Boost for Isle of Man Funds Industry
14th October 2003
The Isle of Man has responded to the demands of the funds industry with a package of legal, regulatory and tax changes that make it an attractive jurisdiction in which:
- to domicile fund vehicles
- to establish fund management operations
- to administer funds domiciled in other jurisdictions
- to establish third party fund administration operations
The changes have arisen from a consultation exercise co-ordinated by the Isle of Man Fund Management Association and provide ample evidence of the good working relationship between the private sector, regulators and government in the Isle of Man.
The Key Measures
The package of initiatives was announced by the Treasury Minister, Hon. Allan R. Bell MHK, in his budget speech earlier this year, when he said I am determined to ensure that we continue to provide our finance industry with a sound platform from which to compete for business in international markets. Notwithstanding the current downturn in equity markets, the global funds industry continues to experience significant and sustained growth. I wish to see the Isle of Man competing for business in this vital sector of the global finance industry.
The core measures, which have all now been implemented, are as follows:
- Zero Rate Income Tax for all Third Party Fund Administrators and Managers of Experienced Investor Funds (EIFs) and Professional Investors Funds (PIFs). This represents an extension of the existing zero rate income tax regime on fund managers' profits to both fund administrators and to investment managers of EIFs and PIFs. The Isle of Man is committed to a zero rate income tax strategy with the intention to zero rate company profits (with some exceptions) by 31st December 2005. This initiative brings that intention forward by 3 years to 6th April 2003 for fund managers/administrators and should prove attractive to new potential licence holders who wish to manage funds or to administer funds on a third party basis.
- VAT Exemption for EIFs and PIFs. This represents an extension of the VAT exemption on management fees. EIFs and PIFs are specialist sub-classes of the regulatory category known as International Schemes, and have only been introduced in recent years. International and Authorised categories of Schemes already qualify for VAT exemption. EIFs and PIFs are considered a major growth area for Isle of Man funds. However, it has been necessary to redefine the VAT legislation to ensure that management fees are not subject to VAT on these funds. This improves the cost competitiveness of these popular vehicles. Recent decisions in the United Kingdom have also made it clear that investment management fees charged by UK managers to EIFs and PIFs are exempt from VAT.
- Regulatory Exemption for the Administration of Overseas Funds. This means that an overseas fund (i.e. a fund domiciled outside the Isle of Man e.g. in Cayman or Bermuda) may be administered in the Isle of Man without dual regulation, where it is incorporated in a jurisdiction having an appropriate regulatory framework. This would potentially make the Isle of Man more attractive as a base for administration of overseas funds. The administrators of overseas funds are strictly licensed and controlled by the Financial Supervision Commission and the Island is attractive for the regulation of overseas funds because of the proven capabilities of its administrators, particularly in relation to hedge funds and other specialist investment vehicles.
- Key Employee Tax Incentives. The Island is keen to attract new licensed fund management or third party administration businesses; these measures recognise that in order to do so it is essential to attract senior executives.
Further Proposed Measures
In addition, several other measures have been proposed that will further enhance the competitiveness of the Isle of Man:
- Changes to the Companies (Transfer of Domicile) Act to facilitate the easier migration of funds to the Island from other jurisdictions.
- Changes to the Companies Acts to remove some of the formalities arising under Isle of Man law in relation to the content of prospectuses issued by closed-ended companies in compliance with the requirements of certain approved stock exchanges.
- New legislation to permit Protected Cell Companies (PCCs) to be formed in the Isle of Man.
- Changes to the Partnership Act to help attract funds established as Limited Partnerships
These changes are expected to come into force over the coming months.
The Experienced Investor Fund
The EIF is now the scheme of choice in the Isle of Man and has a number of features that give it a competitive edge over vehicles available in other jurisdictions:
- no regulatory pre-approvals
- the fund must have an Isle of Man licensed third party fund administrator, but need not have an Isle of Man licensed manager
- the fund must have a custodian/prime broker, but this person need not be based in the Isle of Man
- no prescriptive rules on the contents of the offering document - it must simply include all information necessary to enable a prospective investor to make an informed investment decision
- no restriction on promotion, provided that investors are experienced investors - status as an experienced investor is self-certified
- no prescribed minimum subscription level
- no regulatory restrictions on asset classes, borrowings, hedging or any investment objectives, policies or techniques
- the fund is exempt from Isle of Man income tax, as can be the Isle of Man manager/administrator and any Isle of Man investment manager
- Isle of Man fund management/administration fees are exempt from VAT, as are investment management fees levied by UK investment managers
The Business Case for the Isle of Man
When taken alongside the existing strengths of the Isle of Man, these initiatives make a compelling case for the Isle of Man as a jurisdiction for the domicile, management and administration of offshore funds, particularly hedge funds, private equity funds and other specialist vehicles:
- Stable political and economic environment
- Capacity and appetite for growth
- Full range of legal structures available, including open-ended investment companies, limited partnerships and unit trusts
- Competitive costs, when compared with other offshore jurisdictions
- Experienced professional infrastructure
- Speedy formation
For more information on Isle of Man funds, contact Richard Vanderplank. |
