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
Related Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions