The jurisdiction is increasing its focus on the Middle East's wealth market, signing regulatory memorandums of understanding with Dubai, Bahrain and Abu Dhabi
There is no doubt the Isle of Man is enjoying unprecedented growth. Over the past 10 years the island's annual gross domestic product has averaged some 6%, while the size of its finance sector has more than doubled in the last six years.
Ray Davies, marketing manager for Isle of Man Finance, believes the secret of its success is innovation. With the island's financial sector - based on the four key platforms of banking, fund, insurance and fiduciary services - accounting for around 45% of its gross domestic product, Davies says it is important the Isle of Man stays at the forefront of tax and regulatory initiatives to ensure its viability as a reputable offshore centre going forward.
To achieve this, he says, it is important to regularly review and update regulations. Last year it extended laws to cover providers of trust services under the Fiduciary Services Act 2005, implemented the Insurance Companies Amalgamation Bill, paving the way for a smoother route to mergers of insurance companies, and consulted on its Companies Bill.
Earlier this year, it became the first offshore centre to introduce the 0/10% tax policy, where companies are subject in almost all cases to a standard tax rate of 0% on their profits, while banks pay 10% tax on their banking income, with other forms of income being subject to the standard 0% rate. Companies with income from Manx land and property may also pay a 10% tax. For 0% companies the only other set costs are the annual £70 Companies Registry fee and £250 corporate charge paid to the Income Tax Division. Davies explains: "Full implementation of the zero tax strategy in April 2006 has put the Isle of Man two years ahead of Crown dependencies and other competitors. The personal tax cap at £100,000 per annum also sets it apart from other offshore centres. The tax system is public, simple to understand and available to all."
David McGarry, managing director of the Isle of Man-based branch of KPMG, also believes this is a vital step to ensure the island is compliant with international emerging standards of best practice in relation to fiscal policy, enabling it to engage with onshore jurisdictions as an equal partner.
He adds: "The introduction of the 0/10% corporate tax strategy has already brought significant benefits to the island and, within KPMG, we are seeing an increasing number of enquiries from international businesses wishing to restructure their operations through the Isle of Man."
He believes the Companies Bill 2006, which was introduced to parliament last month, will further boost this growth. Although details are yet to be announced, it is known the legislation being drafted is meant to be a "best of breed" piece of international company law.
"It will involve simplifying and streamlining all aspects associated with forming companies in the Isle of Man, along recognised international standards," explains McGarry. "This is long overdue and will ensure the island remains at the forefront of international company domiciles. The new legislation also offers interesting opportunities for encouraging not only fund administration activity in the Isle of Man, but also the incorporation and domicile of funds on the island."
Davies adds: "This will give the Isle of Man a new international companies law which, in tandem with the tax strategy, will make it the jurisdiction of choice."
Pensions come of age
The infant pensions industry has also continued to develop and is one area predicted to grow extensively, according to Mike Lightfoot, pensions project executive at the Isle of Man Government Insurance and Pensions Authority.
He says: "Since the beginning of 2005 the Insurance and Pensions Authority has received applications from 121 international pension schemes to domicile in the Isle of Man under the international legislation and has issued over 60 authorisations. So far this quarter, we have also received 50 scheme applications, which are still being processed."
The number of pension administrators has risen to 17 from three last year, he adds.
However, it is the growth in the funds industry that has been the real success story for the island, asserts McGarry.
"In relative terms, it has achieved the most significant growth over the past three years, supported by a comprehensive package of enhancements that were introduced in 2003," he says. "At KPMG, we are continuing to see very significant new funds activity, which I believe will ensure the island becomes the world's leading offshore fund location in the future."
According to statistics from Isle of Man Finance, fund assets grew by 50%, $8.57bn (£4.58bn), in 2005 to reach $25.9bn.
Davies also believes unrestricted banking license permits have helped the banking sector grow by 22% from $57.19bn in 2004 to $69.71bn in 2005. He says further enhancements are likely to be implemented in coming years as the Isle of Man Finance and the Association of Licensed Banks look at new initiatives.
Davies adds: "It is too early to comment on the plans. However, we do have an inward investment policy to encourage new banks/banking functions, and recent finalisation of the tax strategy in February this year has given the banking sector additional impetus by clarifying what revenue streams are subject to 10% or 0% tax on profits for banking."
Rex Cowley, director of products and services at Close Private Bank, agrees and says the Isle of Man offers private banks an excellent infrastructure from which to develop an international business. These include robust regulation, depositor protection, advanced telecommunications and a skilled labour force.
He adds: "One must remember that the rationale for utilising offshore banks is not always motivated by the potential for tax deferment but rather the sophistication of the jurisdiction and international nature."
Like the Channel Islands, the Isle of Man is also courting opportunities in the Middle East and sees this as an enormous growth area. Last month, it signed a Regulatory Memorandum of Understanding (MOU) with Dubai Financial Services Authority, United Arab Emirates Central Bank in Abu Dhabi and the Bahrain Monetary Agency.
Under each agreement, the Middle East Agencies, the Financial Supervision Commission (FSC) and the Insurance Pensions Authority (IPA) will consult with each other on an on-going basis to enhance regulatory co-operation and to collaborate on international supervision between the regions.
The MOUs also provide a framework for regulatory co-operation through the exchange of information and mutual co-operation in the field of onsite examinations of entities, subject to regulation in both jurisdictions.
John Aspden, chief executive of the FSC and IPA, says such co-operation will ensure more effective supervision, and avoid potential duplication and possible conflicts that arise from differing regulatory practices.
McGarry adds: "Initially, a key area of focus for offshore service providers has been the expatriate communities working in the Middle East. But, increasingly, financial services businesses in the Isle of Man are providing wealth management services to a much wider audience in the Middle East. This reflects the growing wealth emerging within these jurisdictions and the need for increased sophistication in the nature of financial services products available to residents."
The Middle East has also been highlighted as a key area of business for life companies, Chris Holland, manager of international marketing at Friends Provident International, claims: "We see this as an area of great potential and as such have recently opened an office in the Dubai Airport Free Zone." However, Holland says it is too early too disclose details of its plans for the region and adds: "We are keeping opportunities and potential developments under wraps at the moment."
As the Isle of Man's financial centre continues to grow, so does its impetus to expand beyond the typical UK expat. It has reported growth across all sectors of its financial business, most notably in funds and pension. This growth can be put down to a number of factors including a global economic recovery. However, a favourable tax scheme and regulation implemented at a local level have gone a long way to supporting its long-term viability as a finance centre.
Holland concludes: "The Isle of Man works as an offshore centre for several reasons, including its fiscal advantages over similar centres as well as its long history of international financial companies setting up on the island. The government has continued with its philosophy of maintaining a benign environment for such companies to flourish."
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