Nick Verardi provides a detailed legislative overview of the jurisdiction.
The Isle of Man 2008/2009 Budget was aimed at securing its future and sustaining the growth and performance which it has enjoyed over the past five years. The budget sought to increase net departmental revenue spending on public spending by 5.2 per cent or £28.2 million. The Isle of Man is now in its 23rd year of unbroken growth and has continued to maintain its coveted AAA credit rating from both Standard & Poor’s and Moody’s credit rating agencies.
The zero rate of corporate income tax introduced in the 2006 Budget remained unchanged in the 2008/2009 Budget, with the higher rate of 10 per cent continuing to apply only to income arising from banking business carried on by Isle of Man licensed banks and to income derived from Isle of Man land and property. This means that Isle of Man companies do not have to be concerned with applying for, and complying with, any kind of tax exemption regime.
Growth in the island’s economy has averaged more than 6 per cent per year in real terms over the last five years. However, the island is not complacent and is continually considering new initiatives to ensure its continued growth.
Constitutional Position of Isle of Man
The Isle of Man is a self-governing dependency of the British Crown. It does not form part of the UK. By long-standing constitutional convention, the island has complete autonomy in relation to domestic affairs, including taxation and business law.
The island is not a member state of the EU. Under Protocol 3 to the Act of Accession, whereby the UK became a member state, EU rules only apply to the Isle of Man in relation to a limited range of matters. Accordingly, EU directives on tax harmonisation, company law and financial services do not apply in the Isle of Man.
The island is a common law jurisdiction and its legal traditions draw heavily on those of England; so much so that English case law is of high persuasive authority. This legal stability gives the jurisdiction the commercial legal certainty long associated with the English legal system, combined with the flexibility of an international financial centre.
As a result of the introduction of the Isle of Man Companies Act 2006, persons wishing to use an Isle of Man company vehicle now have a choice between two different regimes:
Alternative Investment Market Listings
The Alternative Investment Market (AIM) continues to be an increasingly popular option for companies looking to raise capital, and more and more international businesses are using Isle of Man corporate vehicles to access the AIM market. 2007 saw 15 of the top 100 AIM companies being formed in the Isle of Man, more than any other jurisdiction outside of the UK. And while this has slowed in 2008, this is due to the global market conditions.
Isle of Man closed-ended companies (i.e. companies which do not provide their investors with a right of exit) are not subject to fund regulation in the Isle of Man and are instead treated in the same way as any other company for regulatory purposes. Accordingly, there are a number of important advantages in using an Isle of Man company for listing on AIM, including:
Although an AIM listed company will not require a regulated fund administrator or manager, it will need an Isle of Man licensed corporate service provider to provide formation and ongoing compliance services as these are regulated activities in the Isle of Man.
Isle of Man corporate vehicles are also suitable for listing on many recognised investment exchanges.
A Funds Review Group was set up in September 2006 to review the Isle of Man’s investment funds industry. The group published its report in February 2007. Since then both the public and private sectors have been working hard to progress and implement the initiatives identified by the group to position the Isle of Man as a premier location for the domiciliation of specialist funds in the alternative and closed-ended fund sectors, and further, as a preferred location for the establishment of front and middle office operations for global fund managers.
Funds under administration in the island tripled between 2003 and 2006 and reached a total of US$60 billion in 2008. The island aims to have US$100 billion of funds under administration and US$50 billion of funds under management by 2010.
In November 2007 the new Specialist Fund (SF) was launched. The SF has been specifically created to meet the demands of the alternative investment community and is aimed at institutional and super high net-worth individuals. The SF provides maximum flexibility to promoters of, and advisers to, hedge funds.
In addition, the FSC has announced proposed refinements to its licensing policy which are designed to attract hedge fund management and related operations to the island. Certain fund managers who provide services to SFs or their equivalent in other jurisdictions will qualify for dispensations from some supervisory requirements which would ordinarily apply and will also benefit from a streamlined application process. It is believed that the island’s low tax status, political and economic stability, capacity and appetite for growth, proximity to London, competitive operating costs, and high quality of life make it a compelling and cost-effective environment for basing hedge fund operations.
The Isle of Man first introduced dedicated remote gambling legislation in 2001 and since then has continued to assess and where necessary amend its legislation to ensure that the island continues to be, and is recognised as being, a well-regulated and reputable jurisdiction for remote gambling operators.
In September 2007, the UK independently endorsed the island’s high regulatory standards by including the island on its ‘White List’. The White List is a list of countries that the UK regards as having a satisfactory gambling regulatory regime in place and from which licensed operators are permitted to advertise into the UK. As at October 2008, the island was one of only three countries to have made it on to the UK White List.
The island has already succeeded in attracting a number of e-gaming industry leaders. The island’s inclusion on the White List, and the access which this gives Isle of Man licensed operators to the important UK market can only strengthen its position and accelerate the growth of this sector even further.
The new Isle of Man Aircraft Register was launched on 1 May 2007 and is the first European aircraft register dedicated to high quality private corporate jets and helicopters. The Isle of Man legislation is very closely based on the equivalent and familiar English provisions and meets internationally recognised standards.
The Isle of Man Aircraft Register is continuing to prove very popular. The registry is relatively small and is able to offer an efficient and high quality personal service. The fees charged by the registry are very competitive compared to other jurisdictions. In the first year of operation over 50 aircraft were registered and there are many more in the pipeline.
Review and Consolidation of Financial Services Legislation
Throughout 2007 the FSC has been conducting a consolidation and review of all of its financial services regulatory legislation with the aim of consolidating it into one statute and rule book.
The result of the consolidation and review is now available and has produced a simpler, clearer, more user-friendly and modern piece of legislation, which will hopefully lead to a reduced regulatory burden, especially for those entities that undertake more than one regulated activity. The review has ensured that the island’s legislation is suitable to meet today’s regulatory risks and continues to comply with international regulatory standards. The FSC introduced the new legislation on 1 August 2008 for all new licence holders. Pre-August licence holders are provided with a six-month transaction period up to 31 December 2008 during which they will remain under the ‘old’ regime, except with regard to the anti-money laundering aspects of the new legislation. The new legislation is known as the Financial Services Act 2008 and guidance can be sought in the Financial Services Rule Book 2008.
A similar review and consolidation is also being undertaken by the Isle of Man Insurance and Pensions Authority. The aim is to have a single insurance act which will set out the regulatory framework for insurance business on the island. It is hoped that this legislation will become law before the end of 2008.
Taxation Information Exchange Agreements
The island continues to offer a low tax business environment, political and economic stability, and geographic proximity to London and the rest of Europe. In addition, the island has built up a sophisticated professional infrastructure and earned a well-founded reputation as a premier jurisdiction in terms of regulation. This reputation has been instrumental in the Isle of Man being able to negotiate Taxation Information Exchange Agreements (TIEAs) with the seven members of the Nordic Council: Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden. These are in addition to the TIEAs with the Netherlands, UK and US, and the planned TIEAs with many more countries in 2009. All of these factors combined with the island’s ‘can do’ business environment and the close co-operation between the public and private sectors ensures that the island continues to meet the expectations of those choosing to do business here.
Partner and Group Head of Corporate & Commercial Team