The Isle of Man has made great progress in recent years in gaining international recognition as a centre of excellence and maturity in financial services. In fact the Isle of Man has emerged as the new ‘Celtic tiger’ following record economic growth in the past few years. GDP grew by 10.5% and GNP by 13.5% in real terms during 1998/1999.
The financial services industry witnessed the greatest economic expansion, growing by 21% and now accounts for 42% of Manx source income. The Island’s financial services sector is diverse with the main activities being banking, life and captive insurance, fund management and trust and fiduciary business. These activities are supported by a professional services sector that boosts international accountancy practices and a wealth of experienced legal firms.
It is the Isle of Man’s political independence while operating within the stability of the British Isles that is at the heart of the Island’s economic success. The Isle of Man is an internally self-governing dependent territory of the Crown which is not part of the United Kingdom. Tynwald, the Island's 1,000-year-old Parliament, makes its own laws and oversees all internal administration including fiscal and social policies.
The Isle of Man also enjoys a special relationship with the EU. The Isle of Man is not a member of he EU, but enjoys free trade in industrial and agricultural products with the Single Market. The Island is not a participant in the European Single Market programme, and, as a fiscally independent country, is not subject to any harmonisation of direct taxation within the EU. However, by virtue of Protocol 3 and the Common Purse Agreement with the UK, the Island effectively enjoys customs union with the EU.
Though it has been adapted for an international financial environment, the Manx legal system is based on the principals of English common law, although English law does not extend to the Island. Manx law is closely based on English statutes and the law in such areas crime, contract, tort, family and social security is very similar. But in other areas, although modelled on English law, Manx law has been adapted to meet the Island's special circumstances, particularly with regard to direct taxation, company law, financial supervision and e-commerce. The UK only legislates for the Island in respect of some subjects which are of common concern to the Isle of Man and the UK, such as defence, nationality and immigration.
The cornerstone of the Isle of Man’s economic success has undoubtedly been a system of low taxation to which the Government remains firmly committed. There are no death or estate duties, capital transfer or gifts taxes, capital gains or wealth taxes on the Isle of Man. For individuals resident on the Island, the Isle of Man offers attractive rates of taxation with personal tax at a standard rate of 14%,with a higher rate of 20%,and generous allowances for individuals. Local companies are generally assessable to tax at a rate of 14% on the first £125,000 of taxable income and a rate of 20% on the remainder.
The Isle of Man Government recently announced a radical new a package which has been designed to meet the demands of the modern global economy. At the core of the new tax strategy is a pledge to reduce the Island’s current standard 20% rate of tax to 10% for companies by 2005 at the latest. Tax exemptions for certain categories of business will be phased out over the five year period. In future, life companies, shipping and others with a substantial business presence will be brought into the domestic tax net with a zero tax rating. In another bold move, the Isle of Man will further reduce the tax burden for individuals with the standard rate of tax ultimately being fixed at 10% and the higher rate at 15%.
In addition to enhancing the Island’s competitive position as a leading finance centre, the new fiscal measures have also been carefully to act responsibly in the international marketplace. The Isle of Man has been recognised for its financial probity in building an exemplary regulatory regime. Now the government has taken a proactive approach to restructuring its fiscal policies. The Island’s government is aware that the work of the OECD forum on harmful tax competition is likely to result in the formulation of new international standards and as a progressive government, it has a standing commitment to work positively with the OECD and its members.
As mentioned previously, financial services now constitute the largest single sector of the Isle of Man's diversified economy and the Isle of Man's reputation as a quality jurisdiction has been built on the strength of its regulatory regime, comprehensive customer compensation schemes an co-operation with other agencies to combat financial crime and money laundering. This has been fully recognised by the British Home Office, whose review of financial regulation in the Crown Dependencies placed the Island amongst the best performers in international finance centres.
The review, carried out in November 1998 by Andrew Edwards, the ex-Treasury official, also highlighted the Isle of Man’s leadership in depositor and investor protection. The Island’s regulators, the Financial Supervision Commission and the Insurance and Pensions Authority have always attached paramount importance to the protection of depositors ‘and investors’ interests,. Only institutions of quality, with proven track records which will contribute to the economic interests of the Island are granted licences and in 1991, the Island introduced a Deposit Protection Scheme - the first offshore centre to do so. The scheme offers equivalent protection to that available in the UK (i.e. 75% of the first £20,000 of a deposit) and extends protection to foreign currency as well as sterling deposits.
Although the Island’s banking industry has been traditionally dominated primarily by subsidiaries and branches of the main UK clearing banks, there are a growing number of top foreign banks with currently 65 licensed institutions in all. Whilst the Island's currency is sterling, deposits are accepted in all major currencies of the world. All banks in the Isle of Man operate within a statutory framework laid down under the Banking Acts and supervised by the Island's Financial Supervision Commission. Traditionally the majority of banks in the Isle of Man provide private services to expatriates and foreign nationals. These services extend beyond deposit taking to establishing and administering trusts and managing the underlying companies and assets held by those trusts, including investment management. Growth in other areas of the Island’s finance sector – including captive insurance, life assurance, the shipping register and corporate treasury operations – has led to bank’s’ skilled involvement in investment management alongside international trade services.
The Isle of Man is also leading the way in e-commerce and was chosen as the base for Fsharp, the new subsidiary set up by the Bank of Ireland to offer one of the world’s first offshore Internet Banks. The Isle of Man offers the most modern digital technology together with an attractive fiscal environment and a regulatory regime that recognises the special needs of e-business. Last year the Island moved quickly to introduce the Electronic Transactions Act 2000 which establishes a legal framework to facilitate secure e-commerce. This clearly demonstrates the Isle of Man government’s commitment to providing an attractive and supportive environment for internet based businesses.
In addition to its banking sector the Island has a growing fund management industry, a thriving life and captive insurance industry and an international shipping industry. In October 1999 the Island launched a new initiative for fund promoters targeting skilled global investors. The Experienced Investor Fund offers a niche opportunity for managers in the international, private and hedge funds industry. International fund managers now have the option of using "alternative investment" strategies as well as conventional investments within a purpose made fund framework in the Isle of Man.
The Island is also becoming a significant centre for aircraft leasing and ‘big ticket’ financing arrangements and growing in parallel is a whole new sector of professional legal expertise with local firms expanding their commercial arms. The Island’s attraction in this niche area has been enhanced by the introduction of vehicles such as the Purpose Trust and the ‘Limited Liability Company which added the American styled concept of the ‘LLC’ into Manx company law. The Isle of Man Government and the private sector will continue to work together to develop progressive, flexible and user-friendly vehicles for use by both commercial operations and the private investor.
The Isle of Man continues to go from strength to strength and has achieved international recognition as a high quality, well regulated international finance centre. The Isle of Man Government’s bold policy initiatives will ensure the continuing economic success of the island in a competitive global market.
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