The Isle of Man is recognised globally as a quality financial centre providing services which include fiduciary, banking, life assurance and pensions. In recent years it has come to represent the jurisdiction of choice for e-gaming businesses with this sector now making up around 20% of the Island’s GDP.
Technology, including Fintech, is the next target for market growth with government incentives available to attract start-ups. This is being supported with the launch of an IT and Education Campus in 2016 to inspire and train the next generation of IT professionals.
It has been this diversity and ability to adapt quickly to change that has enabled the Isle of Man to boast continuous economic growth for the past 30 years. However, now, maybe more than at any other time in its recent history, it is facing unprecedented challenges that threaten to undermine its success.
I moved from public practice to the fiduciary services sector in 2007, just before the first of many significant changes to the UK “non-dom” tax regime in 2008. Whilst there had been other relevant tax changes prior to this, these changes signalled a big shift in the UK’s attitude towards what we see today as HMRC’s view of legal but ‘unethical’ tax planning.
This media driven ‘attack’ by the UK authorities has had an impact on the Isle of Man as it has on other financial centres and requires a change in focus for businesses previously reliant on the UK market and related tax planning opportunities. For companies, this has meant a move towards a global, multi-family office approach to business. Under this model, taxation is just one element of a broader proposition built on a clearer understanding of the client’s needs, bespoke services and a worldwide outlook on succession planning.
The advent of US FATCA legislation in 2010 resulted in global tax coming under the spotlight and has been a real game-changer for many jurisdictions. The UK was quick to follow the US lead regarding AEOI and this has now culminated in CRS whereby over 100 countries are now committed to exchanging information with each other.
The Isle of Man has been a forerunner in agreeing to exchange information with other countries and this has served to enhance its reputation as a well-regulated, first-class financial centre. Nevertheless, businesses here have felt the pressure from AEOI as the costs of compliance are driven ever higher. With an even greater price to pay for non-compliance some smaller companies and their owners are being forced to make big decisions about their future direction, with many selling up, merging or being acquired.
Not being a part of the UK or the EU, the Isle of Man enjoys a large degree of autonomy. The result of the UK’s EU Referendum brought this sharply into focus as our closest trading partner made a seismic and unexpected decision in which we had no voice or vote to contribute. Whilst the economic impact on financial services and e-gaming are expected to be limited, the result prompted much introspection of our relationships with our neighbours.
Uncertainty remains, but there is a widely held optimistic view within the business sector that Brexit will create greater opportunities for the Isle of Man to explore. There are questions regarding any future changes to the Customs relationship the Isle of Man currently has with the UK and the impact on changes to the free movement of goods is expected to have a significant effect on exporters.
Companies and individuals in the Isle of Man enjoy a low tax base and HNWIs wishing to relocate here can take advantage of an annual tax cap of £125k p.a.. The Government’s future vision includes significantly increasing the Island’s population in the next few years, a move seen as necessary in order to support its ambitious growth plans.
The need to attract and retain highly skilled workers to the Island is widely accepted as a necessity by the business community but less welcome by some who perceive this initiative as a threat to their future livelihoods. The Government has a difficult balancing act to achieve its goals which also require significant investment in infrastructure such as transport links and housing.
Work permits are a constant topic of debate with polarising views across communities as to whether the system is a necessity or a hindrance. Work permit exemptions already exist in certain sectors such as e-business and ICT. However, there are calls to widen the exemptions and, from some quarters, to scrap the work permit system altogether.
Brexit also impacts here whereby the future rights of British Citizens to live and work in the rest of Europe, and vice versa, are likely to be affected.
These are certainly interesting times for the Isle of Man as it wrestles with many conflicting pressures arising globally and internally. It is not alone in facing these problems but we are better placed than many jurisdictions to find a way forward.
I am confident that the Isle of Man will face these challenges head on and remain standing strong to write another exciting chapter in its colourful history.
Philip Knop Director. Independent Chartered Tax Adviser, Certified Accountant and Member of the Institute of Directors