Tom Maher examines how the Isle of Man has thrived through the financial crisis due to the stability and security the jurisdiction provides.
In these times of increasing global political and economic instability, international businesses, entrepreneurs and HNWIs need to be cautious when choosing a jurisdiction in which to structure their affairs or set up businesses. The Isle of Man is one of the most politically and economically stable jurisdictions in the world.
The Island is not part of the United Kingdom but conveniently lies within the British Isles. The Island is politically and constitutionally separate from the UK. The Island has its own political system and its own Parliament (Tynwald), which is independent and is the oldest continuous parliament in the world with over 1,000 years of unbroken parliamentary rule. Tynwald is responsible for setting the Island’s laws including in relation to matters of taxation. The Island has one of the highest credit ratings of any offshore financial centre and has never entered recession. The Island has benefited from year on year economic growth and in 2014/2015 the economy is estimated to grow by four per cent.
In addition to these favourable economic and political conditions, the Isle of Man has a further ace up its sleeve. We benefit from a pro-business, proactive and ‘can do’ government which works seamlessly with the private sector to attract quality and reputable international business to the Island and keep them here. The Island has public private partnerships and committees in all key industries and sectors, the remit of which is to work together to make the Isle of Man an attractive place in which to do business.
The Isle of Man is one of the world’s most sophisticated and well regulated offshore financial centres. It is clear that effective transparency and cooperation is the new global standard and, in that regard, the Isle of Man has been at the forefront of international cooperation for many years.
As at the end of 2013, the Isle of Man had signed over 40 agreements that meet the OECD international standard on tax cooperation and transparency. In November 2013, the OECD awarded the Isle of Man its top ‘Compliant’ rating which was based on a peer review assessment carried out by a team of experts on behalf of the OECD’s global forum. This peer review assessment involved 120 countries including the Isle of Man. The Island is one of only 18 jurisdictions to be awarded this top rating.
The Isle of Man has also signed inter-governmental agreements with the United States in relation to FATCA and the UK in relation to a FATCA style agreement regarding automatic exchange of information, being the first Crown Dependency to signal its intention to do so.
The Isle of Man is globally acknowledged as one of the leading offshore jurisdictions for effective transparency and cooperation both at a governmental and judicial level. This is the standard which all other offshore financial centres will have to meet in the coming years if they are to ‘stay in business’.
In common with many offshore financial centres, the Island has a general corporate tax rate of zero per cent (save for Isle of Man banks and companies owning Isle of Man property, which are taxed at 10 per cent). This tax strategy is compliant with the EU Code of Conduct on Business Taxation. Furthermore, there are no capital or wealth taxes, inheritance taxes, insurance premium tax (six per cent in the UK) or stamp duty taxes on the Isle of Man.
The Island is part of the EU for VAT and customs duty purposes and Isle of Man companies can be part of UK VAT groups.
However, as many offshore financial centres can offer a similar tax regime, the Island has differentiated itself by creating world class clusters of expertise in key sectors such as aviation, shipping, e-gaming, aerospace, space & satellite and high-tech manufacturing. The Island is increasingly attracting international businesses not just to incorporate a structure here but to create physical presences in respect of both manufacturing and services industries.
The Isle of Man is a leading offshore jurisdiction for financial services, notably banking, investment management, insurance brokerage, captive insurance and offshore life insurance. Many of the world’s leading companies in these sectors are well established on the Isle of Man and are major employers here.
The Island has long been a leading offshore jurisdiction for international businesses to access the world’s leading capital markets. Notably, the Island has for many years been a leading jurisdiction on the London Stock Market with many Isle of Man companies listed on AIM and the main market. Indeed, the 2009 Foot Report into the Crown Dependencies commissioned by the UK Treasury acknowledged the contribution made by the Isle of Man to the UK economy by acting as a conduit for funds flowing from the Isle of Man into the City of London.
Additionally, Isle of Man companies can list on many other stock exchanges around the world including Toronto (TSX) which is a leading stock exchange for mining companies, Frankfurt, Hong Kong, New York and Warsaw.
The Isle of Man has a well established fund industry and offers a variety of different fund structures. A fund may be established as an open ended investment company (OEIC), a limited partnership or a unit trust. There are three categories of Isle of Man collective investment schemes (funds): regulated (Authorised Funds, Regulated Funds and Recognised Funds), registered (Specialist Funds and Qualifying Funds) and unregulated (Exempt Schemes).
The fund industry benefits from VAT concessions: fees payable by collective investment schemes (other than Exempt Schemes) to Isle of Man administrators and investment managers are exempt from Isle of Man value added tax (VAT).
In May 2007, the Isle of Man created its Aircraft Register, which is aimed at private and corporate business jets and helicopters. Thanks to a world class level of customer service provided by the registry staff, an experienced professional services sector and a flexible yet sophisticated registration and regulatory regime (including the ability to import aircraft via the Isle of Man and use our VAT regime for aircraft owning structures), the Island’s Aircraft Register has become the most successful offshore business aviation registers in the world. By the end of 2013, the Island had registered 650 aircraft.
The Isle of Man’s Aircraft Register is globally recognised as best in class and recently received Corporate Jet Investor’s ‘Overall Best Aircraft Registry’ award.
Shipping and Superyachts
The Isle of Man has one of the world’s largest shipping fleets. The Isle of Man flag is a Red Ensign flag and is operated by the Isle of Man Ship Registry, internationally renowned as one of the most customer focused, flexible and efficient registries in the world. The world class customer service levels the Registry offers is frequently cited as a major reason for choosing the Isle of Man flag.
In 2013, the Isle of Man Ship Registry increased its gross registered tonnage by 7.4 per cent, which was more than twice the growth rate of the world’s fleet during that year.
The Isle of Man Ship Registry has achieved classification as a low risk flag state under the New Inspection Regime of the Tokyo Memorandum of Understanding which came into force at the start of 2014. The Island is also considered as a low risk flag pursuant to the Paris Memorandum of Understanding on Port State Control. Vessels registered in a low risk territory face fewer Port State Control inspections within member states of the Memorandum of Understanding.
The Island’s commitment to maintaining high standards and the provision of a quality service ensures that the Isle of Man Ship Registry remains an attractive option for ship owners and operators across the world.
In addition to the Shipping Register, the Island has a well established Superyacht Register with some of the world’s largest Superyachts registered in Douglas.
The Island is home to many of the world’s leading ship management companies, who are major employers here, and we have an established cluster of expertise among fiduciaries, lawyers, accountants and tax advisors in relation to the structuring of ships and Superyacht ownership and registration.
The Isle of Man has become an increasingly attractive jurisdiction of choice for international businesses and entrepreneurs wishing to set up substantive operations, whether in relation to manufacturing, R&D or services industries. The Island is home to many of the world’s leading aerospace, high-tech manufacturers, satellite operators, precision engineering companies and software businesses.
In addition to a favourable tax regime, the Island offers a well educated and skilled work force, generous government grant aid for properties, marketing and training, world class telecoms infrastructure, sophisticated intellectual property laws, public/private partnerships in several industry sectors which provide support and assistance to new businesses establishing on the Isle of Man and a ‘can do’ government eager to assist new businesses setting up on the Isle of Man.
Although not formally part of the European Union, the Isle of Man benefits from free movement of goods within the EU and is part of the EU VAT and customs market, with UK VAT rates applying in the Island.
The Island's e-gaming sector is at the forefront of the online gaming industry and in 2013 accounted for approximately eight per cent of the Island’s economic output. The Isle of Man is ‘white-listed’ for e-gaming by both the UK Gambling Commission and the OECD, which allows operators licensed by the Isle of Man Gambling Supervision Commission to promote their services to the UK market. The licensing process is simple and is usually completed within 12 weeks of being submitted.
Trusts and Private Client
The Isle of Man has long been considered a leading offshore jurisdiction for the establishment of trusts. Although our trust law is based largely on English trust law, increasingly in recent years, the case law coming out of both the Isle of Man Chancery Division and the Court in other offshore jurisdictions is tending to develop separately from English cases, which is seen as a positive move. The Island’s Chief Justice Deemster Doyle is widely considered in the offshore world as one of the leading trust and chancery judges, having delivered several landmark trust rulings in recent years.
During 2014, the Trusts (Amendment) Bill will be going through Tynwald (the Isle of Man parliament) and will abolish the rule against perpetuities, the two trustee rule and will strengthen the firewall provisions which protect Isle of Man trusts from attacks by foreign Courts. In light of the 2013 English Supreme Court decision in Pitt v Holt, the Island is expected to introduce a statutory Hastings-Bass rule during 2014. All of these changes will make the Island a more attractive place for the establishment of trusts.
Clients who are more familiar with civil law jurisdictions will also find the Isle of Man an attractive jurisdiction as we have the ability to establish foundations for private, charitable and other purposes.
The Isle of Man offers a full range of corporate structures to suit every type of business. The New Manx Vehicle (NMV), introduced in 2006, is a flexible corporate vehicle that is easy to administer and attractive to international business clients. It is also possible to establish alternative entities on the Isle of Man such as partnerships, limited partnerships (with or without legal personality), LLCs, private companies, public companies, hybrid companies (limited by guarantee but having a share capital), trusts, purpose trusts and foundations.
For international businesses, entrepreneurs and HNWIs looking for a stable jurisdiction to maintain and preserve their wealth or to develop their businesses, the Isle of Man offers a safe, secure and stable home. It is a ‘white list’ jurisdiction with the highest global standards, and is duly recognised as such by onshore jurisdictions, the OECD, the IMF and the G20 Global Forum. In addition, the Isle of Man offers a pro-business government, a flexible yet sophisticated legal and regulatory regime, world class professional services and a very favourable (and internationally compliant) tax system that encourages growth and expansion.
In these challenging times, stability is key. Time and time again, international businesses and HNWIs are choosing the Isle of Man as their stable partner.
Tom Maher, Managing Partner, Dougherty Quinn Advocates, Isle of Man