International Tax and Business Guide 1999 - The Investment Climate - 2.Incentives And Financing

A wide range of incentives are offered by the Manx government to investors setting up or expanding manufacturing operations. Specifically, these are:

• Capital grants of 40% of the cost of new buildings, building improvements, or new machinery and equipment.
• Grants of 40% for some non-recurring first-year expenses, such as those of transferring equipment, commissioning, and personnel relocation, and for marketing and energy conservation programs.
• Grants of 50% for special training costs incurred by employers operating approved training schemes.
• Grants of 40% towards the cost of specific new marketing ventures.
• Grants of 40% towards both energy conservation expenses and the application of micro processing technology to manufacturing processes.
• Loans of up to 50% of working capital requirements at modest interest rates with a two-year moratorium on the commencement of repayment.

If a company rents rather than buys new premises, the government will contribute to the rent to compensate for any capital grant foregone.

To be eligible for these incentives, a development must satisfy the following criteria:

• It must not diminish the amenities of the Island including its scenic environment.
• The products to be manufactured must have a high added value per employee.
• The project forecasts must show good levels of profitability and return on capital invested.

The Government aims to stimulate expansion in software development, industrial research and development, and design and marketing. An initiative to encourage the use of the Island as a location for filming has also been launched with a considerable amount of success.

The available assistance and the criteria to be satisfied by a proposed scheme are the same as those for manufacturing undertakings outlined above.

As an alternative to the above package of grants and loans, companies may opt for a tax-free period or tax holiday. During this period, which will be for a maximum of five years, the whole or part of the companies' profits or income may be exempted from liability to income tax.

Tax in the Isle of Man is charged at a lower rate than in many other countries. The maximum rate applicable to the income of individuals and companies is 20%. No capital gains or transfer taxes, wealth tax, or inheritance taxes are levied. 100% first year tax allowances are now available for new industrial buildings, plant and machinery, tourist premises and agricultural buildings.

The Manx Government has established an 8 hectare (20 acre) Freeport site adjacent to the Island's main airport at Ronaldsway and approximately 13 kilometres (8 miles) from the roll-on/roll-off cargo facilities at Douglas harbour.

Because customs formalities are much reduced, no duty is charged on imported goods, and goods move freely between the Island and the European Union, the Freeport offers attractive facilities for activities such as:

• Assembly of components and processing of semi-manufactured goods for export.
• Storage, stockholding, and transhipment.
• Packaging, labelling, and preparation of goods for marketing.

Loans at low interest rates are available to existing businesses for such items as husbandry and drainage improvement schemes.

No incentives are available for new agricultural development, unless such development comes under the terms of the manufacturing incentives outlined above.

Attractive incentives are available towards the cost of new hotel, holiday village, and apartment developments, and for the renovation of existing properties.

In the case of new developments, grants of up to 40% and loans for a further 30% are available, provided the development conforms to various criteria with regard to size and facilities.

Loans up to 90% of costs can be obtained for the conversion to tourist accommodation of existing properties. Grants of up to 50% and loans for the remaining 50% can be obtained for the installation, in existing premises, of modern facilities.

Interest rates on loans are at present set at around 5%for the first 3 years. These rates are reduced by 1% for prompt payment, and in certain circumstances loans may be granted interest-free for the first 3 years. The maximum term of a loan is 25 years.

Further aid may be given to large-scale developments involving major investment.

Venture capital is also available to industry and commerce. Most of the larger banks operating on the Island have their venture capital arms. In addition 3i plc makes capital available at crucial development stages. It has particular experience in the small to medium-sized private business sector. In addition, limited entrepreneurial funding has been made available for the establishment of new businesses displaying a high degree of initiative and innovation. A venture capital initiative sponsored by the Isle of Man Government giving tax relief on investments made, has also recently been set up.

Due to its rapid growth over recent years, the banking and financial services sector now contributes significantly to the Island's national income. Some 65 banking licenses have been issued, and 75 bank branches have established operations in the Island. At 31 December 1998 a total of £22.31 billion was held by the Island's banks. In addition, insurance companies and firms providing trustee, investment management, and other financial services are in business. Seven building societies are now established on the Island. These institutions are an important source of finance for home ownership, but they are not sources of capital for commercial or industrial purposes. There is no stock exchange on the Island, although access to international markets is readily available through local stockbroking firms.

The Isle of Man has been granted special status (designated territory status) under UK investor protection legislation - the UK Financial Services Act of 1986. This special status enables collective investment schemes regulated by the Island's own Financial Supervision Act to be marketed directly in the United Kingdom.

The main forms of finance available in the Island are:

• Overdraft facilities, obtained largely from the commercial banks.
• Short- or medium-term loans, available from the commercial and other banks.
• Leasing and instalment purchase arrangements, undertaken by a variety of companies, including subsidiaries of the main banking groups.

Commercial banks also accept deposits and offer a full range of foreign exchange services including forward exchange cover.

The information given is not exhaustive and is based on conditions existing at 5 May 1999. Readers are advised to consult with professionals, such as independent accountants, legal counsel, and investment bankers, before taking any formal action. Deloitte & Touche would be pleased to discuss specific problems.