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Benefits of The
Isle of
Man
The Isle of Man is located in the Irish
Sea equidistantly from England, Scotland and Ireland, and has a
total land mass of approximately five hundred eighty square
kilometres. The population of the Isle of Man is approximately
70,000 people. The official and spoken language is English.
The Isle of Man is a British crown
dependency. It has its own Parliament (Tynwald), which
legislates on all domestic matters including taxation. The Isle
of Man is served by Ronaldsway Airport in the south of the
island some eight miles from Douglas.
The currency is the Manx Pound which is on
par with the UK Pound Sterling. The island issues its own notes
and coins. Also, there is no exchange control. It is governed by
the Common Law, based on English Common Law. The Principal
Corporate Legislation is under the Companies Act 1931 to 1993
and the International Business Act 1994.
There are three principal types of company
used for trade and investment: the Non-Resident Company, the
Exempt Company and the Resident Company.
Questions
& Answers
regarding
Companies in the
Isle of
Man
A. The Structure
of a Company.
There are three principal types of company
used for trade and investment: the Non-Resident Company, the
Exempt Company and the Resident Company. It is also possible to
establish Offshore Banks, Exempt Insurance Companies, Limited
Liability Companies, International Limited Partnerships, Trusts.
1. What is a Non-Resident Company?
The Non-Resident Company is legally
required to have its central management and control exercised
from the Isle of Man. The Non-Resident Company is normally used
for all types of international trade and investment. This would
normally be located in a low or no tax area to avoid corporate
taxation. Non-resident Companies are exempt from Manx taxation
on annual profits and instead pay non-resident company duty. The
duty is currently £750 a year (from 1 June 1998).
To be eligible for classification as
non-resident, a company must not:
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conduct trade of business
on the island yielding profits assessable to income tax.
Income received from a bank or an approved financial
institution does not constitute profits for this purpose; |
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keep a person resident on
the island who directly or indirectly controls the company’s
affairs. |
Non-resident companies are not required to
make an annual return to the Assessor of Income Tax, but they
must pay the non-resident company duty of £750 to the Registrar
of Companies when filing their annual return and non-resident
declaration.
2. What is the Exempt Company?
The Exempt Company is normally used for
personal or corporate investment holding and for triangular
trading activities with European Union countries. Certain Manx
resident companies are exempt from Manx tax on their profits. To
qualify for exempt status, the company must fully satisfy the
provisions of the acts and apply each year for exemption.
Conditions and activities that must be satisfied include:
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No person resident in the
Isle of Man may have an interest in the exempt company other
than as a shareholder of a company quoted on a recognised
stock exchange that has an interest in the exempt company. |
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At least one of the
directors and the secretary must be resident in the Isle of
Man. |
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The secretary must be an
advocate, a person qualified to act as an auditor or a
member of the Institute of Chartered Secretaries and
Administrators. |
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A company holding a
Section 3 banking license or a Section 7 deposit-taking
license under the Banking Act 1975 cannot be classified as
an exempt company. |
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Exemption does not apply
to a company that carries on a trade or business that
performs any of the following activities in the Isle of
Man: |
Manufactures goods of any kind;
Offers goods for sale at retail or
wholesale;
Explores for or extracts minerals or
petroleum;
Carries on fishing operations, breeds
livestock or carries on any agricultural or horticultural
operations;
Distributes goods, transports goods to or
from the Isle of Man;
Carries out land development or
construction operations or acquires land on the island for the
primary purpose of realizing a gain on its sale or holds land
on the island as trading stock.
Applications for exempt status must be
made annually by 30 June or within 30 days of commencing
business. The annual fee is £400 but it is increased to £1,200
if the application is received after 30 June but no later than
30 September.
3. What is the Resident Company?
The Isle of Man Resident Company is used
for all types of domestic business but may also be used for
foreign property ownership. If no income arises from such an
investment the company would not be liable to Isle of Man
taxation.
4. What Documents are required to
Incorporate a Company?
Submission of Memorandum and Articles of
Association, together with a Form I nominating the first
directors and secretary, and advice of the situation of the
registered office. Submission of the form giving name approval.
Immediately after incorporation the company must select
Resident, Non-Resident or Exempt status.
It cannot trade within the Isle of Man nor
can it undertake banking or insurance activities nor investment
business other than the investment of the company’s own assets.
It can neither solicit funds from the public nor offer its
shares to the public.
A company incorporated in the Isle of Man
has the same powers as a natural person.
5. Classes of Shares Permitted.
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Registered
Shares. |
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Preference
Shares. |
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Redeemable
Shares. |
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Shares with or
without voting rights. |
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Bearer Shares. |
6. Bearer Shares Permitted.
The concept of bearer shares does exist,
but they cannot be alloted directly to the bearer. They have to
be allotted in registered form and then transferred. It is a
requirement of the Isle of Man legislation that the Register of
Members must state the name and residential address of the
holder of bearer warrants.
B.
Provisions in the Act relating to the Management and
Administration of the Company.
1. Directors.
The minimum number of directors is two,
although exempt companies require at least one director to be
resident. Bodies corporate may not be appointed as directors.
2. Shareholders.
The minimum number of shareholders is one.
3. Company Secretary.
A company secretary is required for all
the Isle of Man companies. They may be natural persons or bodies
corporate. For Exempt Companies, the secretary must be a natural
person, resident in the Isle of Man and must hold a professional
qualification.
4. Registered Office.
The company must maintain a registered
office in the Isle of Man.
5. Financial Statements Requirements.
Whilst there is no requirement to file
audited accounts with the authorities, a company is required to
keep financial records which reflect its financial position. The
Assessor of Income Tax reserves the right to call in the
accounts for Exempt companies.
6. Taxation.
The Isle of Man is a low tax area with a
standard rate of income tax of 15% for residents and a higher
rate of 20%. Non-residents are only taxed on local source
income. There are no death or estate duties, capital transfer or
gift taxes, capital gains or wealth tax.
As long as the company trades out of the
Isle of Man and pays its annual non-resident duty of £750 no
taxes will be levied on the company’s earnings however high. If
however the company is resident, annual accounts must be filed
and the profits of the company will be taxed at 20%.
Other than a limited tax treaty with the
United Kingdom, the Isle of Man does not have any double
taxation treaties.
7. Disclosure of Information
Accounts (if the company is resident) and
annual returns, as well as details of directors, secretary and
shareholders must be filed with the Isle of Man Registry and are
thus available for Public Inspection.
Recent Changes Isle of Man Companies
Following the Edwards Report, the Isle of
Man council of Ministers has ordered an immediate moratorium on
the formation of non-resident companies (Isle of Man companies
where management and control are abroad). Further action to
allow existing non-resident companies to be wound down in an
orderly fashion, is under consideration, but we recommend no
action until further details have been released. It is still
possible to form “exempt” Isle of man companies. Companies will
be required to include a statement in their annual return
confirming that company accounts have been prepared.
It should be noted that in order for a
company to be Exempt from Isle of Man Tax the Declaration of
Exemption must be lodged with the Isle of Man Registrar of
Companies, together with Exempt Duty, at the time the Company
commences to trade. In general this will be at the time of
incorporation or sale of a Company. If this is not done,
problems can arise with regard to the tax status of the Company.
It should also be noted that since early
1999, Isle of Man Corporate Service Providers have been subject
to new regulations and controls and in general details of the
Beneficial Ownership of Manx companies must now be disclosed at
the time of incorporation or sale of a company.
ISLE OF MAN NON-RESIDENT COMPANIES
On 6 April 1999 the Isle of Man Government
published its response to the Edwards Review of the Crown
Dependencies (Guernsey, Jersey, and Isle of Man). The timing of
the response was quite unexpected and no notice of its impending
release was given. The public was notified by a press release
from the Chief Minister’s Office that day.
An Order has been made by the Government
that there is to be an immediate moratorium on the creation of
new Non-Resident Companies.
It is probably likely that the Government
will decided to eliminate Non-Resident Companies altogether, but
will wait until the Regulation of Corporate Service Providers
legislation is complete. There will then be a period during
which existing companies can be wound down.
Amendments are currently being made to the
draft Bill and a further Consultation Paper is due to be issued
in June this year. It is proposed that the final Bill will be
introduced to Tynwald – the Isle of Man Parliament – for
approval in October, and is likely to become law in the Spring
or Summer of 2000.
Whilst we cannot give definitive advice at
this stage, it is likely that clients wishing to use the Isle of
Man and to pay a flat rate of tax will choose to use the Isle of
Man Exempt Company or to convert their existing company to this
status.
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The Council of
Ministers have proposed that an Isle of Man company should
be required to include a statement in its annual return
confirming that the company’s accounts have been prepared. |
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An Order has
been made by the Treasury imposing an immediate moratorium
on the creation of Isle of Man non-resident companies.
(These are Isle of Man registered companies whose management
and control is located outside the island.) |
PRACTICAL
CONSIDERATIONS
As with Non-Resident Companies there is
currently no requirement for Exempt companies to file accounts.
We must remind clients, however, that an
Exempt Company must have at least one local director and a local
qualified secretary. Both of these officers can be provided by
C.I.S, subject to suitable references, but where we do provide
directors to a company we must insist on having at least joint
signing authority on company bank accounts as well as being
involved in and kept fully informed of the company’s activities
at all times.
Timing of the change of tax status will be
critical and we will be able to advise on this when the
situation arises.
We will endeavour to keep all our clients
closely informed of developments as soon as more information
becomes available.
Notes
(1) For a copy of a full set of documents
to be made apostille in the jurisdiction will cost a minimum US
$
We are not responsible for any forthcoming
changes concerning the rules and regulations of the
jurisdiction.
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