Author: | Published: 23 May 2005
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Over the past 25 years Jersey has consistently been the jurisdiction of choice for premier arrangers to locate SPVs involved in some of the most innovative transactions in the capital markets. Jersey is a world-class finance centre that has enjoyed long-term political and economic stability. Key to maintaining this reputation is the large pool of established, experienced high calibre professional service providers able to provide a high degree of expertise and efficiency in connection with the creation and administration of SPVs. This, combined with the favourable tax treatment of SPVs, low establishment costs and absence of regulatory costs, flexible and commercial regulatory framework, Jersey's membership of the OECD and recognition by the Financial Action Task Force and a convenient geographical location within the EU time zone, has helped to cement widespread acknowledgement of Jersey's reputation as a leading location in which to base SPVs participating in cross-border finance transactions.

What institution is responsible for regulating SPVs?

Jersey has a modern, sophisticated network of regulatory laws and a single independent financial services regulatory authority, the Jersey Financial Services Commission (JFSC), with an experienced team dealing specifically with securitizations and complex structured finance transactions. The JFSC has overseen the introduction of an enhanced regulatory regime in Jersey and it adopts a commercial and flexible approach to client needs while fulfilling its overriding duty to preserve Jersey's international reputation as a premier finance centre.

What is the procedure for incorporating SPVs?

The procedure for incorporating SPVs is extremely straightforward, and the incorporation process is capable of being completed on the day of instruction. Where particular Jersey regulatory consents are required in relation to issuance of securities, before establishing the SPV, the JFSC must be satisfied as to the stature of the arranging institution and may seek to review certain material documentation (generally only offering documentation, if any) in connection with the SPV and the proposed transaction. The initial proposals (usually with a term sheet prepared by the arranger) are ordinarily put to the JFSC for an in principle consent after which draft documentation may be submitted for review. The JFSC has committed itself to responding to applications within five working days. In practice, clearance is often obtained more quickly.

In considering the terms of the material documentation, the JFSC will be concerned with the prudential aspects of the transaction and Jersey's reputation as a premier finance centre. These issues will be considered in the context of the nature of the proposed investors. In the case of a public offer of securities (broadly, an offer to more than fifty persons), the SPV will be issuing a prospectus within the meaning contained in the Companies (Jersey) Law, 1991 as amended (the 1991 Law), and the company must therefore be incorporated as a public company for Jersey law purposes. The 1991 Law imposes stricter filing requirements for public companies than for private companies, the most important distinction being that in the case of public companies audited accounts must be prepared and filed annually, together with the auditor's report on them. The SPV will also need to obtain formal consent from the Registrar of companies to the circulation of the prospectus. Legislation subordinate to the 1991 Law sets out disclosures that must be made in any prospectus issued by a Jersey company. These are not unduly onerous and the JFSC has an overriding power to grant derogations from these requirements as it thinks fit.

A regulatory consent for issuance of the relevant securities will be required by the SPV pursuant to the Control of Borrowing (Jersey) Order, 1958, as amended (assuming that the number of persons in whose name the securities are or are to be registered (or, in the case of bearer securities, are or are capable of being held) exceeds 10). When satisfied with the submissions made in respect of the proposed transaction, the JFSC will grant a formal consent for the company to raise up to a specified amount of money by issuance of the relevant securities. That consent will usually impose certain standard conditions enabling limited regulatory monitoring.

What are the registration, filing and other regulatory fees and costs associated with incorporating an SPV?

Incorporation of the SPV requires payment of a fee of £200 ($362), with the option of a two hour fast-track service for an extra £200. Statutory costs comprise an annual return fee of £150 payable to the Companies Registry each year at the time of filing the annual return (the annual return is filed by every Jersey company made up to January 1 in each year to be filed by the end of February in the relevant year and records, among other things, the names of the shareholders of the company as at January 1 of the relevant year). An annual exempt company fee of £600 is payable to the Jersey tax authorities by exempt companies to maintain the special exempt tax status that will typically be obtained by an SPV (see below for more details). A fee of £25 is also payable by public companies at the time of filing their annual audited reports.

There are no costs payable to the regulatory authorities in Jersey following incorporation of the SPV.

How are SPVs typically structured?

It is often crucial that the SPV is not owned or controlled by either the arranger, promoter, originator or any of the other participants of the transaction. In these circumstances a Jersey law orphan general charitable trust structure established by a third party may be employed to hold the entire issued share capital of the SPV. At this point it is worth noting that there are no minimum capitalization requirements for Jersey SPVs and accordingly they are often established with an authorized and paid up share capital of as little as £2. The trustee of the charitable trust would typically be provided by the Jersey service provider appointed to administer the SPV. The terms of the charitable trust will typically provide that the trustee cannot dispose of the shares in the SPV or exercise its rights as shareholder so as to cause a breach of, or interfere with, the obligations of the SPV under the relevant transaction documents during the period of the transaction.

A charitable trust can be established quickly and does not require consent of the regulatory authorities in Jersey. Transactions are typically structured to ensure a minimum level of profit retained in the SPV (for corporate benefit reasons and to provide some return capable of being distributed to the charitable trust in due course). The separation of the trustee from trust assets is provided for by statute and, if the trustee of the charitable trust becomes bankrupt, the assets of the trust will not be available to the creditors of the trustee in its insolvency (further enhancing the bankruptcy remoteness of the SPV). Non-petition, limited recourse and contractual subordination provisions are common features of transaction documentation entered into by SPVs. The principal purpose behind these provisions is to maintain the bankruptcy remote nature of the SPV. The structuring of bankruptcy remote vehicles in Jersey is well established and a strong legal opinion can be obtained on the efficacy of such provisions.

How are SPVs taxed?

An SPV may apply for exempt company status in Jersey if no resident of the Island has any beneficial interest in the SPV. This position will not be prejudiced if the shares in the SPV are held by Jersey resident trustees, provided that the beneficiaries concerned are local charitable entities, duly exempted from local tax by the Comptroller of Income Tax in Jersey, or non-residents of Jersey, whether charitable or otherwise.

If a company holds exempt company status, the company will be regarded as resident in Jersey and can hold board meetings in the Island, but will be treated for all purposes of Jersey income tax law as not resident in the Island. Accordingly, the company will pay no income tax on income arising outside Jersey, will pay no income tax on interest arising from Jersey bank and building society deposits (by concession), will not be required to deduct or withhold Jersey income tax from payments of interest or dividends and will not have to make a return of income to the Comptroller of Income Tax in Jersey. An annual fee (£600) is payable to the Comptroller of Income Tax in Jersey to maintain exempt company status.

An exempt company must make an annual return to the Jersey Financial Services Commission declaring that the beneficial ownership of the company has not changed since it was last notified to the Commission. This enables the Comptroller of Income Tax to check that no Jersey resident has acquired a beneficial interest (as defined) in the company. An extra statutory clearance has been issued by the Comptroller of Income Tax to the effect that acquisition by a Jersey resident of any bearer securities will not prejudice the exempt company status of the company provided that a selling restriction is included in the terms and conditions of the securities prohibiting holding of the securities by or for a Jersey resident other than financial institutions (meaning a bank, finance house, insurance company, investment trust or fund, mutual fund or society, pension fund or other institution of a like nature).

Thus, there will typically be no adverse taxation consequences for the SPV as a matter of Jersey law. It can issue, pay interest on and redeem or exchange its securities without any liability to taxation in Jersey beyond payment of the annual fee for maintaining exempt company status. Further, Jersey income tax will not be levied on the non-resident holders of the securities.

There are no capital gains or inheritance taxes in Jersey, nor any VAT on provision of services. There are no stamp or documentary taxes in Jersey on executing documents material to SPV structures or issuing, redeeming, exchanging or otherwise transferring securities issued by an SPV.

On request, the Comptroller of Income Tax in Jersey will issue tax clearance letters on a transaction-by- transaction basis confirming to interested parties the Jersey tax treatment of the proposed structure. These can typically be obtained within one or two working days.

While Jersey is not a member state of the EU and therefore is subject to the EU Savings Tax Directive, in keeping with Jersey's policy of constructive international engagement, in response to the Code of Conduct on Business Taxation element of the Directive, the States of Jersey has indicated an intention to replace the exempt company tax regime by the end of 2008 with a general zero rate of corporate tax. It is intended that the new corporate tax will preserve tax neutrality (and so retain the existing benefits of the exempt company regime through a revised fiscal structure). Unlike the exempt company tax regime it is intended that the new regime will not require an annual application/election or payment of any sum in connection therewith by the relevant company.

Can securities issued by SPVs be listed on the local stock exchange?

The securities of a Jersey SPV may be listed on a recognized stock exchange whether in bespoke transactions to suit investor requirements, or to facilitate secondary market dealings in the securi

ties and it is not uncommon for securities issued by Jersey SPVs to be listed on the major international stock exchanges. A listing may also be made on the Channel Islands Stock Exchange (CISX) which was established in 1998. The CISX has quickly gained international recognition including the following:

  • The US SEC has designated the CISX as a Designated Offshore Securities Market within the meaning of Rule 902(b) under Regulation S of the Securities Act of 1933.
  • The UK Financial Services Authority has designated the CISX as a designated investment exchange under the Financial Services and Markets Act 2000;
  • The UK Inland Revenue has designated the CISX as a recognized stock exchange under Section 841 of the Income and Corporation Taxes Act 1988, which means that debt securities listed on the CISX may qualify as quoted Eurobonds for UK tax purposes enabling interest on them to be paid gross.
  • CISX has also recently been accepted as an Affiliate member of the International Organization of Securities Commissions (Iosco).

The implementation of the EU Prospectus Directive as of December 2003 is expected to increase debt listings in the less prescriptive regime of CISX and other non-EU stock exchanges.

CISX offers a fast-track listing procedure in respect of the listing of specialist debt securities and guarantees a two-day turn around on listing applications although, in practice, applications are often dealt with within an even shorter time frame. In addition to these benefits, specialist debt security listings only incur a one-off up front fee. There are no annual fees to maintain a listing of such securities.

What is the jurisdiction's risk rating?

Standard & Poor's has set a sovereign rating for Jersey that gives a AAA rating ceiling for the securities issued by Jersey SPVs.


The key to Jersey's attraction as a location for SPVs is its reputation as a premier finance centre. Its reputation is maintained and enhanced by the close collaboration between the JFSC and the broad base of experienced finance pro

fessionals servicing client needs in the island. This, together with the additional key benefits of low establishment and ongoing costs, neutral tax treatment of SPVs and a highly developed, yet flexible regulatory framework indicates that Jersey is set to continue to be the jurisdiction of choice for locating SPVs to participate in sophisticated structured financing transactions.

About the authors

Shane Hollywood

Bedell Cristin

Partner, capital markets and structured finance practice area of the financial services law group. Director of Bedell Cristin Trust. Director of Bedell SPV Management (Jersey) Limited

Structured finance/securitization, banking, corporate finance/ commercial

Significant experience in banking and structured finance work having worked for many leading banks and financial institutions on some of the most innovative financing structures created in Jersey over recent years.

Written and contributed to various articles on securitization and the use of SPVs.

A keen interest in insolvency matters and contributor to a Key Haven publication Jersey Insolvency Law in Practice (co-authored by Anthony Dessain).

Authored the Guidelines for Jersey Directors issued by the Institute of Directors, Jersey Branch (2003).

1998 Advocate of the Royal Court of Jersey; 1993 Law Society Final Examinations for admission as an English Solicitor; 1990 BA (Hons) Business Studies


John Goldfinch

Bedell Cristin

Legal assistant, financial services law group

Structured finance and securitization, banking and corporate law

2003 Legal Practice Course, Oxford Institute of Legal Practice; 2002 University of Oxford, St. Catherine's College, BA Jurisprudence