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Kiran Patel's recent interview on Jersey Foundations with TaxLinked

15 January 2019

Kiran Patel's recent interview on Jersey Foundations with TaxLinked

Our Board Director Kiran Patel was recently interviewed by Tax Linked on the topic of Jersey Foundations. You can read the interview below:

Taxlinked (TL): What are the main characteristics of the Jersey foundation?

Kiran Patel (KP): A foundation has some of the characteristics of a company in that it has separate legal personality and therefore can hold assets, contract, sue and be sued in its own name. In addition, it has a council to administer its business just like a board of directors. However, unlike a company, a foundation does not have shareholders or guarantee members and, unlike a trust, there are no beneficiaries who have an interest in the foundation’s assets or are owed a fiduciary duty. Consequently, a foundation does not have any owners and is regarded as an orphan entity.
 
A Foundation is an entity of great flexibility, which both compliments and offers an alternative to trusts and companies, as well as having a valuable role to play in its own right for wealth planning and commercial structuring.
 
Foundations have existed in civil law jurisdictions for many centuries where they were developed for non-profit aims and charitable or religious objectives. The Foundation is very much a civil law invention and hitherto usually only existed in jurisdictions where the concept of equity is alien. In the past century, the modern concept of the “private foundation" has been developed allowing for wealth planning, as well as commercial transactions.
 
Jersey law has its roots in ancient Norman customary law, which is derived from Roman law, and was thus originally a civil law jurisdiction. Although today due to the increasing influence of English law concepts it is very much a mixed law jurisdiction. Jersey has had a form of foundation for over 150 years, the fidéicommis, introduced in 1862, some 100 years before Jersey imported the trust from English law.
 
The procedure for establishment is very similar to that of incorporating a company in that, just as subscribers file a Memorandum and Articles of Association, a founder will file a charter with the registrar at the Jersey Financial Services Commission which, when registered, will establish a foundation capable of exercising all the functions of an incorporated body. Unlike some other jurisdictions, Jersey does not require a minimum level of capital, or an initial endowment of assets, for establishment.
 
A foundation will be managed by a council whose members may be individuals or corporate entities, but which must include at least one person registered under the Financial Services (Jersey) Law 1998 and licensed to carry out trust company business. The law stipulates that any question arising in respect of a foundation or an endowment of a foundation must be determined by Jersey law without reference to the laws of any other jurisdiction. In addition, the law makes it clear that a judgment or order of a court outside of Jersey concerning a question shall not be recognised, enforced or otherwise given effect or give rise to a right, obligation or liability or raise any estoppel if the court giving the judgment or order fails to comply with the foundations (Jersey) law.
 
The introduction of foundations into Jersey law has strengthened Jersey’s successful financial services armoury and has allowed companies such as Whitmill to market a vehicle with appealing characteristics, but with the strength of Jersey’s reputation of stability, excellence and expertise behind it.

TL: Are there any tax benefits associated to the Jersey foundation?

KP: There are tax benefits as Foundations are tax neutral from a Jersey perspective. This means that there is no tax on formation or on distribution of the Foundation in Jersey. A foundation is treated as being similar to a company structure for the purpose of taxation in Jersey and is therefore liable to Jersey taxation at 0% under the 0/10 system of corporate taxation. However, it does not have shareholders upon which to assess deemed dividend income in the case of a Jersey resident. Therefore, as with trusts, the service provider is required to notify the income tax department if there are any Jersey resident beneficiaries.

TL: Who should consider setting up a Jersey foundation and why?

KP: Jersey Foundations are a great tool in the armoury of financial planning and can be adapted to most scenarios. Foundations operate under civil law as oppose to a Trust, which operates under common law; this makes Foundations attractive to clients from European countries where civil law is more widely understood in these jurisdictions and where a modicum of more controls is required by clients.  Unlike a trust where the trustee contacts on behalf of the trust, the foundation is an entity in its own right and can contract for itself. In addition, the beneficiaries of a foundation cannot force asset distribution, whereas in a trust they have more powers due to the fiduciary nature. It is also worthwhile taking into consideration the construction of the council, whose members can be trusted family members along with professional within chosen areas of expertise.

TL: How successful has the Jersey foundation been since its implementation back in 2009?

KP: The success of the Jersey Foundation has been slow since its implementation but has gained some momentum over the last few years with an increase in the number of clients from civil law jurisdictions. Legal practitioners have also become more familiar with the benefits that a Jersey Foundation brings to the table.  

TL: How will the push by the UK and EU to set up public registers of beneficial ownership affect the Jersey foundation?

KP: Jersey already discloses information as to the endower and the principal behind the foundation to the Jersey regulation authorities on a confidential basis. The push to set up public registers of beneficial ownership will lead to a heightened risk for Foundations if this information was to be made public for clients, especially for those living in high risk jurisdictions. However the way that Foundations can be set up allows for information to be restricted, should a public register be set up.
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