Isle of Man: The Offshore Industry

Last Updated: 1 March 2000

INTRODUCTION

A quarter of a century ago, there was only a handful of offshore centres, and to many, their use was surrounded in "mystique". Also, there were only a few professionals specialising in offshore practice and those that did, typically made use of only one or two jurisdictions. Over the last twenty years, startling advances in technology and the telecommunications revolution, have made it easier to access offshore facilities - so much so, that today’s offshore industry has developed in to a major global business, spanning all quarters of the world, involving, in one way or another, approximately half of the world’s financial transactions by value.

Consequently, International Financial Services Centres are no longer surrounded by the "mystique" of twenty years ago. They are used globally, twenty-four hours a day, each and every day, as an integral and important part of the world’s financial system.

THE FUTURE OF THE OFFSHORE INDUSTRY

Over the next few years, there will be major changes in world geo-politics. The current world population is increasing by 90 million a year - 15 million of who are born in China.

Presently, thirty per cent of the world’s working population is unemployed. Additionally, the world’s population is increasingly expecting higher standard s of living and improved work opportunities.

These radically changing patterns in expectations, population and wealth will continue to create political and economic instabilities. Governments in both the developed and the developing world will have no option but to continue to levy high taxes to meet these expectations and the associated costs of providing new and improved infrastructure.

Thus, one does not need a "crystal ball" to see clearly that the offshore industry will continue with its rapid development and growth.

The users of International Financial Services Centres are becoming increasingly demanding. They expect high quality service at a reasonable cost, and access to sophisticated investment services - as well as confidentiality.

Tomorrow’s offshore users will be looking for centres that can compete with today’ s onshore financial centres in the following areas:

  • Regulation.
  • Communications.
  • Specialisation.
  • Credibility.
  • Infrastructure.
  • Stability.
  • Expertise.
  • Flexibility.

INTERNATIONAL FINANCIAL SERVICE CENTRES (IFSC)

We define the term "International Financial Services Centre" as a business location possessing elements of the following four characteristics:

  • Business is transacted mainly with non-residents.
  • Financial regulation and corporate legislation are designed to attract international business.
  • Confidentiality in financial affairs is paramount.
  • Advantageous tax regimes are deliberately managed.

The principal motivations behind the demand for offshore services from both individuals and corporations are:

  • Tax Minimisation.
  • Asset Protection.
  • Risk Management.
  • Cost Reduction.
  • Confidentiality.
  • Asset Enhancement.
  • Escape from bureaucracy and over regulation.

With global instability, currency fluctuations and political uncertainties set to continue, our clients’ needs will be not only to minimise their global tax exposure, but also to protect and preserve their assets and investments in safe havens. Thus, risk management has become as important a motivation for using International Financial Services Centres as international tax planning.

OFFSHORE COMPANY STATISTICS

In 1997, some 60,000 or so offshore companies were incorporated in the various Caribbean centres. The most popular jurisdiction is the BVI whose registrar has incorporated approximately 200,000 IBC companies in the last ten years. Some 35,000 IBC’s were incorporated there last year.

It is estimated that 15,000 companies a year are incorporated in Hong Kong for offshore purposes and another 50,000 or so in the other offshore jurisdictions.

This means that the total number of companies formed for offshore purposes exceeds 130,000 per annum.

DEMAND

Over the last twenty years increasing client demand for offshore facilities has not only resulted in an ever growing number of International Financial Services Centres but also in more competition amongst the existing centres.

The political and economic catalysts that influenced the growth of the offshore industry in the eighties and nineties will continue to influence growth in the next two decades.

These catalysts are:

  • Political and economic instability.
  • Market globalisation and deregulation.
  • The internationalisation of business.
  • The lifting of trade barriers.
  • Trends towards steady global economic growth.
  • A global relaxation of foreign exchange controls.

In addition to political and economic catalysts, there are also global tax related catalysts that continue to influence the growth of the offshore industry.

These include:

  • High tax regimes.
  • More effective tax recovery.
  • The opportunities of utilising double tax treaties.

OFFSHORE FACILITIES FOR INDIVIDUALS AND CORPORATIONS

What are the profiles of the users of International Financial Services Centre facilities?

Individual Users
High Net Worth Individuals.
Immigrants and Expatriates.

Corporate Users
Financial Institutions.
Large Companies.
Specialist Corporate Users.
Owner Managed Businesses.

INDIVIDUAL USERS

HIGH NET WORTH INDIVIDUALS

Traditionally high net worth individuals originated from Europe and North America. Today, substantial new wealth is being generated in Asia and South America.

This trend is likely to continue well in to the next century.

Today’s high net worth individuals are much more demanding and financially sophisticated than those of a decade ago.

IMMIGRANTS AND EXPATRIATES

Immigrants and expatriates are another important category of individuals using IFSC facilities.

Immigrants are individuals who have moved from one country to another.

Expatriates are individuals living away from their home countries, and who express a desire to return there some time in the future.

Immigrants and expatriates are motivated to move away from their home countries by factors such as:

  • The desire to escape from social, political, economic or other forms of instability.
  • The search for a better quality of life.
  • Foreign employment.
  • The pursuit of business opportunities.
  • Tax efficiency.

By way of example, there are estimated to be over four million British citizens resident outside the United Kingdom. Furthermore, between fifty and one hundred thousand British citizens go abroad to work every year.

The flow of immigrants and expatriates continues to change with new groups becoming more significant in relation to the numbers flowing to and from Western Europe. For example, over the last few years nearly 12,000 Russians have established residence in Cyprus.

The numbers of expatriates and immigrants are certain to increase, as living or working abroad becomes less difficult - and, as business becomes more international and less constrained by national boundaries.

CORPORATE USERS

Corporate users fall under four broad headings:

  • Financial Institutions.
  • Large Companies.
  • Specialist Corporate Users.
  • Owner Managed Businesses.

FINANCIAL INSTITUTIONS

As we move in to the 21st Century, there will be major developments in the use of International Financial Services Centres by financial institutions. By way of example we will consider the insurance, fund management, pension and private banking sectors.

INSURANCE COMPANIES

Life and composite insurance companies are increasingly making extensive use of IFSC facilities. A significant opportunity has recently arisen in this area resulting from the completion of the European Union’s single market in insurance. Under the European Unions’ Third Life Directive - life assurance companies established in one Member State are able to sell products to clients in other European Union countries.

FUND MANAGEMENT

With the diversity and range of global investment products, there has been an ever increasing growth of funds.

The growth in offshore funds will continue as cross-border investment activity, due to factors such as European Monetary Union and the emergence of China and Brazil as economic powers, is growing at a spectacular rate. The capital base of offshore funds is now increasing at twice the rate of US domestic funds, and this has attracted an increasing number of US fund managers to the market.

The dismantling of the Eastern Block and the easing of international trade barriers have opened a wide range of new markets. Such opportunities have led financial institutions to develop funds, such as: The India Fund, the Chile Fund, the Israel Fund and the Vietnam Fund - all of which have been launched through offshore vehicles.

The growth in offshore mutual funds has encouraged centres to develop their infrastructure and regulatory systems in line with internationally accepted standards. It has also led to the need for specialist professional expertise in such centres. This includes not just the provision of expert advice but also full administrative services, including global custody.

PENSION PROVISION

It is predicted that a pan European market for the provision of pension will emerge that will present opportunities for centres such as Ireland and Luxembourg.

PRIVATE BANKING

Major international banks have long recognised the attractions in establishing private banking operations in International Financial Services Centres.

LARGE COMPANIES

Other major corporate users of IFSC’s are multinational companies.

For many years, multinational companies have used centres to establish companies for their international business activities. The main areas that these companies utilise International Financial Services Centres are shown here.

  • Establishing holding companies.
  • Structuring foreign direct investment.
  • Owning intellectual property rights.
  • Setting up headquarters companies.
  • Establishing physical operations.
  • Capital raising exercises.
  • Obtaining stock market listings.
  • Managing treasury operations.
  • As domiciles for captive insurance companies.

SPECIALIST CORPORATE USERS

Examples of Specialist Corporate Users include shipping and aviation companies. Since the 1920’s, shipping companies have been using offshore shipping centres for ship ownership, registration and management. Open registries, are one of the oldest features of this industry. There are three types of open register:

  • Independent Registers.
  • Dependency Registers.
  • Offshore Registers.

An "independent register" is one run by sovereign states. The Panamanian Register is an example of an independent register and since the 1920’s, Panama has been one of the most popular location s for the registration of US owned vessels.

Liberia is another well-known independent register since the establishment of its registry in 1949.

The Cayman Islands and other British ports of registry are examples of dependency registries as their basic law and standards are based on those of the United Kingdom.

Countries that wish to provide a special register offering a more liberal operating environment establish offshore registers, such as the Norwegian International Register.

Over the last seven years, there has been a dramatic recovery in the world-wide shipping industry and several offshore centres have been offering attractive incentives to secure this lucrative business.

There is an active offshore market for offshore aircraft registration. The most active centres include Aruba and the Seychelles.

OWNER MANAGED BUSINESSES

Much of what has been said about multinational users of International Financial Services Centres applies equally to owner managed businesses. The profiles of these users incorporate every aspect of international business, including manufacturing, distribution and the service industries.

As owner managed businesses become increasingly involved with international business, they are responsible for the establishment of a growing number of offshore structures, in both treaty and non-treaty jurisdictions.

This trend will continue and owner managed businesses will continue to account for the majority of new offshore structures.

If you are interested in our international professional corporate services please contact us.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.