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IoM Budget Heralds Major Review Of Fund Sector

by Jason Gorringe, Tax-News.com, London

21 March 2007


The Isle of Man Treasury Minister, Allan Bell, announced in his 2007 Budget speech to the parliament Tynwald the completion of a major report, to review the Island’s funds sector.

The key strategic Report identified “huge potential for growth” said the Treasury Minister, and will be followed by similar high level reviews of the Island’s banking and captive insurance sectors.

The review was chaired by international funds expert, Paul Smith, until recently global head of HSBC’s Alternative Fund Services Division. It is one of several measures announced in the Budget designed to advance further the Island’s economy over the next five years, under the banner of securing the future.

The review follows the positive impact on the economy, including a surge in company incorporations, since the implementation of Isle of Man’s new package of measures to attract business. This comprised the introduction of a 0% Corporate Tax as standard, a GBP100,000 per annum cap on personal income tax and the modernisation and streamlining of the Isle of Man Companies Act.

The Island’s fund sector is growing rapidly – with funds under management rising by 50% from GBP15 billion in 2005 to around GBP21 billion in 2006. The Smith Report looks to secure the sector’s long term prospects, capitalising on market opportunities in the international investment funds arena, including the institutionalising of alternative asset management.

The intention of the report is to position the Isle of Man as a premier location for the domiciliation of specialist institutional funds in the alternative and closed ended fund sectors and further, as a preferred location for the establishment of front and middle office operations for global fund managers.

Key recommendations include:

  • introduction of a new specialist fund category, including a US$100 million initial subscription, ability to base management and/or administration in other acceptable jurisdictions, no restrictions on investment strategies, and a 'light touch' regulatory approach;
  • a focus on the target market of front and middle office functions of London based alternative fund managers, as well as managers in other key fund centres;
  • a revised offering to fund managers to include a tailored business proposition for location to the Island, and a set up assistance package.

The Treasury Minister also announced the establishment of a GBP20 million Economic Development Fund. The fund will extend the financial support available to new businesses to include new categories, prioritising those high value opportunities that provide the best prospects for fostering economic growth and inward investment.

The Treasury Minister said: “In order to secure the future, each sector of the economy needs to take a strategic view of the opportunities and threats it faces and define its vision and strategic direction. The Smith Report demonstrates the huge potential for growth that exists in the Isle of Man for the funds sector and makes a number of far reaching recommendations."

Paul Smith commented: “This review represents a major industry initiative, which I believe will be critical in determining the future size and shape of the Island’s funds industry and in achieving the ambitious funds growth targets envisaged.”

Bell added: “I look forward to working with the industry to help secure its vision of having $100 billion of funds under administration and $50 billion of funds under management on the Island by 2010. I would like to pay tribute to Paul Smith and his Steering Group for their hard work in developing this Report.”

The Isle of Man is one of the most successful economies in Europe, now in its 22nd year of unbroken growth, with unemployment below 1.5%, average economic growth of more than 5% per year in real terms over the last five years and government revenues increasing over the same period by GBP100 million. The Island’s national income per head is over 20% above the average for the 15 leading economies.

Economic growth is accelerating - to an estimated 8% in real terms in 2006 - and is diversifying, being generated in a range of sectors including aerospace, e-commerce, engineering, manufacturing and construction as well as in the Island’s core financial services sector which accounts for 39% of GDP.

Bank deposits rose to over GBP43bn in September 2006, an increase of 15% on the previous year. Premium income in insurance has risen 43% in 2006, with a further GBP7 billion growth in funds under management, both record figures. In addition, over 400 new companies have been incorporated since the Companies Act was introduced, with a total of 3,500 incorporations in 2006.

The Isle of Man has also maintained its coveted AAA credit rating from both Standard & Poor’s and Moody’s credit rating agencies since 2002.

A comprehensive report in our Intelligence Report series examining offshore investment, offshore stock exchanges, trusts and hedge funds is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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