FT SPECIAL REPORT Doing Business in The Isle of Man

Tuesday May 13 2014 www.ft.com/reports | @ftreports

Programme of reforms pays off Inside »

The territory has avoided recession and Economy is on track to balance Spending remains the books, says depressed, but Andrew Bounds business optimism is on the rise ive years is a long time in Page 2 offshore politics. In 2008, at the height of the financial cri- sis, British chancellor Alistair Tough decisions Darling denounced the Isle of FMan as a “tax haven sitting in the pay dividends Irish Sea”. Transparency helps The island is one of three crown dependencies, which are not part of boost the island’s the UK but owe allegiance to the Brit- financial credentials ish Crown. The others are Jersey and Guernsey. Page 2 In September, several years of icy relations with London thawed, as David Cameron, the UK prime minis- Financial services ter, told the House of Commons: “I do not think it is fair any longer to refer Banking has to any of the overseas territories or contracted while crown dependencies as tax havens. They have taken action to make sure insurance is they have fair and open tax systems.” growing While noting that Mr Cameron’s Conservatives have always been more Page 3 sympathetic to offshore holdings than Mr Darling’s centre-left Labour party, Manx politicians were nevertheless Tax changes pleased with their efforts to repair the divide. Government puts Mr Darling’s decision in 2009 unilat- its faith in a erally to reduce a long-standing cus- toms revenue-sharing agreement, well-regulated deprived the island of some £140m a jurisdiction year of income, a quarter of govern- ment receipts. That led to a five-year Recovery: the island is in its 29th year of growth despite having to cut spending to compensate for lost revenue Page 3 programme to balance the budget by 2015-16, by using reserves to cushion the effects. there is a £120,000 annual cap on the more stable and secure government,” At least that coincides with an Channel Islands, being more crowded, Allan Bell, the chief minister, says amount anyone pays. There is no says Mr Bell. Wages are £60m below upturn in the economy. Manx Tele- are stricter about work permits and the economy is on track and the inheritance tax, no capital gains tax the projections thanks to salaries ris- com, the dominant local carrier, property ownership. He says this island has managed to cut spending and no stamp duty. ing below inflation and redundancies. floated on London’s junior Aim made it easier to attract top staff. without triggering a recession. It is in It was among the first to sign auto- “We have tried to avoid the word exchange for nearly £160m in Febru- Indeed, the government welcomes its 29th year of growth. Jersey and matic exchange of tax information austerity and . . . the excesses we have ary. Simon Cain, a corporate partner migrants. Its strategy calls for several Guernsey, by contrast, have slipped agreements with the US and UK, witnessed in the UK where slash and with Appleby, an offshore law firm hundred new jobs a year, yet unem- into recession. under which lists of account balances burn at one point seemed to be the based in Bermuda, worked on the ployment is just 2.4 per cent, meaning Innovative Tony Parker, of Riva, a financial and interest payments will be sent preferred option. In a small commu- deal. He says: “It was a statement of outsiders will fill some. software business and native Manx- annually to tax authorities in an nity, too quick a change could destabi- faith in the Manx economy. The com- The tax cap has induced some 70 manufacturing man, says: “I think it might turn out investor’s home country. It has also lise the economy. We have to be pany’s fortunes are tied to the island.” individuals to move since it was intro- Clusters give small to have been the best thing that could committed itself to making automatic aware of the humanity of all this.” Foreign investment is ticking up duced in 2006. In the latest financial have happened to us. It has been diffi- exchange standard by 2016. The budget deficit is expected to fall too, as private equity moves into the year, the companies they set up businesses a cult to rebalance the books. But it Mr Bell says tax evaders should be to £11m in 2014-15, from £36m the year offshore trust market. employed 360 staff who paid more competitive edge means the island has had to diversify “smoked out” and that the island had before, after £105m of cuts since Appleby says there are advantages than £6.6m in tax. Planning rules and think outside the box.” no wish to “bottom feed” by providing to the island. Faye Moffatt, head of have been relaxed, so the properties Page 4 The Isle of Man, which has 85,000 them with a home for their money. corporate, says: “Working in the same they demand are being built. One is residents, enjoys gross national “There is no other way of doing timezone as the City of London is costing £30m. “It will be the most income per head higher than the UK’s business and surviving,” he says, ‘Working in the same important and the client service and expensive house built outside London Pinewood offers at $48,550, and the World Bank ranks arguing that the island would benefit timezone as the quality of staff here are excellent.” this year,” says Mr Bell. it as the eighth wealthiest country. if laxer competitors elsewhere were Although the use of VAT – not Chris Eaton, chief executive of ILS leading role This year the $4bn economy is fore- forced to take the same approach. City of London is applied in many offshore centres – Fiduciaries, a corporate services pro- The government cast to grow between 3 and 4 per cent “But we are determined to maintain increases lawyers’ fees, it also brings vider with 10 offices worldwide, says in real terms. our competitive corporate tax rates, important’ in business. Many property developers the island needs to combat price pres- offers incentives to Financial services, which account because they are critical to the suc- in the UK use Isle of Man structures. sure by promoting its brand. “The attract film makers for about a third of the economy and cessful economy we have enjoyed.” Their companies can register for UK Department of Economic Develop- employ 7,000, remains crucial and the Combining low tax with a generous 2011-12. Net spending, which is the VAT but not pay corporation tax. ment’s country strategy has started to Page 4 island has gone to great lengths to welfare state has proved a challenge. amount funded by direct and indirect They can then also reclaim the VAT. work, but we are behind in brand comply with the growing pressure to The island is in the third year of a taxation, is to fall by £4.3m, or 0.8 per It also works for Chinese or other awareness. We have got halfway and share tax information with bigger five-year push to rebalance the budget cent, to £543.6m. However, spending manufacturers wanting to sell prod- the government has to invest in it.” Niche services countries that are seeking to cut and is ahead of target. Some 600 jobs, on benefits and social care was up ucts in the EU. And it means the The island is cultivating links with avoidance at a time of austerity. 8 per cent of the government work- £10m. Reserves will be a healthy government has at least one dependa- Liverpool and Manchester and will Shipping and It has managed to defend its force, have gone, the number of minis- £1.6bn, after spending £90m of them ble source of revenue. “It is a blessing have a big presence at the Interna- aircraft registers “zero-10” tax system, with banks, ters has been reduced and a cabinet on rebalancing. in disguise,” says Mr Cain. tional Festival for Business in Liver- property companies and big retailers office has been set up to drive reforms. Mr Bell admits the state is now look- The island has another advantage, pool in June and July. help bolster the paying 10 per cent corporation tax “It is the most radical change in the ing at “more challenging areas” such he says. “The Isle of Man is unique If Scotland votes for independence economy while other companies pay no tax on structure of government since 1987, as removing universal benefits. It has among offshore jurisdictions in that in September, it could follow Ireland’s earnings. For individuals, the top when we brought in the ministerial to cope with an ageing population and someone can buy a house and settle path of low taxes. “It could be a com- Page 4 income tax rate is 20 per cent and system. It will enable us to provide a funding pension commitments. immediately.” The Caribbean and the petitor on our doorstep,” says Mr Bell. 2 ★ FINANCIAL TIMES TUESDAY MAY 13 2014 Doing Business in The Isle of Man Island sees diversity as key to growth Taking tough decisions pays Economy Consumer spending remains dividends depressed, but business optimism is on the rise, writes Andrew Bounds faces a series of challenges. First, it must continue to show the nimbleness that allowed it to develop niche he Manx tend to see things opportunities to diversify as they could be rather than its economy in areas such as they are. While belief in as egaming, space and fairies survives only in the OpinionBrian Groom advanced manufacturing, tales on bookshop shelves, BRIAN GROOM along with aircraft and Tfaith in the island’s power to trans- shipping registries. form itself remains. In 2004, an economic After branching out from fishing Thirty years ago the Isle of review foresaw the need to and tourism into banking, insurance, Man was a fading seaside diversify and set out to film, space travel, yacht registration resort, known mainly for create the conditions for it and online gambling, the government its annual TT motor cycle to happen. Now the and private sector are searching for race and its tailless cats. government has drawn up new areas to explore. Vision 2020 It felt the pain of a Vision 2020, which sees paints a picture of the future. over-dependence on its ebusiness as its main Chris Corlett, head of the Depart- shrinking agriculture, growth prospect, expanding ment of Economic Development (Ded) fishing and tourist trade: from egaming, which and architect of the strategy, says national income per head accounts for 9 per cent of diversification was vital. A decade was little more than half the economy, to areas such ago, banking represented a quarter of the UK’s level and as computer games, high- gross domestic product and ecom- unemployment was speed trading, cyber merce 3 per cent. Now the figures are 12 per cent. security and online dating. 10 and 14 per cent. “Sector lifespans Today, the World Bank Longer-term, the are shortening,” he says. says the island is the biomedical industry and John Spellman, his colleague at the eighth wealthiest country, wind, wave and tidal DeD, agrees: “Financial services have with gross national income energy look promising. undergone a metamorphosis.” Two per head above the UK’s at Second, while its efforts banks representing almost half of $48,550. Unemployment is to balance the budget funds on the island, pulled out – 2.4 per cent and the island without resorting to HSBC and Credit Suisse, and Britan- can be readily obtained along with Spending hike: years our economy has grown 15 per business visitors grew 1.2 per cent. is in its 29th year of “slash and burn” are on nia International will soon join them. access to automated customs clear- tourism is still cent.” The government’s decision to buy the unbroken economic track, it still has difficult But there is a growing market in ance systems,” he says. “Goods from important, at A national insurance holiday for seabed in its territorial waters from growth, making it one of decisions to take. Child services for the internationally afflu- China could go direct to the UK and 2 per cent of GDP employers taking on staff has been the Crown Estate in 1991 for £800,000 the few parts of the benefit and financial ent seeking opportunities to invest then circulate within the EU freely.” Getty used by 550 businesses to recruit 1,100 could bear fruit. It is in negotiation developed world to come support to university and global corporates wanting to John Shimmin, economic develop- people. Some taxes have been nudged with wind power companies for a through the past few years students have already been manage transactions across borders. ment minister, says others will follow, up and a 10 per cent levy on profits of development that could lead to £5m without a recession. means-tested and pensioner Risk-taking is almost impossible in and the island is looking to cement big retailers, aimed at multinationals, annually in revenues for leasing the Growth slowed to 2 per benefits such as free many onshore jurisdictions, as gov- links close to home too. “People in the will bring in about £3m a year. More seabed for a wind farm. cent from a peak of 8 per prescriptions could be next. ernments make their financial sys- northwest [of England] and the Isle of than 6,000 people signed a petition Gas exploration is also continuing. cent, but has since Third, it needs to tems secure. Man have lost touch in recent years. against a flat £50 per home sewerage “There is a level of optimism that recovered to 3-4 per cent. continue to market itself “They want to work with a regula- We are trying to restore that relation- charge, dubbed the toilet tax. wasn’t there three years ago,” says Mr The Isle of Man’s effectively in emerging tor that does not treat everybody as a ship. Air links to Liverpool and Man- But Mr Teare says the squeeze will Shimmin. transformation has been economies, particularly in retail investor,” says Mr Spellman. chester are very good.” continue. Child benefit and university Jane Dellar, chief executive of the remarkable even by the financial services, where Chris Eaton, chief executive of ILS Investors could use the island as a tuition fees are means tested and pen- chamber of commerce, agrees. Its lat- standards of offshore its future lies not so much Fiduciaries, one of the largest corpo- base, but build factories in the UK sion benefits could be next. “I am 65 est survey of 300 businesses with finance centres. in its traditional deposit- rate service providers, says the effect where labour is more plentiful. with a decent income and pension and 15,000 employees, found half expected The turning point came taking activities as in is already being felt. “In the past six Mark Woodward, chief executive of I get free prescriptions,” he says. “We turnover to grow in 2014, with just 12 in the early 1980s, when selling its expertise to to 12 months, growth has returned. the Steam Packet company, says his need to encourage people to have per cent predicting a decline. Two- laws were introduced to global companies looking We are starting to see the possibility ferries are carrying about 20 per cent responsibility for their own future.” thirds were optimistic. encourage banking, to manage transactions for new income streams. A number of less cargo than six years ago, suggest- Government spending has been cut According to Mr Teare: “The main insurance, funds and across borders and helping clients from China are starting to use ing a big drop in consumer spending. from 25 per cent of GDP to 20 per focus is on ebusiness, which we think investment businesses, the world’s affluent to find us as a platform to enter the EU.” Eddie Teare, Treasury minister, cent. Tourism remains important, at is going to be the next powerhouse.” corporate service providers ways to invest. One is Shanghai Linso Digital Tech- admits the domestic economy is suf- 2 per cent of GDP. In 2013, overall Allan Bell, the chief minister, says: and trusts. And, fourth, it must nology, a manufacturer of commercial fering from lack of consumer spend- spending by visitors rose 1.6 per cent “Clean tech, biomedical, ICT: we are It was a fiery baptism: continue to respond to LEDs that last year set up a Manx ing power, with real incomes down 8.5 to £107m, although there was a fall of open to ideas. The Isle of Man is a the infant financial sector international pressure company for its EU sales. Chen Jian, per cent in real terms over five years. 1 per cent in the number of visitors to small and nimble jurisdiction. We can struggled to recover from against low-tax financial founder of Linso, says it was a “no- He accepts that the days of the Manx 291,000. That reflected fewer visits by respond very quickly to opportunities. the collapse of the centres, which has been brainer” because of the zero tax tiger, reporting 8 per cent growth, friends and relatives. However, the It is dangerous to have all our eggs in infamous Savings and even more intense since regime and supportive government. may be over, but believes 3-4 per cent number of visitors staying in paid-for one basket. A diverse economy gener- Investment Bank in 1982. the recession because of “The necessary VAT registration is achievable. “Over the past five accommodation rose 5 per cent and ates a diverse society.” But the island was on a the pain of austerity in path to revival. More recently, two factors helped it weather the global financial crisis. The World Bank A decade ago it had the says the island foresight to plan the Manx migration saves business from extinction diversification of its is the eighth economy beyond financial services. And it has wealthiest country strengthened its Profile Braddan, on the outskirts of quadrupled. It had £2m of cost of transport for a light, been here for 18 years. They international reputation by larger countries. The island Douglas. revenues last year and relatively expensive item. are very loyal and very signing up quickly to an was among the first to sign Simpsons Shaving “It was a dying business. employs 18. Simpsons is expanding skilled,” he says. intensifying series of global automatic exchange of tax Brushes It was turning over £50,000 “We are on Twitter and with a range of shaving Wet shaving is making a initiatives to increase information agreements a year. Now we have cre- Facebook and all the rest of creams and oils made by a comeback as male groom- transparency on tax. with the US and UK and Merged company ated a bit of a monster,” it. Word of mouth is still third party. “People love ing becomes more impor- It has been far from has committed to making says Mark Watterson, our best marketing tool, the brand and we want to tant. Mr Watterson says easy. When the UK automatic exchange thrives in supportive whose father Philip bought however. The US is our big- make the most of it,” Mr badger hair remains the government froze the standard practice by 2016. environment, says the company in 2008. gest market and we export Watterson says. best. assets of Kaupthing, the David Cameron, the UK The business, started by as far afield as New Zealand Factory volume is main- “It stimulates the hair on Icelandic bank, including prime minister, declared Andrew Bounds Alexander Simpson, moved and Hong Kong,” he says. tained by making own-label the chin to stand up and deposits held through its last September that to Chard in Somerset in “All our brushes are products for barber shops retains the moisture and Isle of Man branch, in 2008, overseas territories and 1941 after German bombs made by hand in the same as well as razors and the heat so much better.” the island used its reserves crown dependencies such There may be no badgers destroyed the factory. way they were made in cheaper Vulfix brushes. The company has started to guarantee those held as the Isle of Man should on the Isle of Man, but that In 1990, when he could 1919. Even some of the Mr Watterson, 43, says making synthetic brushes there and restore no longer be seen as tax has not stopped one com- not find craftsmen for its equipment is the same.” the techniques have not for those who object to confidence. A year later havens. It may take pany thriving on the use of ageing workforce, David There are 80 models based changed in a century. badger. Celebrity endorse- the UK Treasury rewrote longer to shift the their hair. Carter, one of the owners, on hair grades starting at Badger hair is bought in ments are hard to get for the “common purse” impression in the public’s Simpsons Shaving approached Mr Watterson £16 and going up to £300 for Heritage: shaving since 1919 bundles, selected, trimmed the same reason, although agreement that determines mind: after all, the island Brushes started life in the senior for advice, as he ran a brush made of Manchu- and tied together and then the Saudi royal family are how revenues from value is still highly competitive east end of London in 1919. a manufacturing operation rian badger, the finest hair. glued into a handle. The confirmed users. added tax are shared, on tax. It reached the Isle of Man on the island for Vulfix, a Mr Watterson opened his “The Department of Eco- handles are turned on a “We have one Hollywood cutting government income But in a world where six years ago, a move that German maker of brushes new 5,000 sq ft factory in nomic Development is abso- lathe then vibrated in lime- customer whose agent buys by about £140m a year. financial security is ever may have saved it from for other brands. September but has already lutely first class. It takes an stone chips to smooth the from us but we can’t give It has had to make hard more sought after, being a extinction. Simpsons limped along outgrown it. He is now active interest in promoting finish before being his name because of the use choices to get its budget transparent and well The Simpsons name is until 2008 when Mr Watter- building one twice the size business,” he says. engraved and then buffed. of an animal product.” back into balance by regulated centre has to be familiar among the gentle- son senior bought the brand nearby. In both cases, the The zero per cent corpora- The brush head is then Mr Watterson says being 2015-16. The island’s people the right way to go. man’s barber shops of Lon- from his friend Mr Carter government is contributing tion tax rate and the fact “clawed” to remove loose in the British Isles is vital have a reputation for don’s West End. But the and integrated it into his 40 per cent of the costs that wages are lower than hair, all by hand. The brush for sales. “Customers love resilience, for working out Brian Groom is the FT’s brushes are made several factory. His son took over under a scheme to encour- in the UK because salary should last 10 years. the heritage. There is noth- what needs to be done and UK business and hundred miles away in in 2010 and turnover has age manufacturing. taxes are lower offsets the “Some of the staff have ing like a British product.” getting on with it. It still employment editor From gambling to finance, the future of the economy is online

egaming companies based £10m to roll out 4G mobile Tilt, a rival, as part of a the introduction of this is currencies. “The halcyon a fifth of its £5m turnover promote ebusiness. Tony Ecommerce there, with five more in the internet services this year. $731m settlement with the unlikely to have a signifi- days of it driving rapid comes from outside the Parker runs Riva, a home- process of applying. These The island is on the route US, which had accused the cant impact, as much of the growth for the island may British Isles. “We see our- grown business that pro- Infrastructure, companies are attracted by of BT and Vodafone’s sub- two of violating its laws business managed from the be over, so far as existing selves unashamedly as a vides back office software investment and good telecommunications, sea cables running from against online betting. With island is outside the UK. licensees are concerned,” world-class software busi- for the asset management low taxes – betting duty is northwest England to Ire- customer accounts frozen, Only 6 per cent of UK according to the Manx ness with a global market,” industry. He started the education will aid between 0.1 per cent and 1.5 land. The Manx Electricity PokerStars, which had to demand for egaming is sup- eGaming Association sur- says Mr Gledhill. business in his bedroom in expansion, reports per cent of gross profit – Authority also sells surplus keep funds in ringfenced plied by Manx licensees, vey for 2014. If the industry is to 2002 and in 2007 was and the island’s presence on capacity on its fibre optic accounts under Manx law, against about 60 per cent Chris Gledhill, founder of expand beyond egaming, it acquired by Franklin Tem- Andrew Bounds the UK and OECD white cable to the UK mainland. reimbursed its clients but supplied through Gibraltar. PDMS, a big data business, needs trained staff. Mr pleton, the US asset man- lists of countries that share Paul Telford, general Full Tilt could not. Under However, new UK rules says the sector is growing. Gledhill, as chairman of the ager. It is deployed in 14 tax-related information. counsel at PokerStars, says the deal, PokerStars reim- could also stop Manx busi- PDMS runs the UK Police island’s ICT association, countries with £290bn of Skandia House in Onchan It means Manx businesses the infrastructure was cen- bursed Full Tilt customers. nesses advertising there, National Legal Database, has thrown his weight assets on its platform. on Douglas Bay tells the can advertise in the UK, tral to the decision to set up Now there are moves by including via football shirt which keeps officers up to behind plans to establish a “We’ve grown beyond our history of the Manx econ- though many target Asia. on the island. The website some US states to legalise sponsorship. An estimated date on the law. It also cre- training college. wildest dreams and there is omy in a single building. Leading companies in- deals some 50m hands in online betting and Poker- £60m-£90m annually is ated Employed.im for The Manx Educational a lot more potential”. From hotel, to financial clude Microgaming and 500,000 tournaments every Stars is seeking a licence in spent on the Premier careers advice and job Foundation, a private phil- Riva, which has just services office block, to Playtech, which provide day – or about six starting New Jersey. However, it is League alone to reach searches for young people. anthropic organisation moved to bigger offices, headquarters for Poker- software for the industry, every second. It also has to harder to operate in small Asian audiences. PDMS has just opened an funded by local companies employs 20 on the island Stars, the leading online PokerStars, Celton Manx, take stakes and settle markets because there are As egaming matures, the office in Scotland, but about and businesspeople, has and 60 worldwide. Mr poker website, the build- and 188 Bet. Their presence accounts with the 65m reg- fewer players. island is hoping to expand bought a building and Parker says it has not had ing’s uses have mirrored has supported £1bn of pri- istered players. The industry also faces a into areas such as computer intends to open the college. to recruit from abroad. the rise and fall of Manx vate and public investment “All that activity goes move by rich countries to games, high-speed trading, Global names such as HP “I was surprised by the industries. in telecoms infrastructure, through our servers on the tax gambling at source, cyber security and online The island hopes have shown interest and Mr depth of skills.” The busi- Online gaming is the fast- says Chris Corlett of the island,” says Mr Telford rather than by jurisdiction, dating. to expand into Gledhill says UK universi- ness has a development est growing sector of the Department of Economic The island is the hub of the with punters paying accord- Peter Greenhill, chief ties have been approached, centre in India, but the cut- Manx economy. The digital Development. business, with the directors ing to where they live. executive of the govern- cyber security, as the college hopes to ting edge software is writ- economy, dominated by the There are seven data cen- living there and board The UK’s Place of Con- ment’s egaming depart- teach to undergraduate ten on the island. industry, grew 10 per cent tres on the island and Manx meetings held there too. sumption Tax takes effect ment, says it is examining computer games level. The government has “The government is very in 2013 and added 100 jobs. Telecom, the dominant The business expanded in in December. The Isle of setting up an exchange for and online dating committed an extra £350,000 accessible and red tape is There were 56 licensed local carrier, is to spend 2012, when it bought Full Man government believes bitcoins and other virtual over the next two years to limited here,” he says. FINANCIAL TIMES TUESDAY MAY 13 2014 ★ 3 Doing Business in The Isle of Man Sector changes Company looks its make-up and for next niche Profile locals may have bought shares after the flotation. Manx Telecom The company reported a rise of nearly 20 per cent looks further Mike Dee tells Brian in adjusted operating profit to £18.1m on revenues 5 Groom why it was the per cent higher at £76m in right time to float the year to December. It plans to pay a dividend afield for returns with a 7 per cent yield. Manx Telecom, the Isle of “We have seen good Man telecoms group, was progress across our key floated on London’s junior areas of growth – data Aim exchange for nearly centre and off-island – £160m in February, while the core business Financial services Banking has contracted allowing an exit to its continues to generate good private equity owners but levels of cash that will while insurance is growing, says Brian Groom also giving a boost to the enable us to invest in company and to growth while also investment in the island. maintaining an attractive inancial and professional ser- £69bn in 2008 to £52bn, but the HgCapital and CPS dividend,” says Mr Dee. vices are likely still to be the island’s 18 banks remain the sector’s Partners, the majority Manx Telecom is the Isle of Man’s largest wealth- biggest employer with nearly 3,000 owners, sold their only fixed-line network creators in 2020, but the staff. “Most of the banks are concen- interests. HgCapital, operator on the island and industry is changing shape. trating on the quality of their busi- having bought Manx has 75 per cent of the FBanking has contracted and some ness,” says Peter Reid of the Isle of Telecom from Spain’s mobile telecoms market, small fiduciary companies have closed Man Bankers Association and island Telefónica in June 2010, where it competes with or been bought, while insurance and director for Lloyds Bank Interna- had made clear it expected Sure, owned by Bahrain long-term savings are growing. tional. Opportunities include in- to hold the company for Telecommunications The financial sector makes up 34 creased personal and corporate lend- only three to five years. Company. Manx will spend per cent of gross domestic product ing, foreign exchange, and advice to “We felt it was a good £10m to roll out 4G mobile and employs almost a quarter of the international clients on cross-border move for us as a company, internet services this year. workforce. Its share of GDP has fallen tax and regulation. moving into the next stage Manx recently suffered from 48 per cent in 2001, as other Greg Horton, executive head of Ned- of our development, and an unusual three-hour sectors such as egaming and manufac- bank Private Wealth International, also for the Isle of Man,” period of intermittent turing have expanded, but it still con- says his bank’s profits, having dipped says Mike Dee, chief network disruption because tributes to growth. sharply in 2008-10, were likely to grow executive of Manx of problems at a server in These days, the business is less 20 per cent this year. “We have no end Telecom. “It gives us the London. It is replacing its about tax-driven offshore deposits and of opportunity,” he adds. opportunity to promote the London servers and more about selling investment prod- David Batey, director of relationship island in the City.” looking at extra ucts, services and advice to compa- management at Coutts, the private The company was created communication circuits. nies, wealthy individuals and the banking arm of Royal Bank of Scot- as a subsidiary of BT when Security of telecoms moderately affluent around the world, land, says: “We have had to be more the Manx government services has enabled the including Asia and the Middle East. innovative. We are looking at invest- awarded a licence to island to expand its John Spellman, the island’s director ment solutions for personal clients operate the telephone egaming industry. It is on of financial services, says the sector is but also things such as hedge fund system in a tender process the route of two subsea “stable, with an excellent prognosis”. liquidity, captive insurance liquidity in 1985. Spun off in 2001, it cables running from He says: “Its main opportunities lie in and corporate structures.” spent nine years as part of northwest England to a new approach to banking, a simpli- Insurance, employing nearly 2,000, O2 and Telefónica. Ireland, run by BT and fied funds regime, long-term mass has the biggest share of GDP of any Mr Dee has worked there Vodafone. affluent savings through insurance, sector of the economy at 15 per cent Business companies, facing increasing regula- Kneen, chief executive at Abacus and for nearly 30 years, Manx Telecom owns and, potentially, technology.” and saw output grow by nearly 10 per opportunity: tory costs, have been snapped up by chairman of the Isle of Man Funds becoming finance director three of the island’s seven Financial technology is a promising cent last year. The life assurance sec- the island’s larger, private-equity backed groups Association: “Three years ago, we before he took over as data centres. Agreements area. The government is talking to 20 tor, which includes big names such as 18 banks remain such as First Names and Equiom or plateaued, now we aim to build.” chief executive in 2011. He with UK mobile phone companies with activities including Zurich, Skandia and Friends Provi- the sector’s the law firm Appleby. There is also a The EU’s Alternative Investment believes being a quoted operators mean Manx has digital currencies and foreign dent, is a strength. biggest employer tier of midsized independents such as Fund Managers Directive has company will bring developed a SIM card that exchange trading platforms to micro- “Most of the growth is coming from Alamy ILS, Abacus and Boston Group. “We restricted opportunities for marketing advantages. “It enables us can piggy-back off their lending and crowdfunding that are the developing world: Asia and the must develop our international foot- into Europe so the sector has looked to . . . focus on the Isle of networks, moving between interested in setting up operations. Middle East,” says David Kneeshaw, print and diversify,” says Greg Elli- further to Asia, Africa, South Ameri- Man without getting them depending on which The island is working out its policy on chief executive of RL360° and chair- son, Boston’s chief executive. can and the former Soviet Union. The distracted by a major is offering the strongest virtual currencies such as Bitcoin. man of the Manx Insurance Associa- Boston has developed a niche in island is particularly targeting early- shareholder’s aspirations. signal. It has developed country marketing tion. He recently led a £134m manage- sharia-compliant trusts, typically for stage funds in innovative niches. We all on our board The cards can also be strategies to win private and corpo- ment buyout of his company from Middle Eastern clients collaborating Carolyn Gelling, head of collective understand the island and inserted in lorries, cars, rate business in emerging economies Royal London, backed by Vitruvian to buy commercial property in Lon- investment funds at Thomas Miller our customer base here.” energy meters and vending such as the Middle East, India, China Partners, the private equity house. don. It has also created Boston Ven- Investment, says: “We have been Institutional investors machines to relay and Russia, and is doing research for The island’s stable sector of captive tures, which puts investors on its cli- involved in two funds launches so far were attracted by a information about what a push into Africa and Latin America. insurers, which insure risks for par- ent list in touch with those who have this year and we have seen a signifi- company that should those machines are doing. The industry’s main pillars are ent companies ranging from financial investment opportunities. cant increase in funds under manage- deliver steady growth and The growth of egaming banking, insurance, the fiduciary sec- groups to utilities, manufacturers and The fund management and adminis- ment in the first quarter.” dividends over the next on the island has been a tor and fund management and admin- airlines, has seen a rise in interest. tration industry, which employs up to One former growth area for the decade. The offer was 1.7 boon. Mr Dee says: “The istration. They in turn are supported The fiduciary sector – trusts and 1,000, expanded rapidly before the cri- island’s law firms, handling the list- times subscribed. There challenge is the same for by a strong cadre of law firms and corporate service providers – has sis but was hit hard by it, with funds ing of overseas companies on markets was no retail offer, but this business and for the accountants. about 1,900 staff and accounts for under management falling from $58bn such as London’s Aim, shrunk after there was a lot of interest island – to find the next Banking deposits have fallen from 4.5 per cent of GDP. But smaller in 2008 to $22bn today. But, says Paul 2007, but has shown signs of a return. among islanders and some niche market.” Government backs adoption of information exchange despite cost

that some business will jurisdictions, “it is only jurisdiction, even if it sells The number of people eli- Nicola Guffogg, assessor convention on tax that will Business has mostly sup- Tax migrate elsewhere,” says right that they should be itself mostly on its profes- gible for the cap has grown of income tax, says compa- provide the legal authority ported the transparency Allan Bell, chief minister. smoked out”. sional expertise. Most com- from three to 70 and they nies are used to automatic for exchanging information drive, says Jane Dellar, Early move to “We believe, though, that In the past 18 months, the panies pay zero corporation have created more than exchange under the EU sav- with a wide range of coun- chief executive of the Cham- transparency has the Isle of Man has had Isle of Man has been quick tax, though banks, property 1,000 jobs, says John Shim- ings directive, though she tries. The OECD has issued ber of Commerce: “There such a determined approach to volunteer to sign auto- companies and big retailers min, economic development does not underestimate the a “common reporting stand- need to be rewards for juris- had its advantages, to stamping out any illegal matic exchange of tax infor- pay 10 per cent. minister. Ministers believe cost and effort required. ard” covering the informa- dictions that play ball and says Brian Groom or illicit activities that mation agreements with the For individuals, the top the building of more top- tion to be exchanged. consequences for the ones there is very little business US and UK, under which income tax rate is 20 per price properties will acceler- Nicola One initiative on which that don’t.” left that would want to go lists of account balances cent and there is a £120,000 ate the trend. Guffogg says the island is more wary is Mark Kiernan, director of As international pressure somewhere else.” and interest payments will annual cap on the amount The pace of international compliance UK prime minister David Boal & Co, actuaries and for tax transparency in off- Mr Bell says the island is be sent annually to tax anyone can pay, for which tax changes is a challenge changes Cameron’s drive for public pension consultants, says shore centres has grown in conscious of public feelings authorities in an investor’s they must make a five-year for the island’s authorities could be registers of beneficial own- there are advantages in the the past 15 years, the Isle of around the world about home country. It has joined election. There is no inher- and for businesses. Auto- costly ers of companies. island being a “good global Man has sought to place “aggressive” tax planning, other international initia- itance tax, no capital gains matic information exchange Unlike most big countries player” despite a small rise itself in the vanguard of especially at a time of aus- tives in the belief that auto- tax and no stamp duty. under the US Foreign the island has that informa- in costs. He says his firm change, in the belief that terity and unemployment in matic exchange will quickly The aim of the tax cap, Account Tax Compliance The Isle of Man is part of tion, which can be disclosed has had pledges that some global investors will see a many countries. He agrees become the global standard. established in 2006, is to Act and its UK equivalent an “early adopters’ group” on request to law enforce- schemes will move their well-regulated jurisdiction that if wealthy individuals Changing public percep- attract wealthy entrepre- starts in July for new cus- of 44 countries committed to ment officials or tax author- domicile from Bermuda as a safe place to put their or companies are avoiding tions may take longer. neurs who will establish tomers, with a couple of making automatic exchange ities, but is consulting with because that island signed a money. their responsibilities by The Isle of Man remains businesses that generate years’ grace to review exist- standard by 2016, and has business on whether it more onerous agreement “There is always a chance sheltering money in smaller a competitive, low-tax economic activity. ing accounts. signed up for a multilateral should be made public. with the US.

Isle of Man sectoral composition of national income Ships registered in the Isle of Man 2011-12 (%) By type

Tourist accommodation, catering & entertainment 1 500 Superyachts Agriculture 1 Ships 400 Utilities Miscellaneous services 2 300 Public administration 3 15 4 200 Insurance ICT 4 100

Retail and 0 wholesale 5 2000 02 04 06 08 10 12 13 Top 20 registers 11 By gross registered tonnage, 2013 (m) Professional Panama Construction services* 5 Liberia Marshall Islands Hong Kong Singapore Manufacturing Bahamas 5 Malta China 10 Greece Banking Cyprus Italy Education & UK health services 7 Japan 10 Isle of Man Other finance Germany Norway and business 7 Denmark Transport & communications 9 services US Bermuda eGaming Indonesia * Including CSP, legal Sources: Isle of Man Treasury; Isle of Man Ship Registry and accountancy 0 50 100 150 200 4 ★ FINANCIAL TIMES TUESDAY MAY 13 2014 Doing Business in The Isle of Man

Innovative manufacturing keeps companies aloft

island. The US multinational is one of lobby group for the industry some operating at full capacity. Mr Teare Skill set: develops thin film deposition Industry Clusters a number of big companies with oper- years ago. “To obtain world recogni- says the long lead times in the indus- Swagelok makes machines for a number of industries, ations on the island. Others include tion for the Isle of Man, we need to try repaid the investment. parts for the oil including aerospace, the military, give small businesses Swagelok, which makes parts for the ensure standards. We are working “There are contracts for 25 years on and gas industry pharmaceutical and precision optics. oil and gas industry, and RLC Ron- with the NWAA to develop a business the island,” he says. Manufacturing IOM Tourism The films improve the quality of a competitive edge, aldsway, which makes parts for the excellence model, so we are keeping represents 5 per cent of GDP. materials and are used to make every- Martin-Baker ejector seat and Rolls- up,” says Mr Allen. “We have deep- Mr Allen says transport is not a thing from stronger pipelines to eye- writes Andrew Bounds Royce engines, among other compo- ened the relationship.” problem, with daily sailings to the UK wear lenses. Its latest machine depos- nents. It is part of the island’s RLC The businesses, which employ and plenty of flights. “We have its a diamond-like carbon inside oil Engineering, which is privately between a handful and 250 people, are always had strong logistics as an and gas pipes to reduce corrosion and ew things in business life are owned and has sales of about £120m, trying to pool costs. They have begun island nation. We can deliver the friction. Each machine costs more certain but the growth of the and more than 800 employees. common sourcing of raw materials same day. Sometimes the delay is on than £2.5m and, by 2020, Highland civil aerospace industry is The cluster was an early example of such as oils. And most important, the motorway in the UK.” aims to make 200 a year. one. The two groups that offshoring, says Mr Allen. Labour was they are working together on skills. The competitive challenge remains. “We can protect the IP [intellectual make most larger aircraft, cheaper on the island, where there The manufacturing sector created CVI Technical Optics, which made the property]. The Isle of Man is very FEurope’s Airbus and Boeing of the US, were few jobs. 80 jobs last year but there are more optics for the Nasa craft that found secure,” says Mr O’Driscoll. “The gov- have order books filled more than a But the secure location and skilled than 50 full-time vacancies in aero- water on Mars, closed this year with ernment has been proactive and help- decade ahead. A small part of those workforce, combined with low tax and space alone. Inward investment leads the loss of 41 jobs. Its US parent ful. There is good retention of the orders are fulfilled on the Isle of Man. government grants to buy equipment, and new businesses are at a record blamed excessive manufacturing workforce and plenty of skilled peo- The aerospace cluster has 22 busi- has enabled the industry to compete. high, according to Treasury minister capacity. Helmut Kessler, former CVI ple. In 10 years, we will be hiring 500 nesses that employ 881 people, up Since 2006, with government support, Eddie Teare. managing director, has taken some of people. The aim is to float on Aim in from 837 last year. it has also collaborated. ‘We can He announced funding of £1m in the the staff to start his own business. 2017-18.” “Output never dipped. Those with Mr Allen says companies are work- protect the February budget to create an engi- So has a newcomer to the island: Mr Kessler, who works next door, is military activity saw a fall as govern- ing ever more closely with each other neering training centre and doubled Highland Scientific. John O’Driscoll, an early customer for the machine. ments cut back. Order books are and with the northwest of England, IP. The Isle of the number of places for the flagship managing director, has moved the “It is so easy to get things done,” strong, 10-15 years ahead,” says Chris home to manufacturers such as Air- engineering apprenticeship pro- business from Hertfordshire and says Mr O’Driscoll. He lives nearby Allen, operations director of GE on bus and BAE Systems, also with Man is very gramme to 36. The government is tak- taken on 15 ex-CVI employees in a and can walk to work. “I think I last the island, which makes hydraulic many suppliers. It joined the North- secure’ ing a bigger role after companies £4m, 45,000 sq ft factory. filled the car with petrol in Septem- systems for landing gear on the west Aerospace Alliance (NWAA), a struggled to train apprentices while Highland Scientific designs and ber,” he quips. Overseas Tie-up with London studios puts delegations island in a leading role – again attracted by investment fund for an ini- Christopher Robin, the fund, alongside the £25m Film industry tial five year period. biopic of author AA Milne, Isle of Man media fund Members of the House of is also expected to shoot on which we have managed The government has Keys, the Manx parliament, the island in the autumn. In since 2012.” local skills dug deep to attract have criticised the lack of all, there should be about 60 The combined funds now transparency in using tax- days of shooting. Pinewood total £55m, making them projects, but it is a payers’ money. Kate receives an annual fee for one of the largest invest- controversial move, Beecroft, leader of the Lib- running the fund, but Mr ment portals in new British Niche services There are 580 people eral Vannin, the island’s Teare has kept precise fig- high-end television and film working in the industry on says Andrew Bounds opposition party, has regu- ures close to his chest. content.” the island. About 100 work larly questioned how much He received a boost when Mr Teare says Pinewood’s Manx shipping and in the racier but smaller of a return the fund has the Welsh government in shares have risen from 250p aircraft registers help superyacht industry. There The Isle of Man became a made. Belle, its first feature, February agreed a similar to above 460p since the are 100 on the register, mini-Hollywood in the early is out this year. deal, setting up a £30m tele- investment. “We have turn- bolster the economy, which opened a yachting 2000s with stars such as Eddie Teare, Treasury vision and film investment ed £12m into £21m, though I says Andrew Bounds section a decade ago. Johnny Depp, Zac Efron minister, told parliament fund, though without buy- accept we cannot sell Mr Welsh says there was and Claire Danes shooting that four more films had ing a stake in Pinewood. straight away. I met the competition from Gibraltar, movies there, thanks to been made. He said: “I am The Welsh assembly is Welsh first minister as he which can also fly the generous tax breaks. not prepared to give details also establishing Pinewood wanted to see if we thought From Fletcher Christian, famous red ensign, and Between 1995 and 2011 of the investments in each Studio Wales in Cardiff it was working well or not. who led the mutiny on the Malta, but Cyprus was los- more than 100 films were individual film. We have to Bay. It will have four stages “The first films were HMS Bounty in 1789 and ing ground after its finan- made. But changes to tax respect commercial confi- and Pinewood is taking a made in 2012. It is a two- settled on Pitcairn Island, cial woes. rules that stopped the dentiality and I am not pre- five-year lease. Pinewood year cycle, so they will soon to John Quilliam, Admiral The island is heavily pro- island keeping the value pared to break commercial will operate the studio and be out. The number of films Nelson’s lieutenant at the moting the register abroad, added tax earned on cinema confidentiality. contribute £800,000 over five made on the island has Battle of Trafalgar in 1815, with a delegation from screenings in the UK cur- “This investment has years for the purchase of gone up substantially. What Manxmen have long made a China visiting recently, tailed the government’s worked, and I feel that it equipment. we had was a business living from the sea. after a trip by Allan Bell, ability to assist. has been a very good diver- Pinewood was in a model that would not Now, as well as joining the chief minister, to the The UK and Ireland intro- sification for the economy closed period before work in the face of ships they are registering country. duced tax breaks of their of the Isle of Man.” results and could not very substantial and running them, in a suc- “Maersk, Bibby Line and own and the number of The government said that talk about numbers. competition.” cessful venture to diversify BP do all their crewing days of filming fell from 830 the film sector is this year But a representative The Welsh fund the financial services indus- from here,” he says. He said Shipping news: Maersk is registered on the island Reuters in 1997 to 25 in 2011. expected to generate about said: “The agreement, helps spread the risk, try. the attraction in the 1980s So, in 2012, the govern- 4,000 bed nights, 16 trainee which Pinewood he says. “We didn’t The Manx shipping regis- was avoiding higher ment agreed a controversial placements and £2m of local recently signed want to go down ter, established in 1984, national insurance contri- want to spend on luxury aircraft register, which tie-up with Pinewood Shep- spending. with the the subsidy recently overtook Germany butions required by the EU. assets and they need people celebrated its seventh birth- perton, owner of the Lon- There has been just one Welsh Gov- route.” to become the 14th largest “The reason they are here to take care of them.” day in May. Hartley Elder, don studios where James production filmed since ernment, will “We have in the world by tonnage. now is the expertise.” About £3.2bn of UK prop- director of civil aviation, Bond films are made. It April 2013, but 2014 should see Pine- the final say Growth in the number of John Nugent, managing erty is owned via Manx says: “For the past five spent £12.2m on a 9.99 per be busier. A film version of wood Pic- on any film,” vessels and tonnage took off director of Equiom Solu- companies. years, we have registered cent stake in Pinewood, the BBC TV series Spooks, tures (the he empha- after 2000, more than dou- tions, agrees. Mr Nugent says that, as more than 100 aircraft a which is quoted but featuring British spies, film finance sised. It is bling to 540 at the end of It advises on VAT regis- governments seek to year, or on average two air- majority owned by the pri- began shooting in March. and distri- thought that March, 2014, with 16.3m tration, the implications of increase their tax revenue craft a week – quite an vately held Manchester- Its cast includes Game of bution arm some filming tonnes. bringing a yacht into EU dealing with moveable achievement when consid- based Peel Group. Some 84 Thrones star Kit Harington of Pinewood has to be Dick Welsh, director of waters, and ownership assets, such as yachts and ered against the economic per cent of the shares are and Ides of March star Jen- S t u d i o s ) done in the the ship registry, points out structures. “We have devel- aircraft, has become more backdrop during the period.” not in public hands. John nifer Ehle. broaden its country that it is on the international complicated. As they move There are almost 700 air- Whittaker, multimillionaire That will be followed by investment h e l p s white lists maintained by from one country’s waters craft on the register, with chairman of Peel is an Take Down, an outdoor a d v i s o r y finance the maritime organisations in to another, they are increas- the number of business jets island resident. action drama, and Stan and portfolio to movie. Paris and Tokyo. ‘We are not here to ingly being assessed for tax. rising year by year. Part of the deal saw Pine- Ollie, a two-part TV biopic include the There are no tonnage make money, “It is a minefield,” he says. The net figure is 433, as wood take on the role of Laurel and Hardy, due to Welsh gov- Jennifer Ehle dues or annual inspection Rules that enable VAT to owners deregister older air- of adviser to the Isle of shoot in the summer ernment’s is to feature fees and the annual regis- [but] to attract be written off over the life- craft. Commercial airliners Man’s £25m film and TV for two weeks. Goodbye £30m media in ‘Spooks’ tration is £1,400, far below time of the yacht as depreci- also come on and off the those of other jurisdictions. business for ation are also being chal- register, as they are often Flags of convenience such companies on lenged. “parked” there between as the Marshall Islands can Many client referrals leases. charge $100,000 for the larg- the island’ come from London law Both registers are holding Contributors » est container ship. firms, but Equiom has events as part of the Inter- “We are not here to make established offices in other national Festival of Busi- money. We are here to oped niche services. We jurisdictions such as Jersey ness, the UK’s largest busi- attract business for compa- have expertise dealing with and Malta. ness event since the Festi- Andrew Bounds Steve Bird For advertising details, Follow us on Twitter at: nies on the island,” says Mr very expensive assets and “We find the Manx gov- val of Britain of 1951. The Northern correspondent and Designer contact: @ftreports Welsh, a former sailor. tax structures. But tax is ernment is customer- 50 day festival, in June and enterprise editor Charles Blandford on Law firms, trust compa- secondary. It is expertise friendly, from the shipping July, is based in Liverpool. Andy Mears +353 1 659 9654, All editorial content in this nies, banks and account- they are looking for.” and aircraft register to cus- Mr Welsh says: “We have Brian Groom Picture editor mobile +353 86 252 8885, or supplement is produced by ants are involved in regis- Despite the recession, the toms and excise. Many a great relationship with UK business and [email protected], the FT. tering ships, arranging number of very rich people would rather deal with the London, but Liverpool is employment editor Greg Meeson or your usual FT mortgages, setting up com- has grown, as has their Isle of Man than the UK, very close and has a big Illustrator representative. Our advertisers have no panies to own them, insur- individual wealth. “There is which is more impersonal,” shipping industry, so we Aban Contractor influence over or prior sight ing them and hiring and a growing class of very says Mr Nugent. will be making the most of Commissioning editor Chris Campbell All FT reports are available on of the articles or online managing the crew. wealthy people and they A newer venture is the the opportunity.” Graphic artist FT.com at ft.com/reports material.