Isle of Man: E-Commerce
There is something of a competition between a number of offshore jurisdictions to offer the most advanced e-commerce environment to businesses seeking an offshore base for part or all of their operations. The Isle of Man is clearly one of the leading jurisdictions, being one of the few which have enacted e-commerce legislation and which is already host to an active e-commerce community of providers and users.
The Isle of Man's first Director of E-Commerce took office in late September 2000, with responsibility for co-ordinating the development, promotion and implementation of an e-commerce strategy for the island. As part of this programme to encourage e-businesses to set-up on the island, the government also aims to offer tax breaks.
In June 2001, the government's e-commerce division published a report which set out in detail the Island's approach to becoming one of the world's leading e-commerce centres and most advanced 'e-societies'. Entitled 'The E-Commerce and E-Society Strategy Report,' it obtained the approval of Tynwald and was actively promoted by the government.
The Isle of Man's advantages are its position in the EU, both geographically and structurally, an established base of professionals, liberal legislation, good telecommunications and the Ronaldsway Freeport. Although the island has been criticised for some of its offshore tax practices, it has been able to adjust its regime without unduly restricting offshore business operations, and, like Ireland, is able to offer a secure and stable home to international businesses wanting to serve EU and international markets. The problem for the Isle of Man alongside Ireland is that it is small, and inevitably has less depth in terms of infrastructure, skilled workers and support services.
In many countries, the distribution of goods from a warehousing facility does not constitute the carrying on of a trade or business in that jurisdiction, so that even for physical goods, in many cases it will be possible to avoid a permanent establishment (taxable presence) altogether in many high-tax jurisdictions where trading activities currently take place.
This section of the e-commerce site explores how businesses can optimise their tax structure by using the Isle of Man as a base while still keeping to sensible commercial principles of operation.
The Isle of Man has close to 100% broadband coverage after Manx telecom upgraded six remaining telephone exchanges with ADSL-enabling equipment making the island potentially one of the most attractive high speed internet locations in Europe.
Like other offshore jurisdictions, the Isle of Man can take advantage of the natural link between the Internet and Offshore stemming from the fact that both, of their nature, manage to avoid tax and the regulatory blanket that tends to smother larger countries (Ireland, unlike the Isle of Man, can do nothing about its membership of the EU). Businesses which can operate on the Internet without, so to speak, touching ground in a high-tax jurisdiction will naturally migrate to offshore jurisdictions; while businesses that already have offshore existence will find it highly convenient to be able to use the Internet to trade with their high-tax customers without having to make a landing in their countries.
By locating websites in the Isle of Man to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.
In March, 2006, a report by Charteris, the IT consulting firm, said that the Isle of Man has both maintained and improved its competitiveness and currently stands as one of the world's leading jurisdictions for e-business.
"Amongst those who are aware of the Isle of Man's positioning, it is seen as a good example of how to get things right, and the standard to be achieved - a number of official publications by competitor jurisdictions explicitly say so," the report observed.
Charteris noted that the decision to introduce a 0% corporate tax regime, coupled with a cap on personal income tax at a maximum level of GBP100,000 per annum, have been key in transforming the Island into a leader on the e-commerce front.
Other factors crucial to the growth of e-commerce in the jurisdiction include increased off-Island competition as a result of the licensing of Cable & Wireless, which has led to lower bandwidth costs; provision of new world-class hosting facilities in the form of Manx Telecom's new Douglas North facility; evidence of clustering in the online gambling sector and the beginnings of "stickiness" of operators in the sector; a number of "excellent sales wins", including Microgaming, Poker Stars and Inca Gold; and clear signs of significant improvement in collaboration between business and Government on e-business and economic development issues.
Tim Craine, Isle of Man Government Director of E-Business and Space Commerce, commented that the Charteris report was a "clear endorsement of the e-business strategy pursued by Government over the last 5 years".
"The report itself highlights how we have developed the Island's proposition, increased our lead over our competitors and placed ourselves in an ideal position to take our share of new and emerging opportunities in the area of converging technologies," Mr Craine noted.
"However, we are not complacent and the report also highlights how and where we can make further improvements," he added.
In June, 2006, the Isle of Man was chosen by the South Korean island of Jeju as an example of an exceptional role model for e-commerce development.
In a television programme aired on South Korea's national network, the Isle of Man was described as "an IT paradise created on a tourist island", following a visit by reporters from Jeju's television station.
The report went on to state that: "The economy, which has been led by tourism and finance, has seen the special targeting of IT industries over the last ten years. Its industrial structure is making sustained economic growth possible even in a global recession."
"The Isle of Man's core strategy to develop IT industries is to attract foreign companies by drastically reducing taxes. Corporate taxes will be reduced to 0%, giving the Island the world's lowest corporate tax rate."
The report also praised the Manx government's policy of placing education at the centre of its IT strategy.
In August, 2004, the Isle of Man Financial Supervision Commission launched an online company search facility of the Island's Companies Registry allowing easier access for the public to search and view information about registered firms. According to the FSC, the service provides details of all Isle of Man Companies, Overseas Companies registered in the Isle of Man, LLCs and Business Names. Users can also purchase company documents, check the availability of company names and submit an application to reserve a company name.
In the same month, the government announced that it had been actively pursuing measures that could propel the Island towards assuming the mantle of the world's IT disaster recovery hub in the field of financial services. The Island's authorities are seeking to agree memoranda of understanding (MOU) with multiple offshore jurisdictions which would allow firms using an Island-based disaster recovery service to operate under the same regulations as in their home jurisdictions.
Legislation has been passed with the aid of the Financial Supervision Commission, and it is said that the measures are the first of their type anywhere in the world. Tim Craine, director of e-business, said: "It was a perfect example of government working very closely with the private sector. There was an opportunity for the Isle of Man to become a world leader for disaster recovery if we could make it simple and easy for offshore companies to use."
He added: "The FSC was happy to comply as long as the businesses using the service were subject to adequate supervision in their own jurisdictions, in order to protect the reputation of the Island."
The initiative is to target offshore jurisdictions that may be vulnerable to natural disasters, such as the Caribbean Islands, in addition to locations vulnerable to attack by viruses or hackers.
The Isle of Man has targeted betting and gaming among other offshore e-commerce sectors, with some success. Purpose-built legislation was introduced in 2001 and a number of (quite expensive) licenses were issued to international gaming consortia. Problems with payment mechanisms in the light of US antipathy towards on-line gaming led to some closures in 2002, but by 2005 it appeared that the sector had become established on a long-term basis.
Following the announcement in August, 2005, of the granting of a gambling licence to Poker Stars, the second largest operator of its type in the world, the resulting publicity both in the business and trade media helped to raise considerably the Isle of Man's profile in the international e-gaming industry.
The Isle of Man government's then head of e-gaming Bill Mummery told the London Stock Exchange in February, 2006, that new regulations governing online gaming had been introduced in an attempt to establish the Island as an "e-gaming centre of excellence."
"In the past year the Island has become a significant recognised force in global gaming - the industry is increasingly dynamic," Mr Mummery told a conference, which included potential investors, as he outlined changes to regulations in three key areas: software testing, disaster recovery provision and advertising and marketing.
The change to software testing will improve the process for testing online gambling technology, such as the fairness of Random Number Generators used to deal cards or spin a roulette wheel, and implements a need for continuous monitoring of the operators' systems to ensure fairness is maintained.
Under the new regulations, operators who are licensed and regulated in other jurisdictions can use the Island to provide disaster recovery and off-line data storage facilities to support their global operations.
Rules governing advertising and marketing have also been established on how Island-based online gaming businesses in this regard can support their clients.
"These changes will help the Isle of Man to win more business and respond to the changes needed as industry develops," Mr Mummery stated, adding that the Island had already made "significant progress" in developing an e-gaming industry, having attracted leaders from key sectors, including Microgaming and PokerStars.
He added that these legislative changes - produced with the support of Berwin Leighton-Paisner, the London based international law firm - will increase the competitive advantage for the Island's economy and the operators.
Furthermore, a world-class telecommunications infrastructure and the introduction of zero rate corporate tax will also help the Island gain a competitive edge in the offshore e-gaming stakes.
The Isle of Man's online gaming sector was given a considerable lift in 2007 when it emerged that the jurisdiction had made it on to the UK government's e-gaming 'white list' allow companies based in the Isle of Man to market their e-gaming services in the UK.
“This is fantastic news and a real boon for the Isle of Man; reflecting the UK’s recognition of the Island as a quality jurisdiction," commented Garth Kimber, head of e-Gaming development at the Isle of Man Department of Trade & Industry (DTI).
“The UK white list is a crucial benefit to the Isle of Man. The UK's Gambling Act 2005, implemented next month, will ban companies based outside the EU from marketing into the UK. Having been added to the white list, companies licensed in the Isle of Man will now be excluded from this restriction and will be able to advertise into the UK for both the terrestrial and remote markets.
“Our inclusion clearly demonstrates that as well as being commercially and technologically attractive the Isle of Man has established and maintained good standards of legislation, regulation and probity similar to those required by the UK in their jurisdiction. We have a high threshold on quality."
Manx Telecom announced in September 2009 that it had been licensed as an approved e-Gaming Disaster Recovery Provider by the Isle of Man Gambling Supervision Commission.
The company’s involvement in e-Gaming dates back to the earliest days of the sector, having hosted the first ever live e-Gaming sites to register with the Isle of Man Gambling Supervision Commission, in 2001.
Since then, Manx Telecom has invested heavily in the Island’s data centre and telecommunications infrastructure.
Manx Telecom’s new licence will cover all of its data centre operations on-Island, enabling it to provide disaster recovery services to e-Gaming businesses worldwide. Manx Telecom owns and operates a number of data centre sites on and off Island, including the Island’s only purpose built data hosting facility.
Commenting, Garth Kimber, Head of e-Gaming Development at the Isle of Man Department for Trade and Industry, observed that:
“The Island continues to attract e-Gaming companies, due in part, to our approach to licensing. Manx Telecom has made significant investments, and having an e-Gaming disaster recovery licence can only be good news for the company, and for the Island.”
In December 2009, the Isle of Man government’s Communications Commission launched a consultation as part of a revision of regulation on communications.
The Telecommunications Act dates back to 1984 and the Broadcasting Act has remained largely unchanged since 1993; both were drafted in a largely pre-mobile, pre-digital and pre-Internet age. The Commission is therefore looking to update the Island's communications law in order, in its view, to ensure the Island’s infrastructure remains cutting-edge so as to remain competitive and to develop new wealth-creating industries, as well as to ensure the Island has the best regulatory framework to enable continual development of its communications networks and services for residents, visitors and businesses.
The Commission is therefore recommending an approach modeled around two central principles:
- Regulation focused on developing a communications infrastructure that will maximize the Island’s social and economic potential; and
- A regulatory approach that emphasizes cooperation as the first approach to tackling disputes or areas of concern.
The government considers that this approach will provide “a more certain environment for operators to continue to invest and upgrade communications infrastructure and help stimulate new and innovative services for consumers and businesses alike.”
Adrian Earnshaw, Chairman of the Communications Commission, commented on the government decision:
“Given the current financial challenges we are facing, both globally and those unique to the Island, economic diversification is key and I believe fast and effective modern communications networks and services will underpin the Island’s success in years to come. Effective and forward-looking regulation is therefore vital if the Isle of Man wishes to attract investment and innovation in these areas.”
Carmel McLaughlin, Director of the Communications Commission, added:
“Until a few years ago, there were only two incumbent licensees on the Island – Manx Telecom and Manx Radio. Today, we have two mobile operators (and a third is licensed but not yet operational), five Internet Service Providers and three radio stations – all competing for the attention of a population of just 82,000 people.”
“This competition has undoubtedly brought with it benefits for residents and businesses but the legislation available to the Commission has not evolved to keep pace. This is an opportunity for the Island to create a forward-looking regulatory approach which facilitates cooperation and investment and, ultimately, greater value for the Isle of Man.”
Responses to the consultation, which closed on February 11, 2010, in part forms the basis for the revision to the Island’s communications regulation. Specific issues such as making better use of the radio spectrum and competition in the mobile sector are two of the important factors under discussion.
The Commission published in August 2010 a second report from Perspective as part of its strategic review of communications. The report, entitled “The Isle of Man Approach to Telecommunications Regulation and Spectrum Awards," will form the basis of the new communications regulation.
By September 2013, work to update the island's telecommunication and broadcasting legislation was continuing.