The Isle of Man is recognised as a reputable and well-regulated offshore finance centre and this is well illustrated by the recent renewal of the island's 'designated territory' status under the UK Financial Services Act.
Its success is based on a number of well-established factors and also on its ability and willingness to change and improve the legislative and regulatory environment to meet the needs of the increasingly sophisticated offshore financial community.
The island's trust laws have been the subject of recent legislation and are in the course of further change. The Trusts Act 1995 came into force at the beginning of this year and introduced provisions to ensure that a trust governed by Manx law cannot be set aside on the basis that the laws of another country do not recognise the concept of a trust or that the trust or disposition avoids or defeats any rights conferred by the laws of another country.
These provisions are of particular interest to those resident or domiciled in jurisdictions which have 'forced heirship' legislation restricting the freedom of an individual to dispose of his or her estate.
If such a person were to settle some or all of his or her assets in a trust governed by Manx law, the effect of the Act would be to protect such assets from claims arising under 'forced heirship' legislation.
Further trust legislation is part way through the legislative process in the Isle of Man. For example, the Purpose Trusts Bill 1996 has been introduced to enable the establishment of Purpose Trusts under Manx law. The present law is that, with the exception of a charitable trust, a valid trust cannot exist if there are no ascertainable beneficiaries.
Potential uses of a purpose trust include the ownership of special purpose vehicles, the establishment of private trust companies and the setting up of quasi-charitable trusts.
The new legislation, when combined with the exemption of Manx trustees from Manx Income Tax where the beneficiaries and the trust assets are located outside the island, makes the island an ideal location for offshore trusts. This is particularly true in view of the fact that no capital gains tax, estate or death duties or inheritance tax of any sort are levied in the jurisdiction.
Parallel to developments in trust laws in the Isle of Man, there have been changes to the island's regulatory framework to adapt to the ever more challenging offshore funds market.
In 1995, the island's regulations relating to Restrictive Collective Investment Schemes were updated and improved, and in December 1995 the
Professional Investor Fund (PIF) was launched, a development of the Restricted Scheme.
PIFs are a fund vehicle designed for individuals and corporations who fulfil certain criteria, typically high net worth individuals and market professionals.
They are designed to recognise the fact that such investors do not require the same level of protection as ordinary investors, so the PIF regime involves a lower level of regulation and thus offers greater flexibility and potential cost savings.
The developments in trust law and in the regulatory framework for funds continue the process which saw the introduction of the Manx International Company in 1994, an additional form of tax planning vehicle now available in the Isle of Man.
The tax treatment of Isle of Man companies continues to offer significant advantages over the UK corporate tax regime and compares favourably with other offshore jurisdictions.
Companies which do not carry on a trade or business in or from the island continue to be attractive because either they are not liable to income tax in the Isle of Man or they are able to pay income tax at a reduced rate which can be tailored to meet the requirements of anti-avoidance legislation in the home jurisdiction.
The introduction over the past year of new legislation and regulations to retain the island's competitive edge in the offshore market place shows the continuing commitment to the growth of the finance sector in the Isle of Man.
The island continues to provide a readily accessible, secure and sophisticated offshore environment.