The introduction of new legislation and a number of tax related court rulings in recent years, has emphasised the importance for businesses to demonstrate proper management and control of group companies that are tax resident in foreign jurisdictions.
In response to concerns raised by the EU Code of Conduct Group, a number of jurisdictions including Jersey, have now enacted legislation which is aimed at ensuring that companies can demonstrate sufficient economic substance in the jurisdiction where they are tax resident.
Legislation provides that a variety of factors should be considered in determining whether the company meets the economic substance requirements, including the experience and qualification of the directors carrying out of core income generating activities and the need to have adequate cost, people and premises in the jurisdiction in which the company is tax resident.
Furthermore, recent court rulings suggest that tax authorities will not hesitate in challenging the tax residency of a company if there’s doubt over the place of central management and control, potentially leading to unexpected group corporation tax charges.
This has prompted many businesses to review their group entities, the place in which they’re domiciled and the manner in which they’re being managed.
Prior to changes in recent years, the tax residence of a company was typically determined by where the company was controlled. The now long-established ‘central management and control’ test was formed from case law and still applies, but the introduction for Economic Substance legislation has introduced additional standards which companies should meet in order to prove sufficient ‘substance’ in a jurisdiction. Sanne has produced a more detailed note on the Economic Substance, which can be provided upon request.
The satisfaction of these standards (as well as the central management and control test) can be aided by the appointment of highly experienced and qualified directors, who are permanent residents in the desired jurisdiction. Certain jurisdictions, such as Jersey, have more comfortably demonstrated these ‘best practice’ standards of governance, due to the local service providers having a long history of the full management of companies.
On the other hand, its recognised that some other jurisdictions may not have the same level of experience and pre-existing capability to so naturally attain the required governance standards. This stems from the fact that companies registered in these other jurisdictions have more commonly been controlled by foreign boards and local service providers may have been inclined to provide ‘nominee directors’, which weren’t in the habit of using their own judgement.
These substance rules and increasing expectations are having an effect on businesses’ choice of domicile. We have seen an increased desire to redomicile companies to jurisdictions with adequate expertise, high regulatory standards, and an existing model of strong management and control where the risk of a tax challenge is perceived to be substantially reduced.
Jersey has been one of the leading international finance centres of choice for many decades and is home to a large number of prominent fiduciary, legal and accounting firms. It’s been recognised by some of the worlds most prominent bodies as having exceptional standards of regulation and compliance.
Furthermore, Jersey has a highly skilled workforce and a large proportion of finance sector employees are qualified in the provision of fiduciary and related services. This has led to Jersey becoming the jurisdiction of choice for many companies and their subsidiaries, ranging from private to public companies of varying sizes.
The re-domiciliation (also referred to as a continuance or migration) of a company to Jersey is a well-trodden path, especially in recent years.
The process is relatively straight forward and involves a number of key steps, as set out in the Companies (Jersey) Law 1991 (as amended) (the “Companies Law”), including:
The Registrar of Companies in Jersey may request other information on the company before its registration in Jersey is approved. Additionally, it may be necessary for the company to apply for other licences in Jersey, depending on its activities.
Sanne has participated in the re-domiciliation of a number of companies to Jersey during recent years, following which it typically provided directors to manage the company on an on-going basis. We can help to streamline the provision of any necessary due-diligence and can assist in the preparation of documents that will be required for an application to re-domicile your company.
Once your company has migrated to Jersey, Sanne can provide experienced and professionally qualified individuals to act on the board. We are happy to take full responsibility for the management of the company, or we can act alongside your own in-house representatives. We can also provide a variety of other corporate support services such as acting as company secretary, registered office facilities, accounting, cash flow management and tax reporting which would also be considered as core income generating activities for certain companies and which may also help to demonstrate economic substance in the Island.
Any decision to re-domicile your company or any of its subsidiaries will need to be made after full consideration of the tax and/or legal position. Sanne has relationship with a number of professional tax and legal advisors and would be happy to recommend an advisor where necessary.