What real estate fund managers need to know about domiciling in the Channel Islands

Together, Jersey and Guernsey have over US$1.1 trillion in fund assets serviced, according to data from Monterey Insight. While private equity and venture capital funds make up the vast majority of funds domiciled in the Channel Islands, Jersey and Guernsey also have a significant number of real estate funds. Jersey has 350 real estate funds with US$68 billion in assets serviced, according to Monterey Insights. These numbers are particularly remarkable considering the islands have a population of fewer than 200,000 and span only about 120 square miles.

To understand why the Channel Islands are attractive to real estate fund managers and investors, we interviewed Marc Harris. Marc is director, head of real estate and capital markets for Vistra Jersey. He has nearly 20 years’ experience in the fund and corporate services industry, with over 10 years specialising in Channel Islands real estate funds.

What are the main advantages of domiciling a real estate fund in the Channel Islands compared to other jurisdictions?

The Channel Islands attract capital primarily due to their transparent regulations, mature and trusted legal systems, and stable governments.

Taxation is also a key driver. The Channel Islands’ respective tax regimes are designed to be tax-neutral, allowing non-resident investors to utilise double taxation treaties and pay tax only in their own countries and those they invest in.

With Channel Islands funds, then, there is 0 percent withholding tax on investment income when making distributions, and tax is paid in the jurisdiction in which rental income arises — for example, UK corporation tax is paid on UK-property rental income. Basically, The islands’ tax neutrality allows for the frictionless deployment of capital to the investment market.

It’s also worth pointing out that the islands have a widespread and longstanding reputation among investors, particularly those in the UK, Switzerland and the Netherlands. Investors in these countries and more globally are aware that the Channel Islands are a safe jurisdiction with a robust legal and regulatory framework. These qualities help demonstrate that fund managers, when domiciling in Jersey or Guernsey, are diligent when selecting the jurisdiction rather than just gravitating to the cheapest option.

Fund advisers and managers are largely familiar with the islands’ regulations — the Channel Islands follow the alternative investment fund managers directive [AIFMD], for example. Advisors and managers can also take advantage of Jersey’s and Guernsey’s respective company laws. These offer greater flexibility when making distributions to investors than UK company law.

Finally, the Channel Islands have a large and highly skilled talent pool with deep experience in fiduciary services.

Can you explain the regulatory framework in the Channel Islands for real estate funds and how it supports fund managers?

Jersey and Guernsey have similar fund regimes. For some of the reasons I mentioned, they attract virtually all types of private funds — those with smaller investor bases, open-ended funds and everything in between.

As far as fund options, the Jersey Private Fund [JPF] and Guernsey’s Private Investor Fund [PIF] structures are dynamic, flexible and relatively quick to set up. They’re also transparently regulated, which helps boost investor confidence.

Funds can be structured as a company, including as a PCC [protected cell company], ICC [incorporated cell company] or a cell of an ICC. (Essentially, a PCC is like a standard limited company that’s legally segmented into parts, or cells, that can be separately owned by investors. ICCs are similar and offer even greater investor protections.)

Funds can also be structured as limited partnerships or unit trusts, including the GPUT [Guernsey property unit trust] and JPUT [Jersey property unit trust]. GPUTs and JPUTs allow assets to be held by a trustee on behalf of investors and are often used to hold UK commercial real estate.

What are the key compliance and reporting requirements for real estate funds in the Channel Islands?

Channel Islands funds must appoint an MLCO [money laundering compliance officer] and an MLRO [money laundering reporting officer]. They also must adopt policies and procedures for combatting money laundering, terrorist financing and proliferation financing. Private funds may use a designated service provider’s policies and procedures if they wish.

It’s notable here that MONEYVAL — which is a part of the European Council and monitors compliance with international standards to counter money laundering and the financing of terrorism— recently commended Jersey for strengthening its anti-money laundering and financing of terrorism framework. MONEYVAL is assessing Guernsey this year.

Reporting requirements, including deadlines and audit requirements, vary based on jurisdiction and fund type. Management and NAV [net asset value] reporting is determined by the PPM [private placement memorandum] or fund offering documents. Financial statements must be prepared on an annual basis and audited (with the exception of JPFs, which have no audit requirement for financial statements).

What are some common challenges real estate fund managers face when domiciling in the Channel Islands, and how can they be overcome?

As with operations in virtually any area, it can be challenging for fund managers to keep abreast of and compliant with evolving regulatory requirements, including many of those — such as reporting and auditing — that I’ve mentioned.

Many firms choose to outsource to a fund administrator to help keep compliant with regulations. They also outsource to reduce the administrative and cost burdens associated with domiciliation, ongoing accounting, maintaining secure platforms and more.

Speaking of these outsourcing benefits, I recently attended a real estate funds operations working group that brought together a select group of fund managers and administrators to discuss this very topic. One key point that emerged was that fund managers are often unaware of the full range of capabilities and offerings provided by fund administrators—such as financial reporting analytics, ESG reporting, and property management accounting. As a result, they may attempt to handle these services in-house with teams that are not subject-matter experts, diverting resources from their core competencies.

Another common challenge in this context is the ambiguity surrounding task responsibilities. For instance, a fund manager might mistakenly believe that their fund administrator is responsible for collecting, analysing and interpreting ESG metrics. However, the interpretation of these metrics may not be explicitly outlined in the service agreement and may not be performed by the administrator.

It’s crucial, then, for fund managers to clearly map out services between their various providers, agree on specific responsibilities, and regularly monitor these tasks to ensure they are completed as expected.

Have you observed any recent trends in the types of real estate funds choosing to domicile in the Channel Islands?

Due to the high cost of debt, real estate transactions have slowed considerably over the last couple of years as the market corrects itself. During that period, we’ve seen fund managers focus on value-add opportunities. Along with that, many managers have been rationalising their operational structures, considering outsourcing more work and consolidating service providers.

What future developments or changes in the Channel Islands' regulatory or tax environment should fund managers be aware of?

The Channel Islands have made a commitment to implement the OECD’s Pillar Two global minimum tax framework, effective 1 January 2025 for large multinational groups. Multinational groups that meet the €750 million annual global revenue threshold — including entities operating within a fund structure — and do not benefit from an exemption will pay a top-up tax to bring the effective taxation of their Jersey and Guernsey resident entities to 15 percent.