a sophisticated and comprehensive infrastructure of laws have kept Jersey at the forefront of global finance for over 50 years.
Jersey offers a tax-neutral environment, with no Capital Transfer Tax, Capital Gains Tax, Value Added Tax, Withholding Taxes, or Wealth Taxes; this provides tax certainty and allows for fiscally efficient cross-border investment. Its robust, modern, and sophisticated legal framework is the source and foundation of Jersey’s finance industry. Developments and enhancements are continually being made to ensure flexibility and attractiveness to domestic and international markets.
Crucially, though, Jersey remains one of the best regulated international finance centres, a position that has been acknowledged by independent assessments from some of the world’s leading bodies including the OECD and, most recently, MONEYVAL. MONEYVAL have acknowledged that Jersey is compliant or largely compliant with 48 of the 49 FATF recommendations, equal highest of any jurisdiction assessed. It is interesting to compare this to say Luxembourg which complied with 10 of those same recommendations.
All the work that Jersey has done to cement its position as the world's leading international finance centres is resulting in a consistent flow of high quality work being referred to service providers on the island – and Vistra Jersey is extremely well placed to receive and convert these referrals.