Isle of Man: Commercial Update – May 2008

Last Updated: 11 June 2008
Article by Nick Verardi and Simon Cain

Transfer Of Civil Aviation Functions

The fanfare which greeted the establishment of the Island's aircraft register by order in council on 1st May last year might be dismissed by cynics as yet further offshore hype intended to put the Island in the spotlight for high net worth individuals looking to buy business jets. Nothing could be further from the truth.

As part of the planning for the introduction of the register and conscious of the need to adopt best practice, the Island 's Government undertook a wholesale review of the legislative background for civil aviation. This focussed on the need to match the standards set by the International Civil Aviation Organisation (ICAO) in order that the international regulator could verify that the Island's project was wellfounded on a modern legislative platform.

During the twelve months ending with the establishment of the aircraft register, Tynwald applied selected UK and Community instruments under the Airports and Civil Aviation Act 1987 (an Act of Tynwald) (the Local Act) to provide a regulatory platform which would achieve the standards of other complying contracting states of the Chicago Convention, from which ICAO was born.

Currently, the Island's civil aviation functions and service provision are entirely exercised by its Department of Transport (DOT) with aircraft register functions delegated to the Department of Trade and Industry (DTI). Not unreasonably, ICAO standards require regulatory functions to be separated from operations (airports) to ensure proper risk management and effective regulatory oversight. Last month Tynwald was asked to consider the approval of the Transfer of Functions (Civil Aviation) Order 2008 which would vest in the DTI all the regulatory functions currently applied by the Local Act or extended to the Island by order in council. DOT will retain the power to manage the Island's main airport and to make byelaws in respect of it, subject to licensing by DTI.

As approved by Tynwald, the Island's regulation of civil aviation has taken a great leap forward; the first of the crown dependencies to have established an aircraft register and the first to separate regulation from operation.

At the time of writing this article, over 50 private aircraft have been registered in the Isle of Man including the latest models from Bombardier, Dassault, Hawker Beechcraft, Cessna and Gulfstream. Aircraft are coming onto the register at a rate which far exceeds that contemplated on 1st May last year. Brian Johnson, the Island's Director of Civil Aviation said-

"The expectations were that the Aircraft Registry would register one aircraft a month in the first year; in fact we have achieved one aircraft a week! It is not the large numbers but the quality of the aircraft and the companies who operate them who are now involved with the IoM and would never have needed to do business here. We have set high safety standards but recognize that if you have spent $50 million on a new aircraft you want it flying as soon as possible not when it is convenient to the regulator. Easy really, value and service is a model that succeeds in every sector."

The next ICAO audit of the UK (which includes its overseas territories and crown dependencies for these purposes) is due in February 2009 and a sample of overseas territories and crown dependencies will come under scrutiny. It is more than likely that the Island will be selected for audit, and whatever the outcome, it cannot be doubted that this particular crown dependency has implemented a robust regulatory and legislative regime which is fit for the challenging civil aviation environment of the 21st century.

The Island's attention to high standards in the period after 9/11 marks it out as a beacon amongst jurisdictions competing for this business.

Cash Declarations For Travellers

"The constitution of the Isle of Man, like the constitution of the United Kingdom, is no rigid law& it has changed, it is changing, it is susceptible of future change." [The Land of Home Rule, an Essay on the History and Constitution of the Isle of Man by Sir Spencer Walpole].

The European Communities (Cash Controls) (Application) Order 2008, due to come into operation on 1 June 2008, will require anyone entering or leaving the Isle of Man with more than 10,000 euros in cash (or its equivalent in another currency), to declare it. Pursuant to this Order, the Isle of Man will on this occasion voluntarily adopt EU legislation, which came into force in June 2007 and comply with FATF Special Recommendation IX.

The Isle of Man is not part of the United Kingdom nor a Member State and, as such, is not part of the European Union. However, it has a special relationship with the European Community, which is governed by Protocol 3 to the Act of Accession, annexed to the Treaty of Accession 1972, by which the United Kingdom became a member of the European Economic Community. Under Protocol 3, the Isle of Man is part of the customs territory of the European Community and there is free movement of industrial and agricultural goods in trade between the Island and the Community.

European Communities (IOM) Act 1973 (of Tynwald) (the "1973 Act") constitutes the Isle of Man's acceptance of Protocol 3. Apart from the requirements set out in the Protocol, other Community laws do not generally apply to the Isle of Man. However, pursuant to the terms the 1973 Act, the Isle of Man Government may choose, on a largely pick 'n' mix basis, to enact legislation that is similar to or based on EU legislation.

European Communities (Cash Controls) (Application) Order 2008 provides a recent example where the Isle of Man Government has voluntarily chosen to adopt EU law. It applies Regulation (EC) No 1889/2005 of the European Parliament and of the Council of 26 October 2005 to the Isle of Man with modifications, as part of the law of the Island, using powers found in the 1973 Act and supported by implementing regulations dealing with penalties.

This EC Regulation follows on from earlier EU legislation and initiatives designed to prevent the use of the financial system for money laundering, which the Island has already implemented. The Order will require anyone travelling in or out of the Isle of Man with 10,000 euros or more, or the equivalent amount of another currency, in cash to submit a declaration to the Isle of Man Treasury. The term "cash" includes any currency, travellers cheques, cheques, promissory notes, money orders and other bearer-negotiable instruments. When declaring cash, individuals will have to give personal details, including name, date and place of birth, nationality, the owner and intended recipient of the cash and the intended use of the cash. The Order will also permit, in certain circumstances, exchange of information gained from the declarations with the police, the relevant authorities of the Member States and other countries.

The requirements in this Order will enable the Isle of Man to achieve compliance with FATF Special Recommendation IX of 22 October 2004, pursuant to which the Financial Action Task Force on Money Laundering called on countries to take measures to stop cross border cash movements relating to terrorist financing and money laundering.

Presenting his seventh annual Budget on 19 February 2008, Treasury Minister Allan Bell stated "we continue to monitor developments within the EU and must remain alert to any changes that may affect us into the future". The decision to adopt this legislation is undoubtedly routed in the desire to safeguard the Island's reputation as an internationally responsible jurisdiction. In a consultation document, published by the Isle of Man Government in February 2008, it was said that adopting the EU law would complement Island anti-money laundering laws and protect its reputation and stop the Island being perceived as a "back door into Europe through which illicit funds might flow".

It is clear that, to safeguard the Island's reputation, it is ultimately necessary for the Island to be able to adapt its legal framework to enable it to co-operate effectively with other jurisdictions and provide assistance in combating serious crime to ensure that the finance sector retains its first-rate reputation.

Isle Of Man Shipping - Updates And Developments

In January 2008 the Isle of Man Ship Registry (the "Registry") announced some significant changes to its operating practices designed at making registration of vessels on the Isle of Man flag more attractive and simpler for its clients.

These changes include:

Flag – in requirements: the Registry has removed some of the perceived and real barriers for clients wishing to register which should now make it simpler and easier to arrange and more cost effective. These include:

  1. Pre-registry survey requirements – the Registry has amended its policy and removed the absolute requirement, for vessels under 10 years in age and which satisfy its vetting processes for both ship and company performance, for an Isle of Man surveyor to visit and inspect each vessel prior to registration of the vessel on the Isle of Man flag. This applies to newbuildings, many of which are under construction in the Far East. The result of this should be to assist with the registration process and dramatically reduce the initial costs for registration on the Isle of Man flag.

  2. Accepted Ship Types – the Registry will now accept previously excluded ship types, such as passenger vessels, for registration. This change has mainly come about because of the progression of the super yacht market to larger vessels and the move towards full SOLAS compliance for greater "guest numbers".

  3. Age Limits – The previous age limit (15 years) for vessels' entry onto the Isle of Man flag has been extended to 20 years and even further for vessels, which are technically managed from the Isle of Man.

Accepted Countries: in 2007 the Isle of Man introduced legislation to extend the number of countries accepted for ownership of Isle of Man vessels. In the past the Registry was limited by legislation inherited from the UK and could only accept ownership of Manx vessels by persons in the EU, EEA and British Dependent Territories. The list of accepted countries has now been extended to include: Australia, Bahamas, Canada, China, Hong Kong, India, Japan, Liberia, Marshall Islands, New Zealand, Pakistan, Panama, Russia, Singapore, South Africa, U.A.E. and U.S.A. This allows ownership structures of vessels using companies registered in the above countries to remain unchanged when transferring the registration of such vessels to the Isle of Man and so assists with a smoother transition.

Stephenson Harwood: in lieu of British Consular services in London, Stephenson Harwood has acted on behalf of the Isle of Man Registrar of Ships in receiving title to documents (e.g. bills of sale). This service has been extended to include Stephenson Harwood's offices in Piraeus, Hong Kong, Singapore and Shanghai and so covers many of the world's major shipping centres.

These changes have been driven by the Registry's continual desire to improve the service it provides to clients. We can expect more changes in the future as the Registry's focus is, as always, on customer service although the quality of the Isle of Man fleet remains of paramount importance.

Isle Of Man Is Preferred Jurisdiction For AIM Companies

In a new report commissioned from Hemscott (a leading international provider of high quality business and financial data), for the second year running the Isle of Man has been singled out as the 1st choice jurisdiction for non–UK companies listing on AIM. Hemscott analysed the top 100 non-UK companies currently listed on AIM by country of registration. The results revealed that the Isle of Man came top with 11 companies listed, followed by Bermuda with 8 and the British Virgin Islands with 6 (table 1).

The report also examined the market capitalisation of non-UK AIM companies by country of registration and yet again the Isle of Man was ranked in 1st position with Canada and Guernsey following behind (table 2).

This is hugely positive for the Island demonstrating that the favourable taxation, legal and investment policies introduced, have made the jurisdiction an attractive proposition for companies wishing to do business here. The firm has seen an increase in the use of Isle of Man companies as a direct result of the introduction of the (Isle of Man) Companies Act 2006 which has introduced a new corporate vehicle, not dissimilar to the BVI international business company. The firm have been strong advocates of using the new corporate vehicle and as a result, were Isle of Man advisors to China Central Properties Ltd, the first 2006 Act Company to be listed on AIM. The new corporate vehicle is fast becoming an extremely popular company when used in conjunction with the Isle of Man's zero rate of corporate tax and jurisdictional respectability. Dickinson Cruickshank has played a key role acting as advisor to over 20 AIM companies over the last 18 months, and is currently working with further companies who are in the process of preparing to float on AIM.

Table 1

Position

Country

Number of Companies

1

Isle of Man

11

2

Bermuda

8

3

British Virgin Islands

6

3

Canada

6

5

Australia

5

5

Guernsey

5

7

Jersey

4

7

Netherlands

4

9

Cyprus

3

10

Ireland

2

11

Cayman Islands

1

11

Malaysia

1

11

South Africa

1

11

United States

1

Table 2

Position

Country

MCAP of Companies (£)

1

Isle of Man

7069.85

2

Canada

5683.80

3

Guernsey

5427.27

4

British Virgin Islands

4966.72

5

Jersey

3764.32

6

Bermuda

3711.37

7

Cayman Islands

3661.95

8

Australia

3428.88

9

United States

3030.51

10

Ireland

2618.81

11

Netherlands

1628.84

12

Cyprus

1542.34

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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