Introducing Jersey’s International Savings Plans11 Jan 2019
Jersey has introduced a new savings vehicle called the International Savings Plan ("ISP") which will attract more multinational employers on to the Island. ISPs will offer more flexibility to employers than traditional pensions or share plans.
Currently, employers who wish to set up employee incentive arrangements can do so via two routes:
- An approved route: this means that the arrangement must be set up under the existing pensions framework in order that the arrangement can be approved by the Jersey Comptroller of Taxes as being tax exempt. Such an arrangement must be registered with the Jersey Taxes Offices to obtain approval. Further, it must have a person who is regulated by the Jersey Financial Services Commission to act as the trustee. A key feature with this option is benefits can only be drawn by employees upon retirement age, being age 50; or
- An unapproved route: arrangements can be set up without approval from Comptroller of Taxes. Such arrangements do not need to be registered with the Comptroller of Taxes or the Jersey Financial Services Commission. The benefits provided by such arrangements can be flexible. Specifically, there is no requirement that they must be taken upon reaching retirement age. The Jersey Taxes Office provides a tax concession for benefits paid to non-Jersey residents so that they will not be subject to Jersey tax.
The new ISP legislation seeks to combine the best elements of the above so that an arrangement can be set up to provide flexible benefits, with approval from the Comptroller of Taxes as being tax exempt.
Bedell Cristin has been instrumental in lobbying the government in Jersey and shaping this new legislation, which will serve clients from all over the world.
The law came into force on 1 January 2019, as an amendment to the Income Tax (Jersey) Law (1961) (the "Tax Law").
What is an ISP?
An ISP is a scheme which contains all of the following features:
- its sole purpose is the provision of benefits in respect of persons' employment wholly outside Jersey;
- it is established under an irrevocable trust under Jersey law by an employer who is not resident in Jersey;
- it has trustees (either two or more individuals or a corporate) who are regulated by the Jersey Financial Services Commission; and
- it is not a scheme which comes within the pensions framework under the Tax Law.
Why introduce ISPs?
Globally, there is a growing demand for international savings arrangements. In a recent international pension plan survey conducted by Willis Towers Watson, it was found that global companies are seeking employee incentive solutions (whether be pensions or other form of incentive arrangements) to be provided to their internationally mobile employees or local employees where local arrangements are inadequate or absent.
The survey found that international savings plans (as well as international pensions plans) are offered by companies in over 20 business sectors, the key sectors being banking and finance, oil and gas, and industrials.
42% of the 733 companies that participated in the survey said that they are looking for schemes that have a "savings" objective as opposed to a longer term pensions objective.
62% of the plans have global coverage with the remaining plans being restricted to different regions.
The assets under management in respect of funded plans are estimated to be up to US$13 billion.
What are the advantages of a Jersey ISP?
Where employers operate in volatile sectors or are based in countries with a high political risk, a Jersey ISP can protect the employees' benefits against creditor, insolvency and political risks.
The benefits that can be provided by an ISP are not prescribed and therefore can be wholly flexible and tailored to suit the specific circumstances of the employer as to the type of benefits they wish to provide to their employees. For example, employees may want flexibility as to when they can draw upon the benefits, such as when "life changing events" occur (including but not limited to change of employment, redundancy, divorce, children entering university or needing a deposit for a mortgage for property purchase). Having an approved scheme that provides such flexibility is unique and therefore helpful in attracting and retaining key talent.
Any income derived by the ISP, such as gains on investments, will not be taxable in Jersey. Payments to members (provided they are not Jersey residents) will also be exempt from tax in Jersey.
It is a requirement of the Tax Law that the trustee of an ISP be regulated by the Jersey Financial Services Commission. This means that the scheme will be well run by service providers who meet the high regulatory standards set by the Jersey Financial Services Commission.
Given that ISPs are approved by the Taxes Office, they will be expected to file regular scheme returns to the Taxes Office. This additional layer of supervision will ensure that schemes will be properly managed.
Are there any downsides?
An ISP must have Jersey regulated trustees. Therefore, employers will not be able to administer the schemes themselves, and the engagement of regulated trustees will incur costs.
Once funds are made into an ISP by employers, the general rule is it will not be possible for the funds to be returned to the employer except in exceptional circumstances. There are some cases where it will be possible for funds to be returned, but this will need to be considered carefully at the scheme establishment stage.
Jersey offers a robust, modern and sophisticated legal framework which is vital to the health of the finance industry worldwide.
Jersey lawyers and service providers have a wealth of experience in assisting clients from all over the world in establishing structured products and specialist vehicles that meet a whole range of financial and investment objectives.
Company X is an international oil and gas company with employees in the United Arab Emirates, South East Asia, US, Brazil and Australia. Many of the employees go on secondment between these jurisdictions.
Company X wishes to provide an international savings arrangement for its internationally mobile employees, as well as its employees in the United Arab Emirates and South East Asia.
Company X decides to set up a Jersey ISP which has 3 sections: one for the internationally mobile employees ("International Section"), one for the employees in the United Arab Emirates ("UAE Section") and the final section for employees in South East Asia ("SEA Section").
For the International Section, Company X decides to provide benefits that can offer the most flexibility given that the employees do not have a long term connection in any particular jurisdiction. As part of the remuneration package, Company X will contribute 10% of an employee's salary into the International Section of the ISP. The benefits can be drawn by the employee upon the occurrence of certain life changing events, such as serious ill-health, purchase of a property, retirement, family assistance and redundancy.
In relation to the UAE Section, Company X decides to provide end of service gratuity benefits which are due on the termination of employment as required by UAE law.
In relation to the SEA Section, Company X decides to provide conventional pension benefits so that benefits can only be drawn by employees upon retirement (age 50) except where employees suffer serious ill-health. The SEA Section will require separate approval under the pensions section of the Tax Law.
The Taxes Office will be publishing guidance notes on the approval process for ISPs. Bedell Cristin has assisted with this process.
Bedell Cristin can advise employers, service providers and investment advisers on all aspects of an ISP.