JERSEY Law and Practice Contributed by: Nienke Malan and Christopher Griffin, Carey Olsen
economic substance test. The test therefore applies to Jersey fund managers (and general partners if the fund has not appointed a separate manager). Self-managed funds (ie, those which have not appointed a separate manager) have subsequently been brought within this scope. The legislation came into effect in response to the EU Code of Conduct Group’s assessment of Jersey’s tax policy framework, aimed at ensur - ing the island adheres to the principles of fair taxation and aligns with the EU’s and OECD’s standards to prevent base erosion and profit shifting (BEPS). Although Jersey received the highest possible rating in all ten assessed areas and was confirmed as a co-operative tax juris - diction, the Code of Conduct Group expressed concern that the absence of a statutory sub - stance requirement increased the risk of profits being registered in Jersey which do not reflect real economic activity in the jurisdiction. While these changes present new compliance consid - erations, they are in line with Jersey’s commit - ment to uphold international tax co-operation and maintain its status as a co-operative juris - diction. The adjustments reinforce the island’s reputation as a transparent and well-regulated financial centre. The economic substance test is met if: • the company is directed and managed in Jersey (for example, if most board meetings are held in Jersey and the quorum is met by those physically present at the meeting); • core-income generating activity (for exam - ple, taking decisions on the holding and selling of investments, calculating risks and reserves and/or preparing reports and returns to investors and the JFSC) in relation to the fund management is principally carried out in Jersey; and
• there are adequate employees and physical assets, and an adequate level of expenditure is incurred, in Jersey. As most fund managers in Jersey already meet the above requirements, the economic sub - stance law has not had a substantial impact on the funds industry in Jersey.
3. Retail Funds 3.1 Fund Formation 3.1.1 Fund Structures
Please refer to 2.1.1 Fund Structures . The same types of legal vehicles are available to retail funds, and in the authors’ experience, OCIFs are typically established as unit trusts or companies. 3.1.2 Common Process for Setting Up Investment Funds Retail Funds Retail funds in Jersey encompass open-ended funds which are to be offered to retail investors and which do not qualify as an Expert Fund, List - ed Fund or Eligible Investor Fund. The first stage of the approval process is the approval of the promoter. This approval can be sought simulta - neously with the submission of documents for review by the JFSC. Once such approval has been obtained, any JFSC comments on the doc - uments have been resolved and the JFSC has approved the identity of the fund’s service pro - viders, the JFSC will issue the necessary con - sents. The extent of the JFSC’s review and of the regulatory requirements it imposes will depend on the nature of the fund and, in particular, on any minimum level of investment or other restric - tions on who can invest, as well as on whether the fund is open or closed-ended.
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