Economy and Trade
Jersey is a British Crown dependency situated off the coast of Normandy. As well as the island of Jersey itself, the dependency includes several groups of small, uninhabited islands which are no more than rocks and reefs. Together with the nearby bailiwick of Guernsey, it forms the grouping known as the Channel Islands. Jersey’s economy is based on international financial services, agriculture, and tourism. Light taxes and death duties make the island a popular tax haven.
On Guernsey, financial services, including banking, fund management, and insurance, account for about 23% of employment, and about 55% of total income in this tiny, prosperous Channel Island economy. Tourism, manufacturing, and horticulture, mainly tomatoes and cut flowers, have been declining. Financial services, construction, retailing, and the public sector have been growing. As with Jersey, light tax and death duties make Guernsey a popular tax haven.
Economic Policy over 12 Months
With such a significant percentage of its revenue coming from financial services, Guernsey actively promotes itself as an offshore financial center. From 1960 to 2008, companies and individuals paid income tax at the rate of 20% and there was no separate corporation tax. Guernsey levies no capital gains, inheritance, capital transfer, value-added (VAT/TVA), or general withholding taxes. However, the island has gone to some trouble to change the way its tax system works, in order to remain Organisation for Economic Co-operation and Development (OECD) and EU-compliant. On January 1, 2008, it changed to a Zero 10 corporate tax system, whereby most companies pay 0% corporate tax, and a limited number of specific banking activities are taxed at 10%.
This policy, which was adopted by Jersey as well in 2009, has run into considerable criticism from a number of member states on the grounds that this regime is not within the spirit of the EU Code of Conduct on Taxation. Both Jersey and Guernsey committed to abolishing the International Business Company/International Company and Exempt Company structures which allowed companies owned by non-residents to pay low or no tax on their profits. PricewaterhouseCoopers (PwC) Jersey points out that Guernsey has continued to permit collective investment schemes to claim exempt status, and Jersey, having initially removed this status, reintroduced it in 2010. Jersey has agreed to make some technical changes with effect from January 2012 concerning distribution and attribution rules, but it does not plan on changing its Zero 10 corporate tax regime. Guernsey currently has this regime under review but it is not following Jersey’s lead on removing deemed distribution rules. Even with the tax review currently underway in the EU, it is very unlikely that any new tax regime would be introduced in the islands before late 2013, according to PwC.
Guernsey also has a thriving nonfinancial industry. It is home to Specsavers Optical Group, which manages the largest optical chain in the United Kingdom and Ireland, and also operates in Scandinavia, the Netherlands, Australia, and Spain. Guernsey issues its own Sterling coinage and banknotes. UK banknotes also circulate freely and interchangeably.
The island of Jersey has a special relationship with the European Union as part of the United Kingdom’s Treaty of Accession in 1973. This relationship cannot be changed without the unanimous agreement of all member states and island authorities. Under it, the island is part of the customs territory of the European Community (EC). The common customs tariff, levies, and other agricultural import measures therefore apply to trade between the island and nonmember states, and there is free movement of goods and trade between the island and member states.
Jersey is not, however, part of the single market in financial services, and, as a result, is not required to implement EU Directives on such matters as movement of capital, company law, or money laundering. However, Jersey has said that it will emulate such measures where appropriate, and is committed to enforcing international standards of financial regulation, and countering money laundering and terrorist financing.
The island’s financial services sector, like that of Guernsey and, indeed, other offshore finance centers such as the Bahamas, the Cayman Islands, and the British Virgin Islands, continues to be under threat from planned or threatened anti-tax-avoidance measures in the United States, and from the European Union. However, many Jersey and Guernsey-based financial institutions argue that the enduring appeal of both islands’ offshore centers is the real value that they bring to tax planning. Opening up avenues for national tax authorities to pursue tax dodgers while still retaining low or no local taxes at this time still looks a viable way forward for offshore centers.
Both Guernsey and Jersey have worked hard to convince regulators and politicians in the United States and elsewhere that their financial services sectors are not money laundering risks and should not be blacklisted. In July 2011, for example, Guernsey Chief Minister Lyndon Trott and the island’s Chief Executive Mike Brown were successful, following a series of meetings with US politicians and officials, in getting US Senator Carl Levin to drop Guernsey from his list of “offshore secrecy jurisdictions” that he wants to see hammered into line. In the end they managed to convince the senator that Guernsey’s financial sector has no bank secrecy and operates a cooperative policy on tax information sharing.
Economic Performance over 12 Months
Guernsey publishes an annual “Facts and figures” report which sets out key economic, social, demographic, and environmental trends. The island’s GDP for 2009 was £1,903 million, a contraction of around 2.2% on the figure of £1,945 million in 2008. Guernsey currently anticipates 2010 growth (the statistics are still not finalized) to be essentially flat. Inflation is running at a comfortable 2.3% and the unemployment rate on the island is just 1.1% Guernsey’s 2011 budget was announced on November 12, 2010, in a difficult economic context. In addition to uncertainties about growth in Europe and the United States, the authorities have to concern themselves with the unresolved status of European objections to Guernsey’s domestic tax and regulatory regime. The budget raised indirect taxes in order to help restore balance to public finances, which had been somewhat mauled by the global downturn. No changes to direct taxes were proposed.
In June 2011 ECOFIN completed its formal assessment of Jersey’s zero-10 tax regime, which had been deemed harmful back in mid-2010 by the EU Code of Conduct Group. ECOFIN took a positive view of certain amendments Jersey had put forward in the light of the Code of Conduct Group criticisms. The EU Code of Conduct Group is expected to assess the amended zero-10 regime in September, with a final decision on the proposed amendments expected from ECOFIN in December 2011 (source: businesslife.co)
In 2005 the finance sector on Jersey accounted for about 50% of the island’s output. Tourism accounts for one-quarter of GDP. Potatoes, cauliflower, tomatoes, and especially flowers are important export crops, shipped mostly to the United Kingdom. The Jersey breed of dairy cattle is known worldwide, and represents an important export income earner. Milk products go to the United Kingdom and other EU countries. In recent years, the government has encouraged light industry to relocate to Jersey, with the result that an electronics industry has developed, displacing more traditional industries. All raw material and energy requirements are imported, as well as a large share of Jersey’s food needs.
On Guernsey, the evolving economic integration of the EU nations is changing the environment under which Guernsey operates. The island has come under intense criticism, led by the OECD and the Financial Action Task Force (FATF), which seeks to close loopholes—particularly offshore loopholes—that encourage money laundering operations and impede transparent regulation. As a result, Guernsey is reforming its practices. The island has enjoyed a great deal of success in the last two decades in attracting some of the world’s best-known financial institutions in banking, insurance, and reinsurance.
According to the Guernsey Financial Services Commission, the island’s financial regulator, the jurisdiction holds some £61 billion in total deposits (June 30, 2008). In 2008, financial services accounted for 70 to 80% of the island’s revenues. However, Guernsey now has to negotiate efforts by the United States, the United Kingdom, Europe, and the OECD, to wind up tax havens, and to prevent money going offshore and diminishing national tax takes. The FATF conducted an evaluation of Guernsey’s compliance on November 2, 2008, and issued some 40 recommendations (source: Investment International, www.investmentinternational.com).
The Jersey Statistics Unit prefers to use gross value added (GVA) and gross national income (GNI) measures to reflect economic performance rather than GDP. GVA is the sum of the profits of businesses and earnings of employees, and is a good measure of the value of the economic activity taking place on the island. It amounted to £3,621 million in 2009, a retrenchment of −3% on the figure for 2008 which was £3,725 million. The financial sector accounts for more than two fifths (43%) of total economic activity.
Support for Inward Investment and Imports
Jersey Enterprise provides a one-stop shop for anyone looking to grow a business on Jersey. It also assists international companies to establish and grow their businesses on Jersey. The Guernsey Enterprise Agency does much the same on Guernsey.
Both Jersey and Guernsey have favorable tax regimes. Further information can be obtained from Jersey Enterprise and the Guernsey Enterprise Agency.
GDP growth: 0% (official, 2010 est.)
GDP per capita: £39,553 (official, 2009 est.)
CPI: 2.4% (June 2010)
Key interest rate: n/a
Exchange rate versus US dollar: £0.6388 (2010)
Unemployment: 1.1% (March 2010)
Current account deficit/surplus: n/a
Population: 65,068 (July 2011 est.)
GDP growth: n/a GVA growth –3% (official)
GDP per capita: US$57,000 (2005 est.)
CPI: 3.7% (2006)
Key interest rate: n/a
Exchange rate versus US dollar: £0.6388 (2010)
Unemployment: 2.2% (2006 est.)
Current account deficit/surplus: n/a
Population: 94,161 (July 2011 est.)
Source: CIA World Factbook except where stated