Jersey: a platform for international real estate investment11 Dec 2018
Jersey acts as a global hub for structuring real estate investment. This briefing looks at what Jersey has to offer to real estate investors.
The Global Real Estate Market and Jersey
The global real estate investment market is huge, with investment in commercial real estate exceeding US$700 billion each year. Jersey plays a significant role in that market, providing structuring solutions both for investors investing in their home markets and for those investing cross-border.
Jersey is a jurisdiction of choice for pension funds, institutions, sovereign wealth funds, fund managers and private wealth investors in real estate. The official statistics for Jersey-based publicly-offered real estate funds show that over $50 billion of real estate is held by such funds. The fact that such funds represent a relatively small fraction of the total real estate investment universe in Jersey gives some indication of the overall scale of real estate investment undertaken via Jersey.
Stability, Independence, Reputation
Jersey is one of the world's leading international finance centres, and has been at the forefront of global finance for more than 50 years. Independent, with its own government and judicial system based on common law principles, Jersey was one of the first jurisdictions to regulate those involved in the establishment and administration of real estate structures, providing a guarantee of standards and protection for investors. Jersey also adheres to international standards of financial regulation and reporting, with independent assessors from bodies such as the OECD, World Bank and the IMF all acknowledging Jersey as being compliant and co-operative in relation to financial regulation. At the same time, Jersey's industry and government are focussed on ensuring ease of doing business, and Jersey has been endorsed as "Best International Finance Centre" and "Best Fund Administration Centre" over many years, receiving multiple industry awards and accolades.
Expertise, Experience and Substance
Jersey has become a centre of excellence in the establishment, financing and administration of real estate vehicles. It has a highly-skilled workforce across key sectors, including the legal, administration and accounting professions, as well as banks and custodians. Jersey also has real substance to its financial sector, which is visible in its capital, St. Helier, where a quarter of the local workforce is employed.
Jersey has breadth and depth to its industry and to its range of services, including the Island's core competencies as an outsourcing and support centre, as well as more specialist areas such as securitisation, REITs or Shari'ah finance. The diversity of, and range of skills within, Jersey's finance industry is a key reason institutional real estate investors favour Jersey.
Jersey offers a variety of options for those structuring investment in real estate, including via property funds, REITs, investment syndicates, joint ventures and proprietary holding structures.
Types of Vehicle
The options for real estate vehicles include unit trusts, limited partnerships and companies, all of which are supported by a modern, sophisticated, legislative framework.
One of the more commonly-used structures is a Jersey property unit trust ("JPUT"). A JPUT acts by its trustee, usually a special purpose vehicle or a professional trustee regulated in Jersey, which holds the property for the unitholders. JPUTs can be structured with considerable flexibility, both as to the contribution of assets, distributions and the return of capital, and as to the transfer of interests. JPUTs are generally structured so as to be tax transparent and have the benefit that no transfer taxes are payable on the transfer of units.
The legislative frameworks for Jersey limited partnerships and companies are equally flexible. Companies may be structured as par value or no par value companies, as protected or incorporated cell companies and with considerable freedom as to distributions, redemptions and as to the rights of shareholders, for example. Partnerships can be created as open- or closed-ended vehicles, or with or without separate legal personality, for example.
There is a choice of regulatory regimes available in Jersey, providing optionality as to the level of regulation applied to the vehicle. Whilst service providers such as administrators, trustees and custodians are regulated, and higher regulatory standards apply to funds marketed to the general public, regulation-free or regulation-light regimes are available for private structures, or for structures that are only marketed to sophisticated or institutional investors (such as the Jersey Private Fund regime).
Jersey offers a tax-neutral environment, with no corporation tax, capital gains tax, VAT, withholding taxes or stamp duty on the transfer of interests in real estate structures. Taxes will be paid in the country where real estate is held, and by investors, in accordance with the tax rules in the respective jurisdictions, but using Jersey structures means that there is no additional layer of tax and thus the same profits are not taxed twice. This can be particularly advantageous for joint and collective investment arrangements, where co-investment via a legal structure is necessary, and can be achieved in Jersey without imposing an additional tax burden. Both zero tax and 'tax-transparent' vehicles are available, and tax neutrality is not dependent on the complexity of international tax treaties.
UK and Capital Gains Tax
As UK real estate is often held via Jersey structures, the steps taken by HMRC to ensure a 'level playing field' in terms of the taxation of gains made by both domestic and overseas investors in UK real estate are worthy of mention. In this regard, it is worth noting that the availability of the Transparency Regime and the Exemption Regime to overseas collective investment vehicles ensures that offshore investment vehicles will suffer no tax disadvantage as compared with onshore vehicles, enabling the continued use of tried and tested investment structuring models.
For those raising external capital for real estate funds or other collective structures, the ability to market the structures can be important. Unregulated or lightly-regulated Jersey structures can adapt to match any local marketing requirements. Alternatively, opting for a regulated vehicle in Jersey may assist in meeting local regulatory requirements in the countries where the fund is to be marketed, as often Jersey regulatory standards (being based on international standards) will dovetail neatly with regulatory requirements in target jurisdictions.
For the EU, Jersey offers easy and cost-effective marketing through the National Private Placement Regimes (NPPR), providing an attractive alternative to the AIMFD passport regime. Crucially, the route to market through NPPR offers a lighter regulatory burden and lower cost as compared with the AIFMD passport, and is unaffected by Brexit. With only 3% of EU funds being registered for sale in more than 3 member states, using NPPR and focussing marketing on key jurisdictions is a compelling proposition for the vast majority of managers.
Bedell Cristin and Corporate Real Estate
Bedell Cristin has an international reputation as a leading offshore legal practice. We are a leading provider of independent legal services to the real estate sector, assisting investors, managers and finance providers.
Our specialist corporate real estate team has advised on the establishment, financing and restructuring of a significant number of property funds, REITs, investment syndicates, joint ventures and proprietary holding structures - ranging from single asset structures to listed vehicles holding multi-billion real estate portfolios.
We provide legal advice on the structuring, financing, and operation of, and transaction in, all forms of indirect real estate investments.