Programmeofreformspaysoff
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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.