Research highlights Jersey’s role in Saudi diversification
THE latest White Paper from Jersey Finance has found that simple is best for both those wanting to invest in oil-rich Saudi Arabia, as well as Saudi investors looking for outbound investments.
Jersey, as a leading international finance centre, has played a key role in the region looking after the wealth that continues to be created, as well as the huge inflows of investment following the Vision 2030 programme to diversify Saudi Arabia’s economy, which currently relies on oil for 44% of GDP. To achieve this, the Kingdom aims to increase foreign direct investment from nearly $8 billion to $18 billion by 2020 and have significantly relaxed the rules on ownership of companies and inward investment.
The White Paper, called Jersey – A Clear Choice for Investors, published in co-operation with the law firm Hammad & Al-Mehdar, investigates the use of IFCs in structuring these massive flows of investment, which use similar structures but for different reasons.
Abdulrahman Hammad, partner of the law firm, told newsletter AMEInfo that the use of IFCs when structuring outbound investments was widely prevalent and that holding companies were the most preferred legal structure, due to ease of incorporation and maintenance.
Mr Hammad told AMEInfo: ‘Additionally, when looking at family office and HNWI [high-net-worth-individual] investment holding structures, the main factor in the selection is cultural orientation between common-law-based trusts and civil-law-based foundations, in addition to others including tax efficiency, asset protection, jurisdictional stability, jurisdictional regulatory environment, as well as reputation.’
Richard Nunn, head of business development at Jersey Finance, said that tax was still important for inbound investments, and UK-based clients continued to favour the Channel Islands to maximise tax efficiency.
‘This is mainly because companies need to repatriate profits to their parent entities and, as such, companies will commonly seek to identify and use jurisdictions that will maximise tax efficiency of their investment,’ Mr Nunn said.
The use of IFCs, like Jersey, to pool foreign investment into the Kingdom is hardly seen in structuring exercises, because foreign investments into Saudi Arabia are subject to income tax, while Saudi investments are subject to the generally lower Zakat, which are both treated the same whatever the ultimate shareholding.
The White Paper found that the holding structure most used by Saudi high-net-worth investors is the simple holding company in an IFC owning various special-purpose vehicles. This convenient structure is used as most investors adopt it in a reactive way, as opposed to planning for it. Larger investors and family offices use trusts or foundations as the holding structure, because they are suitable for succession planning and governance issues.
The research shows that Jersey has a role to play in Saudi Arabia, both helping the significant outflows of wealth seeking diversification, and the major inflows of investments pursuing growth.
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