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Digital Company Formation

Isle of Man Companies

Tax Haven Jurisdictions

ZERO CORPORATE TAX RATE RATES FROM 2006
See Taxation below

Non-Resident Synopsis:

British Crown Protectorate. Effectively self-governing in all matters save defence, however, in theory ultimate power still rests with the British Parliament. Excellent efficiency, English speaking, excellent air and sea communications with the United Kingdom and the Republic of Ireland, low individual and corporate taxation for residents. Residents are taxed on their worldwide income. The main types of offshore company are Exempt and International. The registration of non-resident companies was suspended in 1999 as a precursor to legislation due to be introduced as a result of the Edward's Report, a report commissioned by the British government to investigate the corporate banking regulatory provisions of the Channel Island jurisdictions and their effect on the UK, and subsequent pressure by the British government. The proposed legislation will see the introduction of provisions governing corporate service providers" and will create additional obligations on persons offering such services, including the requirement to be licensed by the Isle of Man Financial Services Commission. The "know your client" provisions common throughout the UK will become essential for corporate service providers and banking institutions alike, the latter already having seen a dramatic increase in their regulation as a result of recent radical banking legislation. A requirement for corporate service providers in the Isle of Man will result in an increase in the fees charged for Isle of Man companies. Legal system based on English common law. Favourable company law and statutes, unlike Jersey and Guernsey, the Isle of Man enjoys a Customs Union with the UK for VAT purposes (Protocol 3 of the Treaty of Accession, 1972). Significant number of ship and yacht registrations, with growing banking and insurance sector. 50% of GNP derives from financial and related services. Tax treaty with the UK with disclosure of information provisions with respect to UK residents. For certain inheritance tax purposes, British nationals may not be deemed to have lost their British domicile even if living in the Isle of Man. Apart from UK no other tax treaties.

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Location

As stated, the Isle of Man is a Crown Protectorate. It is not part of the United Kingdom or the European Union but nevertheless, under Protocol 3 above, is part of the Customs Union. Therefore, there is complete freedom of trade between the Isle of Man, the United Kingdom and other parts of the European Union. In addition, unlike any of the Channel Islands, it is considered part of the UK for VAT collection purposes. Under the mutual Customs Union Agreement, the Isle of Man imposes, save in certain circumstances, an identical 17.5% VAT rate to that of the UK. In other words, the Isle of Man can be an ideal location to register a trading company requiring a genuine EU VAT 'number but also wanting full corporate tax exemption.

Relationship with the UK

As stated, the Isle of Man is a Crown Protectorate. It is not part of the United Kingdom or the European Union but nevertheless, under Protocol 3 above, is part of the Customs Union. Therefore, there is complete freedom of trade between the Isle of Man, the United Kingdom and other parts of the European Union. In addition, unlike any of the Channel Islands, it is considered part of the UK for VAT collection purposes. Under the mutual Customs Union Agreement, the Isle of Man imposes, save in certain circumstances, an identical 17.5% VAT rate to that of the UK. In other words, the Isle of Man can be an ideal location to register a trading company requiring a genuine EU VAT 'number but also wanting full corporate tax exemption.

Advantages of Manx Company

  • There is no specific minimum capital requirement. In most cases, a registration agent will only issue two shares. A Manx company can be capitalized with as little as two pence Sterling.
  • All Manx companies require a local registered office for service of process.
  • Both registered and bearer shares can be issued.
  • There must be at least two directors in a Manx company and directors must be real people. Exempt and International companies require one of the directors to be Manx resident and a professionally qualified local secretary. Directors' details are kept on public record. Otherwise, there are no other nationality or residence restrictions.
  • Public anonymity can be obtained by the employment of nominee directors/shareholders. Since 1993, it is possible to have single subscriber companies.
  • A full register of members and charges must be kept at the registered office in the Isle of Man. It is no longer necessary to adopt an official company seal although most companies still request one.
  • The name of the required company should be checked with the Registrar and the ending will be either Limited or Public Limited Company.
  • Developed and favourable corporate law.
  • Statutes less bureaucratic than British or Irish equivalents.
  • Branches of foreign companies in the Isle of Man may apply for exempt tax status. In other words, it may be possible to register a branch of a Delaware non-resident LLC in the Isle of Man and receive a Manx VAT number.
  • Excellent air and sea communications.
  • Well-educated population.
  • No accounts or annual summaries need to be filed with the Manx Government in the case of Exempt companies

TAXATION

Post-2006

The Manx Government has sought to emulate its Irish Celtic Tiger cousin whilst also trying to avoid discriminatory action against its companies by high tax countries, primarily by introducing a universal zero corporate tax rate for all limited liability companies save those involved banking and finance. This action of imposing a flat rate of corporate tax plus enforcing all companies to submit annual accounts just as in Ireland should make the jurisdiction very attractive and more accepted by the international community. Nevertheless, for those setting up a medium to large enterprises, Ireland, despite its 12.5% tax rate, will still be hard to beat given its reputation, larger size and excellent tax treaty network. However, for those wishing to set up a zero % company within the EU and with the possibility of registering for VAT the Isle of Man is probably unbeatable.

Annual Fees and Government Taxes

All Manx companies must submit an annual return to the local authorities whether or not the company has traded. The current filing fee is £50.00. If a company has conducted no business (business including however the activation of a company bank account), no duty or general tax liability will exist. For indigenous and International Companies full and proper accounts must be submitted on the specified annual return date. Tax, at the applicable rate, must then be paid. In the first year the assessable period can be up to 18 months from the date of incorporation. Thereafter, every 12 months.

Indigenous companies are subject to a withholding tax on the distribution of dividends. International Companies are not. Exempt and Non-resident Companies must pay their respective duties but need not submit proper and full accounts. In addition, they need not have appointed auditors.

Pre-2006

The indigenous corporate tax rate for Manx residents conducting business in or from the Isle of Man with a company is 20%. Where real or beneficial ownership does not so rest, the above tax rate will not apply, even if management and control is carried out on behalf 'of a non-resident. The taxation liabilities of non-indigenous companies are as follows:

Exempt Companies: To qualify as a tax-exempt company it is necessary to show that no beneficial ownership rests with a Manx resident and that the objective of the business is not to penetrate the local market. Further, exempt companies must appoint at least one local director (normally a nominee) and a professionally qualified company secretary. In lieu of local taxation, the company is liable to pay an annual exempt duty of Sterling £450.00 plus a filing fee of £50.00. Exempt companies are ideal for passive activities such as holding property but it is generally agreed, are not suitable for trading - especially with the United Kingdom. The reason for this is not Manx law based but the very likely -boomerang1 effect, for taxation purposes, that could occur in the home jurisdiction of the beneficial owner. For example, if a British resident established a Manx Exempt Company to invoice for goods purchased in the US but to be sold in China. It is likely that the British Inland Revenue, using their reverse burden of proof would, if they knew about the structure, try and claim that the UK was the real centre of management and control. If it is, then all profits become subject to British taxation. The very nature of an Exempt Company, i.e. that there can be no real Manx owner, providing prima facie proof of external tax liability.

(2) International Companies: An international company is a relatively new Manx vehicle. It was introduced under Part 1 of the International Business Act, 1994. In concept, it has many similarities to an exempt company save that rather than subscribe to an exempt annual duty it pays a percentage of its gross profits to the Manx authorities. The benefit of paying tax is that it provides additional evidence of genuine local management and control, which gives added credibility to a trading company structure. Of course, full accounts must be maintained and submitted (such accounts not being kept on public record) at the end of the financial year but again these help prove veracity. The percentage to be paid against gross profits varies between 1% and 35%. The exact rates will depend on the requirements of the applicant and on the acceptance thereof by the Manx Assessor of Income Tax. Importantly, unlike an indigenous company, dividends can be distributed gross without any form of withholding tax. The agreed tax rate only applying to the balance left in the International Company. The minimum income tax charge, however, will be the same £400.00 as for Exempt Companies. The modus operandi behind such companies is to circumvent anti-avoidance provisions, which only become operative if no, or little, tax is paid. Further, it may be possible to combine such companies with a Manx international limited partnership, also introduced in 1994, in a beneficial manner.

(3) Non-Resident Companies: As the name implies, a non-resident company is one which is registered in the Isle of Man and governed by its company law but managed and controlled in another jurisdiction. The tax liability, if any, occurring in the latter. Therefore, if a Manx company were controlled in the UK it would be subject to British tax. If it were controlled in tax-free Sark, in the British Channel Islands, it would - at least ostensibly - be a tax-free company. Non-resident companies should have non-Manx directors located in the jurisdiction of management and control. Thus, such companies normally require nominee directors, accepting that the purpose is to mitigate taxes, to establish bona fide control in the fiscally advantageous area. As with Exempt Companies an annual duty must be paid to the Manx authorities. The amount is Stg £1,000.00 plus a £115.00 filing fee. It should be noted that Manx Non-resident Companies are less popular than Irish or Delaware LLC equivalents since these jurisdictions have significantly less tax haven stigma.

How to Incorporate Manx Company

The formation procedure in the Isle of Man is very similar to that of the Republic of Ireland and uses in many cases virtually identical forms. The principal governing legislation is the Companies Consolidation Act of 1931 with various amendments up to 1993. Directorship, registered agent and office details are kept on public record. Nominees can be used for anonymity. Importantly, it should be noted that Exempt and Non-Resident duties are prospective. If such duties are not paid, or an International Company does not make a proper election, full local tax at 20% may be enforced.

Corporate Requirements

Name: The name of the required company should be checked with the Registrar. The ending will be either 'Limited' or Public Limited Company. Certain types of company, i.e. those wishing to use International' in their name, will need significantly higher authorised share capital.

Capital: There is no specific minimum capital requirement. In most cases, a registration agent will only issue two £1.00 shares. The maximum authorised capital available paying the minimum duty is £2,000.00. If sums are required over this amount, additional duty will be payable.

Registered Office: All Manx companies require a local registered office for service of process.

Registered Agent/Nominees: Apart from Manx non-resident companies, all other undertakings must have at least one local director and a professionally qualified secretary.

Board of Directors: There must be at least 2 directors in a Manx company and (as in Ireland) such directors must be real people. Details are on public record. Apart from the Exempt and International Company requirements, there are no other nationality/residence restrictions.

Shareholders: Since the Single Members Companies Act 1993 it has been possible to register a Manx company with only one subscriber. Nevertheless, there is still a need for two directors. There are no nationality/residence restrictions.

Books, records and seal: A full register of members and charges must be kept at the registered office in the Isle of Man. It is no longer legally necessary to adopt an official company seal although most companies still request one.

Powers of attorney: All Manx companies may grant a general or specific power of attorney to any person, to act on its behalf, to execute contracts, agreements, deeds and other instruments. These powers are not a matter of public record.

Certificates of good standing: Certificates of good standing can be obtained upon proper application to the Registrar.

Bearer shares: Both registered and bearer shares may be issued.

Annual Meetings: All Manx companies must hold an annual general meeting every calendar year. Such meetings, for Exempt and International Companies, can be in or outside the Isle of Man. By definition, Non-resident Companies cannot hold meetings on the Island but must do so elsewhere.

Trusts: Manx trust law is based upon that of England with similar Settlor, Trustee, Beneficiary and Protector concepts. However, unlike England there are still many fiscal benefits available. The main governing legislation is the Trustee Act, 1961. The principal vehicles are 'discretionary' and 'charitable' trusts. Anti-avoidance provisions in the UK and most other common law jurisdictions may create difficulty in their application. There is no specific asset protection legislation.