The Isle of Man is playing a bigger part on the global stage. Both 2009 and 2010 have been critical for the island in terms of the direction it is choosing to take in the world. It is dealing state to state on international matters - as an active member of the OECD’s Global Forum and at ministerial level at the summits of the British-Irish Council. Despite recent global financial turmoil, the island is in its 26th year of unbroken growth and has been able to maintain its coveted AAA credit rating from both Standard & Poor’s and Moody’s.
The Isle of Man’s direct taxes are not high by international standards – the top rate of personal income tax is 20 per cent - but it has been able to build up substantial reserves of almost £1.5 billion. In addition, the island has not fallen into recession, in large part down to the government’s successful strategy of diversifying the economy and encouraging business such as hi-tech manufacturing, e-commerce, clean tech, film, pensions and aircraft and yacht registration as well as maintaining traditional sectors such as banking, insurance and finance.
The Island’s International Reputation
The Isle of Man takes its international status seriously. In April 2009 it was placed straight onto the OECD’s white list with regard to implementing internationally agreed tax standards. It signed its first Taxation Information Exchange Agreement (TIEA) with the USA in 2002 and now has 17, including agreements with Australia, Germany, France, New Zealand, the Netherlands and most recently China. The island has signed double taxation agreements with the UK, Estonia, Malta and Belgium and is in negotiation with numerous other states. Recently the island announced plans for the automatic exchange of information on savings interest with the UK and other EU member states.
The IMF published its review of the Isle of Man in September 2009, confirming its continuing high standards of compliance with global standards of regulation and supervision in financial services. In 2009 the UK government commissioned a report (the ‘Foot Report’) to examine financial supervision and transparency, taxation in relation to sustainability and future competence, financial crisis management and the international co-operation of the Crown Dependencies. The Isle of Man was praised, and the report noted that the Isle of Man and the other Crown Dependencies make a significant contribution to the liquidity of the UK market, providing net financing to UK banks of US$332.5 bn.
The UK government last year changed the terms of the customs and excise agreement to which the Isle of Man has been a party for many years, requiring the island’s government to rebalance its budget. The government has taken steps to spend less and to increase revenue. This year it established the Department of Economic Development, the mandate of which is to focus on developing and diversifying the Island’s economy.
The Proceeds of Crime (Money Laundering) Code 2010 came into force in September 2010, updating existing legislation in accordance with latest international standards, while ensuring that the island still provides a competitive environment for business.
October 2010 saw the introduction of a new type of pension scheme. While the scheme is available to Isle of Man residents, it is also expected to meet HMRC requirements on QROPS. This will enable the new scheme to be used by British expatriates who wish to transfer their pension rights offshore. Any payment made to a person resident outside the Isle of Man is paid gross, and is not subject to Isle of Man income tax, whereas previously payments made from an Isle of Man-domiciled QROPS were subject to Isle of Man income tax. The legislation is designed to allow the island to compete with other jurisdictions whose QROPS do not incur income tax.
There have also been improvements to the Companies Act and in 2011 incorporated cell structures, foundations as well as new intellectual property legislation will be introduced.
EU economic affairs and finance ministers recently reached agreement on the controversial Directive on Alternative Investment Fund Managers (AIFM), raising the prospect that the legislation could be finalised in 2010. Of particular interest to the Isle of Man, the latest agreement will allow non-EU managers and funds to obtain the same pan-European marketing ‘passport’ as their European-based counterparts two years after the Directive comes into force; the current private placement arrangements will remain in place until then, and there will be no interference with reverse solicitation - so any anticipated adverse consequences have so far not materialised.
The Isle of Man’s fund industry is confident that the island will be able to provide the necessary level of oversight and regulation that will be required by third-country funds to facilitate access to the EU. It is a commonly held view that the Isle of Man (along with several other offshore jurisdictions), is already better regulated than many EU countries meaning that equivalence under the AIFM Directive will be achievable. An equivalent regime for some Isle of Man funds would obviously be a significant benefit to the island’s fund industry. The Isle of Man is confident that its alternative fund industry will continue to grow whatever the outcome of the EU’s deliberations.
In 2009 the Isle of Man Ship Registry celebrated 25 successful years as an international ship registry. The Isle of Man flag is popular with owners and lenders alike and boasts in excess of 12 million gross tonnage. The Isle of Man has developed into a ‘Shipping Centre of Excellence’ and is home to international companies offering specialist maritime services in both ship and yacht management, finance, maritime insurance, maritime law and company formation.
The Isle of Man Registry is a Category One British Registry with international safety convention status for vessels of all sizes and classes. Isle of Man vessels have the protection and assistance from the British Royal Navy and British consular services worldwide. It is an important flag for commercial shipping and yachts.
The Ship Registry provides 24/7 cover for both registration and survey requirements and its experienced professionals offer efficient support, assistance and pragmatic solutions to its customers.
There is only an initial registration fee payable on registration of a vessel and thereafter an annual registration fee of £700 per vessel regardless of vessel size (subject to fleet and other discounts). There are no ‘tonnage taxes’, consular fees, annual inspection fees or charges on casualty investigation. Owners can enter an Alternative Fees Scheme whereby they pay a fixed monthly subscription and in return the Registry appoints the vessel’s classification society to undertake routine statutory surveys. Isle of Man surveyors attend to and complete ISM audits, ILO inspections, ISPS verifications and general inspections at the statutory intervals, at no further cost to the owner. This scheme is automatic for commercial yachts.
Since its launch in 2007, the Isle of Man Aircraft Register has surpassed all expectations. The total number of registered aircraft stands at over 300 and includes a number of privately operated models of the Boeing and Airbus families as well as the latest Dassault, Bombardier and Gulfstream business jets. This is partly down to careful legislative planning. Sections 60 and 61 of the UK’s Civil Aviation Act 1982 have been applied to the Isle of Man, which enables the UK to satisfy its obligations under the Chicago Convention as the Contracting State responsible for the Crown Dependencies.
The island was targeted for an ICAO audit last year and produced an extraordinarily impressive result which, when set against the UK and those Overseas Territories with registers, could only make them blanche. Of the 14 audit findings, the majority reflected the adoption of UK legislation.
The Isle of Man has succeeded in identifying the essence of the business jet community’s requirement for efficiency and commerciality whilst at the same time ensuring that regulatory oversight matches the highest of standards. As a result the Isle of Man Aircraft Register has become the aircraft register of choice. Isle of Man aircraft carry the prefix “M”.
Over recent years, the number employed in this industry in the Isle of Man has almost quadrupled whilst the total tax paid has increased over six fold. The resulting success of the online gaming industry on the Isle of Man has created a cluster effect of businesses such as software developers, hosting companies, online affiliate marketing companies and payment providers which provide quality employment and income.
The Isle of Man offers a world class telecommunications infrastructure and reliable power. Connectivity off the Island is provided by two resilient fibre optic rings, owned respectively by BT and Cable & Wireless, which connect with England and Northern Ireland. These links employ ‘self healing SDH loop’ technology which guarantees that if a fault occurs in any part of the link, voice and data traffic is seamlessly rerouted in the other direction. The total available capacity is three million channels (240GB) with a current capacity utilisation of less than 0.2 per cent on the main cable alone. In addition, the Isle of Man Government owns a third undersea cable connecting the Isle of Man with England and offers further capacity to support island businesses. This infrastructure is envied amongst the island’s competitors.
The Gaming Supervision Commission is responsible for the granting of licences and undertaking post licensing compliance. A licence typically takes 10-12 weeks to process. There is a processing fee of £1,000 and the official fee for a full licence is £35,000 per annum (a sub-licence fee is £5,000 per annum). In addition, online gambling attracts online gambling duty with a sliding scale from 1.5 down to 0.1 per cent, except where the online gambling activity is considered pool betting in which case the duty is 15 per cent.
A unique aspect of Isle of Man regulation is that players' funds are held on trust for the players to ensure that in the event of an operator’s insolvency, players' funds are ring fenced from other debts and liabilities.
Since the Isle of Man used its orbital filing as a foundation for the space industry, its status as a leading jurisdiction in space activities has continued to grow. This, together with its favourable corporate operational and tax environment has seen the island attract some of the world’s largest satellite companies. The island is an important player in this sector and was chosen to host the fourth Google Lunar X PRIZE Team summit.
The Isle of Man offers, as it always has, a favourable tax and business environment and political and economic stability. It has been repeatedly endorsed as a well regulated jurisdiction and it will continue to comply with international standards to maintain this position.
Nick Verardi Partner and Group Head of Corporate & Commercial Team
Appleby Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Isle of Man, Jersey, Mauritius, Seychelles and Shanghai.