Isle of Man: Opportunities for Space and Satellite Business
26th May 2005
Introduction
The Isle of Man is recognised as a centre of excellence for the provision of specialised international financial services. Seeking to diversify its economy further, the Isle of Man Government has been working with the private sector to develop the Island as an ideal location for the establishment and incorporation of satellite and space related businesses. Even though this effort is still in the early stages of its development, the benefits offered by the jurisdiction have already made the Isle of Man a home to key interests of the more sophisticated leading players in the industry.
What has attracted them? “Put simply it’s a well regulated, commercially oriented jurisdiction with a government that adopts a ‘cando’ approach in its dealings with the commercial satellite sector” comments Ian Jarritt, Finance Director of one of the Island’s leading space businesses, ManSat. “Some of the top names are already here utilising the Island for increasingly sophisticated orbital filing, financing, satellite leasing and insurance services”.
The Isle of Man has over twenty years experience of big ticket asset financing and many of the world’s leading airlines have their special purpose lessor companies domiciled on the Island. The evolution from aircraft and ships to satellites is seen as a natural step for the Isle of Man’s professional and finance sectors. The Island is also home to many blue chip joint venture companies and is increasingly being used by many leading international companies for new joint ventures.
Background to the Isle of Man
By way of background, the Isle of Man is a British Crown Dependency located literally at the geographic centre of the British Isles. With a population of approximately 76,000, the Island enjoys one of the highest standards of living in Europe, with a higher GDP per capita than the UK. It is recognised by the IMF as a jurisdiction “of the highest standing” and is ‘AAA’ rated by both Standard and Poor’s and Moody’s.
In addition to its focus on space interests, as one of the world’s larger international finance centres, the Isle of Man boasts a thriving captive insurance market, one of the largest shipping fleets (with more tonnage on the Manx registry than the British fleet), a super yacht register, a specialised high tech manufacturing sector and a growing film industry.
Interestingly, as a Crown Dependency, the Island is fully self regulating via its Parliament, the Tynwald, which is the world’s oldest continuous legislature celebrating this year its 1,026th anniversary of democratic home rule. The Isle of Man is neither constitutionally, politically, nor legally part of the United Kingdom, unlike an Overseas Territory or colony of the UK. It benefits from membership of the WTO, the IMF, and the OECD and other relevant international bodies by dint of its relationship with the UK. The Island also has a special relationship with the EU under which it enjoys free movement of goods within the EU but is not subject to the vast majority of EU law (most notably rules governing tax harmonisation). The Isle of Man also enjoys a special relationship with the US under specific agreements with and recognition by the US Treasury and is also recognised as being British for ITAR purposes with various projects already underway.
Space interests on the Isle of Man are uniquely served in that the jurisdiction has chosen to outsource the commercial handling of much of its space activities to the private sector, and notably to ManSat Limited (an Isle of Man company with offices also in Houston, Texas and London).ManSat has been tasked with establishing the Isle of Man as a centre of excellence through the creation of a blue chip space industry on the Island, attracting only the best in the business.
Working closely with ManSat, Isle of Man satellite companies are able to gain commercial access to orbital positions and radio frequencies via the International Telecommunications Union (ITU) in Geneva. This in itself has already attracted considerable attention from leading satellite operators. As a private company, ManSat prides itself on making such filings with a speed and efficiency that many jurisdictions cannot match. “We estimate the financial advantages of flying a geostationary satellite via an Isle of Man orbital position as opposed to say a US or UK flagged position are in excess of US$100m over the approximate lifecycle of a satellite. When looking purely at the bottom line that’s a definite advantage the Isle of Man has to offer in addition to its other regulatory and financial advantages. As the former Chairman of the world’s largest offshore banking group I can tell you that those sort of figures stop and make you take note.” said Bryan Stott, chairman of ManSat, member of the Island’s Financial Supervision Commission, and also former chairman of Nat West Offshore.
Satellite and space companies can also achieve significant savings using the Island’s zero tax regime by structuring the operations of group holding companies or subsidiaries in the Isle of Man or by establishing R&D or manufacturing centres on the Island.
The usual attractions of doing international business in the Isle of Man apply equally to the space industry. Add to that the zero tax regime, a pro space government, access to decision makers and an established, if still small, base of space, aerospace and high tech companies on the Island and the appeal increases. And the attraction for satellite operators doesn’t end there.
The Isle of Man has a world class telecommunications infrastructure including high capacity fibre optic networks linked to England and Ireland and an advanced 3GSM mobile network.
Backbone transmission connectivity around the Island is provided by two 2.5 Gbps SDH fibre rings operated by Manx Telecom (a wholly owned subsidiary of O2) which is the Island’s main telecoms operator. These rings connect all the Island’s main towns and villages plus the airport and business parks and are in turn linked to two undersea fibre cables which connect the Island to the north of England and Northern Ireland.
The off Island fibre cables, which provide self healing SDH fibre rings, are operated by BT and Cable & Wireless. Together they provide approximately 1Tbps of capacity of which less than1Gbps is currently in use. The current capacity would be sufficient to handle approximately 15million simultaneous voice calls or 1.5 million broadband customers simultaneously downloading information direct from the internet using a broadband ADSL connection at 512Kbps. Further backup capability for the cables is provided by the satellite earth station facility owned by Manx Telecom.
“The Isle of Man understands that it is in competition with other international finance centres in seeking to cater to the satellite industry” said Bryan Stott. “More importantly, this is understood by the Island’s key decision makers both in government and industry with ministers stressing an ‘open door’ policy. To paraphrase Adam Smith, ‘Trade is the lifeblood of nations’. This is firmly understood on the Island and the authorities are looking to be as responsive as possible to the unique needs of the satellite community, frequently seeking input directly from the industry as to its needs and requirements.”
These thoughts were echoed by Tom Maher of Cains, the Island’s leading law firm. “In all respects, the Isle of Man is a business friendly jurisdiction” ,he said. “The Government’s aim is to work with the space and satellite industry to meet its needs today and tomorrow to ensure success for those that choose to work through the Isle of Man.” Bryan Stott again: “As a progressive jurisdiction, the Island recognises that unless it is meeting the needs of industry, players will go elsewhere. Therefore we have to stay at the forefront of this activity. We know we must provide a well regulated, well respected, and well managed jurisdictional home from which the international satellite industry can work profitably and in peace.”
The Island’s reputation as a sophisticated, stable and mature offshore centre provides an important “launch pad” for its attempts to attract space business. Space businesses establishing in the Isle of Man can do so with the confidence that they are choosing a world class jurisdiction with an established track record.
Taxation Strategy
The Isle of Man’s tax system is an integral component of its overall economic strategy, and is currently in a period of significant change. Part of this evolution of the tax system is designed to underpin the future wellbeing of the Island’s community by providing a competitive regime for companies. The Island’s active engagement with the work of the OECD following that organisation’s report on harmful tax practices in 1999 has provided many opportunities for tax policy development to be looked at in the light of international standards.
In June 2000, the Treasury announced a forward looking taxation strategy which was endorsed by Tynwald, the Isle of Man’s Parliament later that year. The foundation provided by the strategy enabled the Island, in January 2001, to make an early commitment to new OECD standards on transparency, exchange of information and the removal of perceived harmful tax practices. As the strategy fully satisfied the OECD requirements, the Island was removed from any potential blacklist and became a ‘participating partner’ of the OECD, thereby enabling it to play an active role in shaping the OECD Model Exchange of Information Agreement which was published in April 2002.
The taxation strategy subsequently also provided a platform for the Island to respond to the EU Code of Conduct on Business Taxation.
The Island’s modified taxation strategy, introduced in October 2002, maintains the key principles of fiscal sovereignty, economic stability and adherence to international standards and fully complies with the EU Code of Conduct on Business Taxation. Its key component, which forms the bedrock for the long term future of the Island’s economy, is the introduction by April 2006 of a standard 0% rate of tax for companies, with the exception of a small number involved in defined regulated activities e.g. licensed deposit takers.
Since 2002, the Island’s Treasury Minister has used his annual budget to advance the introduction of the 0% rate for key business sectors. In his budget of 17 February 2004, the Minister announced the extension of the 0% rate to companies engaged in specified space activities with effect from 6 April 2004, including launch vehicle, space object, ground based observatory, systems essential to overall space capabilities, or similar assets, manufacturing, operation, sale, financing and investment, the provision of educational and other training activities and the provision of consultancy and technical support services. Any interest or dividends paid to non-resident persons from companies involved in such activities is not subject to withholding tax.
The 0% rate of corporate tax, coupled with low personal income tax rates (maximum of 18%) and the recently issued consultation document on the capping of resident personal income tax liabilities will provide a highly competitive package for both businesses and high net worth individuals in a well regulated, AAA credit rated jurisdiction having one of the fastest growing economies in Europe.
The position of the Isle of Man as an area of low corporate and personal taxation is further enhanced by the absence of any capital or inheritance taxes. Residents are only subject to tax on income arising, albeit from any source. Capital gains are not taxed and there is no form of inheritance tax, Insurance Premium Tax nor stamp duty.
Whilst the Isle of Man is not a member of the EU ,it does come within the scope of VAT by virtue of its relationship with the United Kingdom. The relevant legislation applying in the Isle of Man is identical in most respects to that applying in the United Kingdom. In view of the nature of the type of satellite industry business conducted from the Isle of Man it is unlikely that VAT would represent a cost to business in the Island, any locally incurred VAT would generally be available for recovery.
Isle of Man – Insurance
As highlighted at the recent Satellite 2005Convention, with the satellite industry receiving only limited capacity from the specialised insurance markets, which results in larger retentions, uninsurable risks and increasing premiums, more and more operators are looking to self insuring as a real alternative.
One of the most flexible risk financing options is that of a wholly owned insurance subsidiary (captive). As part of a planned risk management programme, a captive can help a well managed group to reduce its total cost of risk over the long term. Captive insurance companies are important weapons in the risk management armoury, providing coverage and capacity where existing markets are restrictive, and acting to stabilise the overall costs of their parents.
The increase in the number of such companies reflects growing acceptance of the basic risk financing principle that risks which are supportable internally should be retained. Only those risks which would seriously compromise the financial standing of the parent company should be transferred to the external insurance market.
The Isle of Man enjoys a first class reputation internationally as a well regulated insurance domicile. Regulation of insurance companies is carried out by the Insurance and Pensions Authority (IPA) in accordance with the Insurance Act 1986. This Act seeks to ensure that those running insurance businesses are fit and proper and that the companies are financially sound. The legislation is clear and comprehensive and its reporting requirements satisfy the IPA’s strict supervisory needs without placing unnecessary demands on the market place. The IPA is respected for its proactive and non-bureaucratic approach to fulfilling its supervisory role.
The ultimate goal is to ensure that insurance companies based on the Island, and their clients, have the confidence that they are transacting business in a high quality, secure and well regulated centre, which has the expertise and the capacity to cater for their needs now and in the future. As the Isle of Man is outside the EU, it enjoys autonomy in the provision of these insurance regulations together with the provision of direct and indirect taxes relating to the insurance and insurance companies.
As an alternative to a wholly owned captive insurance company, space related companies may wish to consider using a PCC Cell. A PCC (Protected Cell Company, know in some jurisdictions as a segregated accounts company) is a corporate body that can be segregated into legally distinct portions, known as the “core” and underlying “cells”. Each cell has its own separate segment of the PCC’s overall share capital, allowing shareholders to maintain sole ownership of an entire cell whilst owning only a small proportion of the PCC as a whole. Business transacted through a cell is ring fenced from the activities of other cells. Though a cell is not a separate legal entity in its own right, its revenue streams, assets and liabilities are kept separate from all other cells and from the core. The obvious advantage of using a cell is that costs of the overall structure are shared by the cells hence reducing the expenditure of each of the participants. PCC’s have been in use in many jurisdictions for some years and are gaining widespread recognition and acceptability in more and more jurisdictions, including a number of US States.
For more information contact: Andrew Corlett. |
