Jersey is witnessing a spike in the inflow of private equity fund managers establishing a physical presence on the island. A number of household name fund managers across all asset classes now call Jersey home, with others in advanced stages of planning to follow them into Jersey. What are the principal drivers of this trend?
The drivers can be both economic and regulatory but re-domiciling to Jersey is often also a lifestyle choice for many senior fund management professionals. Jersey's sophisticated funds services offering means that the island can offer operational advantages for fund managers relocating to Jersey. Underscoring this has been a political desire on the island to diversify the economy, which has resulted in the introduction of tax regimes and policies which have had the effect of encouraging high value industries, such as the fund management industry, into the island.
As the UK represents the largest European centre for the management of private equity funds, possible UK tax changes are undoubtedly contributing to the growing interest amongst private equity fund managers to domicile outside the UK. Jersey residents are subject to personal income tax at a maximum rate of 20% on worldwide income. Certain high net worth individuals who become resident in Jersey may (subject to a number of conditions) have a significant proportion of their non-Jersey income taxed at a rate as low as 1%. Additionally, since the introduction of the "zero-ten" tax regime, the profits of a Jersey based regulated investment manager may be taxed at a rate of 0%. This tax neutrality clearly makes Jersey an attractive proposition for private equity fund managers.
The ease of regulatory compliance in Jersey while at the same time meeting the highest international standards is another big factor. For example, the introduction, in response to the EU Code of Conduct Group's 'fair taxation' requirements and the OECD's BEPS initiative, of economic substance rules for fund management companies which are tax resident in Jersey, very much played to the island's strengths because the governance model in Jersey has always been to have substance on the ground. This proved particularly important during the COVID-19 lockdown this year and continues to be relevant whilst restrictions on travel persist, as the requirement to be 'directed and managed' in Jersey, meaning that board meetings must be held in Jersey and the majority of the directors attending board meetings must be physically present in Jersey, could be met by the Jersey-resident directors. Other jurisdictions have not weathered the pandemic as well as Jersey and, as a result, many fund managers located in those jurisdictions have struggled to comply with their regulatory obligations.
Finally, for fund managers wishing to access European investor capital, the fact that Jersey does not form part of the EU but that Jersey-based private equity fund managers are, nevertheless, permitted to access EU investors via national private placement regimes is enormously important. This enables a Jersey-based fund manager to benefit from a reduced AIFMD compliance burden, in particular enabling it to avoid being bound by the remuneration disclosure rules applicable to EU fund managers. Additionally, at the point at which the AIFMD passport becomes available to non-EU funds, the existing availability of fully AIFMD-compliant regulations for those funds 'opting-in' to the AIFMD, means that Jersey will be ideally placed to be able to benefit from this marketing passport, as and when it becomes available.
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Updated economic substance requirements for Jersey Fund Managers
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