Nick Verardi considers how the Isle of Man has successfully weathered the economic storm and what the jurisdiction is doing to develop as an international business centre.
The Isle of Man Government is committed to maintaining the Island as a leading international business centre, renowned for its professionalism and with a longstanding policy of positive engagement with international standards. It has a coveted place on the OECD’s White List, has been praised by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes for the way it exchanges information with other countries and has been placed in the highest category of co-operative jurisdictions during a review on behalf of the G20; all further recognition at a global level that the Isle of Man is in the top tier of responsible countries supporting international standards which promote financial stability.
As further evidence of the Government’s commitment to international development it has established the ‘Small Countries Financial Management Programme’ in partnership with World Bank and Oxford University. The programme promotes the sustainable development of small economies, their effective integration in the global economy and giving them a greater voice in the international community.
Despite the global financial downturn the Isle of Man’s economy has enjoyed more than a quarter of a century of continuous expansion and unbroken growth in real terms of over six per cent a year. This is an achievement few developed economies have been able to match. This is due to diversifying the economy whilst retaining the traditional strength in financial services. The Isle of Man has an AAA credit rating from Moody’s and an AA+ rating from Standard & Poor.
The higher rate of direct tax is 20 per cent with a maximum limit of £115,000 per individual. The Customs and Excise Agreement with the UK underwent significant changes and the Isle of Man has had to rebalance its budget to factor in the loss of VAT revenue. However, the reserves remain at over £1 billion and the Government still managed a surplus of £10 million for the 2010/11 year.
The Isle of Man signed its first Tax Information Exchange Agreements (TIEA) with the USA in 2002, and signed a further four this year bringing the total in force to 20. The Isle of Man also has Double Taxation Agreements with 14 countries.
The Isle of Man led “the way in how small jurisdictions with financial services should operate” when it implemented the EU Savings Directive (EUSD) on Tax Transparency in July 2011, meaning a full automatic exchange of information on savings interest with the UK and other EU Member States. This underscores the Island’s excellent regulatory environment.
The IMF published its review of the Isle of Man in 2009 and praised its high level of compliance with global standards of financial sector regulation and supervision and commented that the Isle of Man is among the top countries in the world for implementing recommendations to counter money laundering and terrorist financing.
The Isle of Man Government recognises that it can ill afford to stand still when it comes to promulgating new and innovative legislation that may provide a positive economic effect. Hence, the Department of Economic Development is committed to growing and diversifying the financial services sector.
The Incorporated Cell Companies Act 2010 and the Insurance (ICC) Regulations 2011 provides a framework for the operation of Incorporated Cell Companies on the Island. It is presently restricted to insurance business but provision is contained within the Act that the use can be extended to other types of business in the future. This flexibility reinforces the Isle of Man’s reputation as a competitive jurisdiction for captive insurance, by allowing companies on the Island to offer a wider range of options for captive insurance business.
The Limited Partnership (Legal Personality) Act 2011 permits a limited partnership the option of adopting a legal personality separate from that of its partners. All new limited partnerships can make such an election when the partnership is registered. Existing partnerships have six months from the Act coming in to force to make an election. A partnership with a separate legal personality is a body corporate, has unlimited capacity, has perpetual succession, can own property and contract in its own name and also has the ability to sue and be sued in its own name.
The Foundations Act 2011 has recently received Royal Assent and will enhance the Isle of Man’s offering as a centre for international wealth management and create new business opportunities as the Isle of Man is placed ahead of other centres that are yet to introduce foundations. Foundations are a sophisticated and flexible alternative to trusts as a vehicle for holding assets. Foundations differ from trusts in that they have a separate legal personality, are recorded on a public register and must have a local registered agent. Foundations will also offer interesting opportunities in commercial legal structures, and their familiarity will appeal to clients in civil law jurisdictions.
The Isle of Man is on HMRC’s UK’s Qualifying Recognised Overseas Pension Scheme (QROPS) list and offers the opportunity for those with existing UK pensions, but not resident in the UK, to transfer into a domestic Isle of Man scheme.
The Income Tax Act 1970 has been amended so a QROPS established under the new section 50C will benefit from not having to charge a 20 per cent withholding tax on pension payments. It is felt this change will ensure that the Isle of Man is the jurisdiction of choice for anyone considering a transfer to a QROPS.
The Isle of Man is unique among international offshore centres in having a committed regulatory regime for the managers of pension schemes and for the schemes themselves. The result is a highly flexible and modern structuring opportunity of international pensions underpinned by a dedicated regulatory function which is not available anywhere else.
Consequentially, the Department of Economic Development and the Isle of Man Association of Pension Schemes Providers are seeking to further the Island’s reputation as a centre of excellence for retirement solutions in both new and existing markets, to increase the flow of pensions business and to attract new pensions practitioners to the Island. The importance of this area to the Isle of Man’s economy in the future is only likely to increase.
The Isle of Man is one of the world’s leading jurisdictions in regulating online gambling and the legislation passed in the last decade has encouraged growth of the gambling business whilst maintaining the protection of consumers through the Gambling Supervision Commission. The sector now accounts for five per cent of the Island’s economy, provides upwards of 700 jobs and online gambling pumped £150 million in to the economy last year. The Island is on the UK’s ‘White List’ under the UK Gambling Act 2005, meaning the Island can advertise its services in the UK. Additionally, a bilateral co-operation agreement for information sharing between Danish and Isle of Man gambling authorities has recently been signed and will come in to effect once the Danish gambling legislation comes in to force.
Based on the success of the e-gaming sector the Department of Economic Development has created a new e-business development group, which will grow the e-business sector and to develop other niche areas.
The Island hosted the global summit on online gambling this year, attended by 180 delegates to discuss how the Island can continue to compete in the global marketplace whilst retaining its commitment to remain one of the safest places to gamble for online players.
The Isle of Man’s Ship Register was named one of the best in the world after emerging with no potential negative performance indicators in the 2010 Shipping Industry Flag State Performance, along with Denmark, France, Germany, Greece and Norway. The Isle of Man has also been placed on the Paris MOU White List and the United States Coast Guard Qualship 21 Scheme.
The Isle of Man’s Ship Register is the fastest growing register in Europe and the fourth fastest in the world. Additionally the Register is growing at a rate of almost twice that of the world fleet by Gross Registered Tonnes (GRT), is the seventh largest fleet in Europe (GRT) and the 18th largest fleet in the world (GRT) despite being the youngest register in Europe (Average Age) and the third youngest fleet in the world (Average Age).
Established in 2007, the Isle of Man Aircraft Register is now the eighth largest business jet register in the world and has upwards of 450 aircraft, growing at a rate of 10 new registrations a month and currently remains the only register in the world dedicated solely to registering private aircraft.
The Register is built around high regulatory standards, personal service and a competitive scheme of charges attracting the registrations of all of the world’s major business jet manufacturers, including many airliner variants produced by Boeing and Airbus. The Registry is presently developing a bespoke computer system designed to reduce the amount of paperwork, streamline the application process and ease the registration and oversight of the aircraft.
The Isle of Man hosted the UBrainTV First Anniversary Conference and Energy Tech Awards and is in discussions with UBrainTV to establish the first Clean Tech Centre on the Island, which would showcase UBrainTV energy technology winners. The partnership would establish the Island as a Research and Development Centre of Excellence, where governments and businesses from around the world can experience pioneering, sustainable technology and innovative environmental projects in action.
The Island is committed to growing its Clean Tech sector and recently launched a zero per cent Green Business Loan Scheme, to help businesses operating on the Isle of Man lower energy costs as well as increase overall operational efficiency.
The Island’s reputation as a big player in the space industry was cemented when Excalibur transported two partially completed Almaz space stations from Russia to the Isle of Man for further research and testing with the potential for completion and launch into orbit. The stations are a key step in providing reliable, affordable and routine access to space for exploration, experimentation, tourism and cargo transportation.
Despite the global financial crisis, the Isle of Man continues to offer a favourable business environment with low tax, political and economic stability and is globally renowned for its compliance with international regulatory standards. Political and economic stability are likely to be watchwords for any investors, institutional or otherwise, over the coming years and this is something the Isle of Man can offer without reservation.
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.