FIRST HALF, 2013 /EXPERT INSIGHT INTO THE WORLD OF OFFSHORE COMPANY INCORPORATIONS/ CONTENTS/ EXECUTIVE SUMMARY [2] THE COMPANY FORMATION ENVIRONMENT [4] GEOGRAPHIC TRENDS [6]
2 EXECUTIVE SUMMARY Welcome to this third edition of On the Register, an Appleby report that provides figures and insight about company incorporation activity going on in the major offshore jurisdictions around the globe, where we do the majority of our business. Farah Ballands Partner, Global Head of Fiduciary & Administration Services This report looks primarily at the most recent data available, covering the first six months of 2013. There are a number of key themes that emerge from the statistics outlined on these pages. In particular: The numbers of new offshore companies being registered are increasing in many jurisdictions compared to the last period, with most jurisdictions matching growth rates seen by onshore comparators the UK and Hong Kong. However, in combination, the overall volumes of new offshore companies being registered was 3% lower in the first half of 2013 than in the preceding six months, due to a seasonal reduction in the British Virgin Islands (BVI) register that had a disproportionate effect on the figures. The BVI continues to dominate offshore new company registration activity by volume, with a consistently maintained six-fold lead ahead of its nearest comparator, the Cayman Islands. Mauritius showed the biggest increase in new company incorporations with 9% more added than in the second half of 2012. The total number of active companies on the offshore registers has stabilised, following a decrease between 2011 and 2012. Since 2008, this total number has increased by 5% - a figure that is, as we would expect, outpaced by Hong Kong and the UK which report increases on 2008 figures of 53% and 16% respectively. Bermuda is the offshore jurisdiction witnessing the greatest growth in total number of companies on its local register, with a 5% increase on the figures recorded at the end of December 2012. The next biggest growth () came from Mauritius.
3 EXECUTIVE SUMMARY cont d The UK and Hong Kong, as onshore comparators, continue to show signs of recovery compared to the previous six months, which is encouraging as it indicates the global economy is strengthening in the Asian and European markets. Both are demonstrating positive growth, with the UK showing a particularly impressive 11% more new incorporations being registered during the period. Elsewhere, other onshore comparators are also mirroring this recovery. Russia has just surpassed its previous peak, set at the end of 2009, with 4,922,200 active companies now listed on its register. We hope you find the analysis on the following pages useful. Please don t hesitate to get in touch with your usual Appleby contact should you have any questions. Farah Ballands Partner, Global Head of Fiduciary & Administration Services VOLUME OF NEW COMPANIES REGISTERED AND % CHANGE ON PREVIOUS PERIOD, JANUARY-JUNE 2013 British Virgin Islands -6% 29,144 Isle of Man 9% 1,167 Cayman Islands 8% 4,504 Guernsey 3% 790 UK 11% 262,840 Hong Kong 9% 85,348 Appleby location Bermuda 8% 538 Jersey 1,215 Mauritius Seychelles N/A 10,096 Location % Change Cayman Islands 8% 4,504 Mauritius 9% 1,058 Number of New Companies
4 THE COMPANY FORMATION ENVIRONMENT NEW COMPANY INCORPORATIONS As the global economy appears to be stabilising, the company registration data reveals that levels of new company registrations in several jurisdictions have accelerated following a faltered growth pattern during the second half of 2012. In the first half of 2013 there were 38,416 new offshore company incorporations in total. Although this represented a small decrease of 3% on the preceding six months in 2012, this was primarily due to a seasonal decline in incorporations in the British Virgin Islands (BVI), which has a disproportional effect on the total figures. Elsewhere, with growth at around 8-9%, most offshore jurisdictions are close to growth levels seen in onshore comparators the UK and Hong Kong. The UK is, as we would expect, leading this growth with an 11% increase. VOLUME OF NEW INCORPORATIONS 2012-2013 Bermuda BVI Cayman Guernsey Isle of Man Jersey Mauritius Offshore Total % change from previous half 2012 H1 465 33,065 4,794 814 1,214 1,204 1,100 42,656 9% 2012 H2 498 31,034 4,176 770 1,073 1,169 970 39,690-7% 2013 H1 538 29,144 4,504* 790 1,167 1,215 1,058 38,416-3% TOTAL ACTIVE COMPANIES LISTED ON THE OFFSHORE REGISTERS When looking at the total numbers of companies active on the registers, the offshore markets are expanding at an identical rate to their onshore counterparts, compared to the second half of last year. Most have reported increases to the total number of active companies on their registers of between 1% and 5%. The only exceptions are the BVI (the biggest offshore register, which due to a seasonal dip in new registrations appears to have flat-lined), and the Isle of Man (where steady activity is being masked by a front-loaded removal of dissolved companies from its register during Q1 each year). When added together, the total number of companies on all offshore registers is now 5% larger than pre-recession 2008. TOTAL ACTIVE COMPANIES ON THE OFFSHORE REGISTERS 2008-H1 2013 690,000 694,896 680,000 670,000 660,000 672,439 673,624 674,385 650,000 640,000 630,000 640,274 629,384 2008 2009 2010 2011 2012 2013 H1 The total number of companies on all offshore registers is now 5% larger than pre-recession 2008. *Estimated figure
5 THE COMPANY FORMATION ENVIRONMENT cont d ONSHORE COMPARATORS If, as we believe, the major financial centres of the UK and Hong Kong are indicators for the health of the offshore jurisdictions then, as we predicted in our previous report, 2013 is turning out to be a watershed year. The steady growth of the UK market since the global financial crisis in 2009 is telling, and Hong Kong is hot on its heels. Turning west to the United States, the latest available data only goes up to 2011 and still shows continued decline, which is of course unsurprising. What is encouraging though is that the figures reveal this decline has slowed. In 2008/09 around 200,000 companies were removed, but by 2011 the registry had only shrunk by 20,000 compared to the previous year. It appears that the US market has bottomed out, and we would expect the figures to start creeping back up when the 2012 data is published. Further justification for this confidence that the US market is experiencing a similar return to growth to onshore comparators can be seen in Delaware. Here, we have tracked new incorporations since 2009 and these rose by 9% between 2011 and 2012. Little affected by the global recession, the Delaware registry has been steadily growing by approximately 30,000 companies each year since 2009. This steadying of growth is driven by the formation of new LLCs which make up two thirds of all incorporations in the state. In March 2013, Delaware became home to one million corporate entities. DELAWARE TYPE OF NEW BUSINESS FORMATIONS BY %, 2012 Key LLCs LPs/LLPs Statutory Trusts Corporations 2012 1% 6% 22% 71% 17% 78% Finally, looking at Russia s registry of companies reveals further mirroring of recovery seen in the US, UK and Hong Kong. Data from The Federal State Statistic Service in Russia reveals that numbers of active companies on the register peaked at the end of 2009, before the effects of the global recession were felt. The register then shrank by almost 100,000 the following year. Since then, it has gradually recovered and as of mid-2013 it has surpassed the 2009 peak, with 4,922,200 active companies now listed. RUSSIA: ACTIVE COMPANIES ON THE REGISTER 2008-2013 Year Total 2008 4,771,900 2009 4,907,800 2010 4,823,300 2011 4,866,600 2012 4,886,400 2013 H1 4,922,200 With growth at around 8-9%, many offshore jurisdictions are close to growth levels seen in onshore comparators the UK and Hong Kong.
6 GEOGRAPHIC TRENDS BERMUDA In the first half of 2013, 538 new companies were registered in Bermuda. This is 8% (40) more than H2 2012 and 16% more than the same period in 2012. BERMUDA: NEW INCORPORATIONS 2008-2013 Year January - June July - December Total 2008 628 617 1245 2009 400 409 809 2010 430 472 902 2011 481 502 983 2012 465 498 963 2013 538 - - Of the 538 new company registrations, 422 were exempted companies, 21 overseas companies and 95 local companies. Interestingly, the number of local companies registering has grown by 4 in the six month period, when compared to the second half of 2012. The positive growth in Bermuda is partly explained by improving business sentiment in the US market which, coupled with the Bermuda Government s proactive campaign to target international business, is driving much of the influx of new business to the jurisdiction. The jurisdiction is also seeing continued interest from the aircraft leasing niche - a Bermuda vehicle is required for each aircraft registration and commercial aircraft registrations remain steady and strong. Bermuda also benefits disproportionately to other jurisdictions as the insurance sector outlook improves, and is viewed as a key location from which to issue and list insurance-linked securities (ILS) such as catastrophe bonds, with considerable success. The ILS market, which has grown significantly over the last few years to -about $30bn in assets, is attracting more interest due to its excellent returns for several years and its lack of correlation to mainstream investments, and is expected to continue to grow strongly. BREAKDOWN OF NEW COMPANY INCORPORATIONS H2, 2012 & H1, 2013 Key Exempted Companies Overseas Companies Local H2, 2012 H1, 2013 13% 13% 17% 17% 83% 83% 78% 78%
7 GEOGRAPHIC TRENDS cont d BERMUDA: ACTIVE COMPANIES ON THE REGISTER 2008-2013 Year Registry Size 2008 18,140 2009 17,703 2010 17,617 2011 17,167 2012 16,887 H1 2013 17,662 According to the data, the number of companies listed on the Bermuda register continues to steadily return to levels last seen in 2008. The total number of active companies on the Bermuda register as at the end of June 2013 was 17,622. This is a 5% increase on the number recorded at the end of December 2012 and puts Bermuda in pole position as the offshore jurisdiction witnessing the fastest growth on its local register. BRITISH VIRGIN ISLANDS The number of new incorporations in the BVI was slightly down compared to the second half of 2012 (29,144 versus 31,034). This is due to BVI having a weaker April-June, a pattern replicated every year for the previous five years, and we would expect this seasonal dip to correct itself as the year progresses. Although numbers of new incorporations are affected by seasonal factors, the BVI continues to dominate offshore new company registration activity by volume, and has consistently maintained a six-fold lead ahead of its nearest comparator, the Cayman Islands, and kept up a steady pace of circa 30,000 new companies registered each half year. New company registrations as a percentage of the whole register also held steady at 1 for the period. The total number of active companies on the BVI register at the end of June 2013 remained stable at 457,151, and well above 2008 levels. The BVI Register of Companies shed 86,000 companies between 2011 and 2012, many of which appear to have been dissolved following changes introduced by the BVI Business Companies (Amendment) Act 2012. In particular, the amendments reduced the total period for which a company may remain struck before it is dissolved, from ten to seven years, resulting in the foregoing one-time downward adjustment to the companies register. BVI: NEW INCORPORATIONS 2008-2013 Year January - June July - December Total 2008 36,583 25,133 61,716 2009 22,178 25,299 47,477 2010 29,411 30,213 59,624 2011 34,699 30,030 64,729 2012 33,065 31,034 64,099 H1 2013 29,144 BVI: ACTIVE COMPANIES ON THE REGISTER 2008-2013 Year Registry Size 2008 414,621 2009 410,293 2010 459,364 2011 481,002 2012 459,005 H1 2013 457,151 The Territory is anticipating a softer demand for incorporations over the course of 2014, but expects to maintain a substantial lead ahead of other offshore comparators.
8 GEOGRAPHIC TRENDS cont d CAYMAN ISLANDS The General Registry in the Cayman Islands is currently experiencing some delay in publishing figures, and data is only available up to March 2013. Based on figures reported for the first three months of the year, the dip in new company incorporation activity revealed in our H2, 2012 for Cayman appears to have been reversed. If the local register continues to add new companies at the same rate as reported in the first three months, it will easily surpass the second half of 2012 by as much as 8%. Although there is some way to go to exceed the numbers of new companies being added in 2012 and 2011, the early indication is that 2013 will be a buoyant year for new registrations in Cayman. CAYMAN: NEW INCORPORATIONS 2009-2013 Year January - June July - December Total 2,008 6,844 5,017 11,861 2009 3,683 4,180 7,863 2010 4,363 3,794 8,157 2011 4,824 4,242 9,066 2012 4,794 4,176 8,970 2013 4,504* - - Looking at the types of companies reported to be joining the register in Cayman, the mix of Exempt, Non-Residential, Residential and Foreign remains steady and very similar to 2012. Exempt companies continue to dominate the register, with much smaller numbers of entities falling into the other categories. Cayman remains the second largest offshore jurisdiction for total active companies on the register, reflecting the contractual flexibility and legal certainty enjoyed by companies incorporated in the Cayman Islands. Figures reported in March 2013 show that the jurisdiction has surpassed the peak figure recorded in pre-recession 2008 this year. We expect this trend to continue into 2014. CAYMAN: TOTAL ACTIVE COMPANIES ON THE REGISTER 2008-2013 Year Registry Size 2008 93,693 2009 92,867 2010 91,206 2011 92,964 2012 93,611 Q1 2013 94,191 *Estimated figure
9 GEOGRAPHIC TRENDS cont d MAURITIUS/SEYCHELLES In the first half of 2013 the number of new companies added to the register in Mauritius was 1,058, up 9% on the previous period, when the jurisdiction experienced a rare dip in activity. Mauritius also witnessed positive growth in the total number of active companies listed on its register as at June 2013. Its increase was second only to Bermuda. The Mauritius register was hit hard by the global recession but, if this growth stays on target, then 2013 will be the third successive year of growth. This increase in global business companies in Mauritius reflects the jurisdiction s growing attraction as a means of investing in (amongst other areas) Africa. And as the US market shows signs of recovery, we expect more interest from the West where Mauritius has shifted perceptions of traditionally more risk-averse investors having signed several Investment Protection and Promotion Agreements with various African countries where recourse to international arbitration can be sought. The Seychelles International Business Authority reports that an impressive 10,096 international business companies (IBCs) have been incorporated in the first six months of 2013. This puts the registry well on track to beat the previous annual high that was recorded in 2011, when over 16,000 IBCs were added during the year. The Seychelles already operates one of the fastest IBC registers in the world and is attracting increasing interest from Russia and Africa. MAURITIUS: NEW INCORPORATIONS 2009-2013 Year January - June July - December Total 2009 1,039 1,066 2,105 2010 1,136 1,212 2,348 2011 1,144 1,188 2,332 2012 1,100 970 2,070 2013 1,058 - - MAURITIUS: TOTAL ACTIVE COMPANIES 2008-2013 Year Registry Size 2008 31,884 2009 28,129 2010 25,134 2011 23,924 2012 24,639 2013 H1 25,697 2%
10 GEOGRAPHIC TRENDS cont d THE CROWN DEPENDENCIES: GUERNSEY, JERSEY & THE ISLE OF MAN As we have commented in previous reports, the company registration activity in the UK s Crown Dependencies of Jersey, Guernsey and the Isle of Man are influenced by a very different set of drivers so it is not directly relevant to compare activity in these jurisdictions to that of the Caribbean or Indian Ocean centres. The combined data for the Crown Dependencies shows that between the second half of 2012 and the first half of 2013 new company incorporation figures have grown by 5%. Although the dynamics are different, it is interesting to note that these centres, like their counterparts elsewhere in the world, also witnessed an increase in new incorporation activity during the first half of 2013, with the Isle of Man leading this growth with a 9% increase (1,167) for the period. Guernsey and Jersey grew by 3% and respectively. The total numbers of active companies listed on the Jersey and Guernsey registers at the end of the first six months of 2013 held steady, with small increases of 1% and 2% respectively as against the previous period. The Isle of Man figures reveal a decline of 2% (474). However, because of the way that the Isle of Man front-loads removal of companies into the first quarter of the year this distorts the potential full year picture as the adjoining table illustrates. In actual fact, against a backdrop of 9% growth in new incorporations in the Island in the first half of the year, we would suggest a more realistic picture is one of steady activity for the Isle of Man for 2013 when we report on the full year. NEW INCORPORATIONS BY REGISTER 2012-1013 Period Guernsey Isle Of Man Jersey 2012 H1 814 1,214 1,204 2012 H2 770 1,073 1,169 2013 H1 790 1,167 1,215 ACTIVE COMPANIES ON THE REGISTERS IN THE CROWN DEPENDENCIES 2008-2013 Year Guernsey Isle Of Man Jersey 2008 17,550 30,992 33,395 2009 17,518 29,800 33,074 2010 17,316 29,080 32,722 1% 2011 18,456 28,875 32,508 2012 18,368 28,611 32,503 2013 H1 18,510 28,137 33,037 COMPANIES REMOVED FROM THE IOM REGISTER 2008-2013 BY QUARTER Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 2008 2,273 678 698 804 2009 1,730 692 593 646 2010 1,876 559 762 490 2011 1,331 431 525 471 2012 1,143 529 429 462 2013 1,105 536 - -
RESEARCH METHODOLOGY The data for Appleby s On The Register has been collected from reported figures produced by the national registers of Bermuda, Cayman Islands, Guernsey, Hong Kong, Isle of Man and the UK, as well as Jersey Finance, The Financial Services Commissions of Mauritius and the British Virgin Islands, Seychelles International Business Authority, The United States Census Bureau, The State of Delaware and The Federal State Statistics Service in Russia. The offshore region refers to Bermuda, the British Virgin Islands, the Cayman Islands, the Isle of Man, Jersey, Guernsey and Mauritius. We also cover the Seychelles, although inconsistent provision of official data prevents them from being included in references to the overall region. LOOKING FOR OFFSHORE COMPANY INCORPORATION SERVICES? Our Fiduciary and Administration group provide a broad range of offshore fiduciary services to high net worth individuals, private companies, funds and an enviable array of global corporations through our affiliated companies, all part of the Appleby group. The group consists of motivated individuals from disciplines including legal, administration, compliance, accountancy, chartered secretarial and banking. Clients gain an integrated solution across service areas, whether in a single location, or across multiple jurisdictions. As the structures we administer can often have a multi-jurisdictional footprint, we are accustomed to liaising with professional advisors from around the globe and in dealing with the communication complications that can arise in such circumstances. What sets us apart from our competitors is our commitment to the delivery of service excellence; this underpins all that we do. Whilst technical expertise is a given, we maximise the value and effectiveness of our client structures by offering a highly personal, client-focused and proactive service, and a fresh perspective. With no ties to any banks or investment houses, our team of professional specialists can select the best solution available. Our independence, combined with our commercial acumen, attention to detail and responsiveness, ensures we meet our clients needs on time, every time ABOUT APPLEBY Appleby is one of the world s largest providers of offshore legal, fiduciary and administration services. We have around 770 people, including 80 partners, operating from 12 offices around the globe. This includes the key offshore jurisdictions of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man, Jersey, Mauritius and the Seychelles, as well as the international financial centres of London, Hong Kong, Shanghai and Zurich. Together, our teams service clients based all over the world. We advise global public and private companies, financial institutions, and high net worth individuals, working with them and their advisers to achieve practical solutions, whether in a single location or across multiple jurisdictions. For further information contact: Farah Ballands, Partner, Global Head of Fiduciary & Administration Services fballands@ Appleby Global Group Services Ltd 2013. Published in the Isle of Man. All Rights Reserved.