Why Use An Isle Of Man Company? What You Need To Know – Corporate and Company Law

Isle of Man companies provide a flexible vehicle that meet a
huge variety of objectives and can be particularly beneficial under
the right conditions.

Depending on the circumstances, the Ultimate Beneficial Owner
(UBO) and their adviser can utilise Isle of Man companies in
everything from corporate structuring and asset protection to
wealth and estate planning. The Isle of Man company delivers a tax
efficient and globally compliant solution.

In this article we highlight some of the good reasons to
consider using Isle of Man companies:

Isle of Man Jurisdictional Benefits

The Isle of Man is an independent Crown Dependency that holds a
Moody’s rating of Aa3 Negative, as at 28 October 2022, in
line with the UK’s current rating. Companies registered in
the Isle of Man benefit from the business-friendly Government,
legislative environment and locally set tax regime. In addition, an
Isle of Man company can be incorporated in 48 hours or less.

Headline rates of taxation include:

• 0% Corporate Tax




• 0% Capital Gains Tax




• 0% Inheritance Tax




• 0% Withholding Tax on Dividends




• Isle of Man companies are able to register for VAT, and
  businesses in the Isle of Man fall under the UK’s VAT
  regime.

However, the island offers more than just tax efficiency. It is
OECD compliant and therefore not considered a tax haven and the
local environment continues to provide world class professional
services to those engaging in international wealth, corporate and
estate planning.

You can 
read more about why the Isle of Man is a jurisdiction of choice,
here.

The Flexibility of Isle of Man Companies

Isle of Man companies provide a large degree of flexibility in
terms of their constitution and operation, particularly companies
incorporated under CA 2006 – although, there can be
situations where a more traditional CA 1931 company can be more
attractive.

Whilst both types of company are required to maintain a
Registered Office in the Isle of Man, must have a Nominated Officer
etc. there is a large amount of freedom provided:

Companies Act 1931	Companies Act 2006
No restrictions on trading objects
Minimum of one Shareholder. Can be corporate.
Can have a single share, with no max. Share can hold a par value of as little as £0.01p. No thin capitalisation rules. Can be any currency.	Can have a single share, with no max. Share can hold a par value of zero. No thin capitalisation rules. Can be any currency.
Minimum of two Directors. Can be non-resident. Cannot be a corporate.	Minimum of one Director. Can be non-resident and can be a corporate.
Company Secretary required. Can be a non-resident and can be a Director.	Requires a Registered Agent at all times. Registered Agent is a licensed Isle of Man resident.
Minimal restrictions on the management of dividends and share capital
Requirement to produced Annual Financial Statements, in line with Part 1 of the Companies Act 1982. Subject to meeting the conditions set out in the Companies (Audit Exemption) Regulations 2007, the Members can unanimously agree to dispense of the requirement for Annual Accounts to be audited where applicable.	No requirement to produce Annual Financial Statements, but it is standard practice to produce such accounts. No requirement for Annual Accounts to be audited.
Minimal filing and accounting requirements
There is a requirement to hold an Annual General Meeting, but private companies can dispense with this requirement in line with the Companies Act 1931 (Dispensation For Private Companies) (Annual General Meeting) Regulations 2010.	No requirement to hold Annual General Meetings.

Furthermore, it is possible for a CA 1931 company to apply to
re-register as a CA 2006 company and vice versa, since the
commencement of the Companies (Amendment) Act 2021. This provides
UBOs and advisers with ultimate flexibility with regards to the
constitution of the company. You can 
read more about the effect of the Companies (Amendment) Act 2021
here.

You can 
read more about Isle of Man companies incorporated under the
Companies Act 1931 here. Alternatively, you can 
read more about Isle of Man companies incorporated under the
Companies Act 2006 here.

Dixcart have significant experience in assisting clients and
their advisers with their corporate planning and can support them
to make the most appropriate decisions regarding the choice of
vehicle.

Isle of Man Companies and Disclosure of Beneficial
Ownership

Central registers of beneficial ownership were introduced as a
mandatory requirement for Member States and jurisdictions within
the European Economic Area by 
Article 30 of the Fourth EU Money Laundering
Directive (4MLD), coming into force in 2017. The Isle of
Man gave affect to this Directive through the introduction of
the 
Beneficial Ownership Act 2017.

Under the Beneficial Ownership Act 2017, where the UBO owns more
than 25% of the legal entity the person is a Registrable Beneficial
Owner, and the Nominated Officer must submit the Required Details
to the Registrar to be held in the Isle of Man Database of
Beneficial Ownership. The Register is not publicly available and is
limited to competent Authorities and relevant organisations who
conduct AML checks e.g. criminal enforcement bureaus such as the
Financial Investigations Unit etc.

Further, you may be aware of 
a recent EU Court of Justice (CJEU) Grand Chamber
ruling concerning the balancing the proportionality of
achieving AML objectives and privacy rights. The judgement stemmed
from a Luxembourg case, whereby a Luxembourg company and its UBO
made an application to prevent information concerning beneficial
ownership from being made publicly available – this was
rejected by the Luxembourg RBO. Following this, the company and UBO
began legal action relating to both the decision and legality of
the legislative powers allowing this to take place.

The law gave affect to the 
Fifth EU Money Laundering Directive (5MLD). 5MLD amended
Art 30 of 4MLD to make provision for any member of the general
public to be entitled to access information concerning beneficial
ownership. The Grand Chamber found that the legislation was indeed
unlawful, and disproportionate in its derogation from the European
Union’s Charter of Fundamental Rights – namely Art 7
the right to respect for private and family life, and Art 8
concerning the protection of personal data.

The Crown Dependencies’ financial regulators have released
a joint statement in late December 2022 in response to this
landmark CJEU Grand Chamber ruling. They intend to seek specialist
legal advice regarding how to proceed in implementing 5MLD
compliant legislation, given the outcome of the above case. The
Crown Dependencies have stated that they intend to adopt
legislation in their respective jurisdictions as soon as possible
after receiving the expert legal opinion, which is expected to be
completed in early 2023. Whilst the regulators are clearly
committed to honouring their commitments to openness and
transparency, the statement does not provide any consideration of
how the judgement will affect any interpretation of 5MLD or the
legality of introducing measures such as a public register. You can
find the 
Joint Statement: Crown Dependencies on access to registers of
beneficial ownership of companies here.

Redomiciling an Existing Company to the Isle of
Man

If there is an existing legal entity, you may be able to
redomicile it to the Isle of Man and reregister it under Companies
Act 1931 or Companies Act 2006.

When an incorporated entity is redomiciled to the Isle of Man,
the result is a continuation of the same body corporate with all of
its assets, liabilities and obligations remaining i.e. it is not a
new entity. However, once imported, the laws and regulations of the
Isle of Man apply.

It is important to note that this process can only be undertaken
if the jurisdiction that the legal entity is exiting has the
required legislative framework in place. Of course, the Isle of Man
possess such legislation. For example, conversely there is no such
Statute in the UK to support redomiciliation, and therefore UK
companies cannot be redomiciled to any jurisdiction.

Further, it is necessary for the UBO and/or adviser to be aware
of the potential licensing requirements if they wish to continue
certain business activities after redomiciliation.

Additionally, it is also necessary to ensure your
company’s Registered Name, or a derivative is available
– if available, it can be reserved. In such cases, we would
advise contacting Dixcart in the first instance. For further
information on choosing a company name, you can 
read the Company and Business Names Etc Act here and you
can 
check the name’s availability here.

There is a myriad of reasons why a UBO or their adviser may seek
to move their company to the Isle of Man. For example, where an
entity has been incorporated in a jurisdiction that was previously
attractive, but has since fallen out of favour, this can make
administering the company operationally difficult owing to the
implicit risks of that jurisdiction. You can 
find a risk rated list of jurisdictions here (Jurisdictions in
Lists A, B, C and D concerning AML/CFT risks).

The Isle of Man is regarded as a compliant, stable and
well-regulated jurisdiction, and is therefore considered a leading
international destination for business. For example, due to the
Isle of Man being well-regulated and transparent, those companies
that wish to structure debt finance can be looked on favourably by
banks, owing to facilities such as a public register of mortgages
and other charges. You can 
read more about why the Isle of Man is a Preferred Jurisdiction for
Corporate Structuring here.

Dixcart are well placed to assist with the redomiciliation of
all incorporated vehicles.

Isle of Man Companies and Banking

From carrying out its activities to meeting its liabilities,
reliable banking arrangements are essential. Where a company is not
incorporated in a reputable jurisdiction, or worse a blacklisted
jurisdiction, this can cause significant operational issues.
Further, where the company does not bank with a trusted
institution, this can also create operational issues.

The banks take a risk-based approach, considering various
factors upon application e.g. jurisdictions, connected parties,
source of funds and wealth, nature of activity, volume of
transactions etc. all of which will influence the acceptability of
the application. The resulting risk rating will also affect the
level of fees payable to the bank.

In addition, high street banks will not provide services to Isle
of Man companies that do not have a resident Director. Therefore,
in the circumstances where the UBO and/or adviser do not wish
Dixcart to provide Isle of Man Directors, other options will have
to be considered – for example, do you have existing banking
relationships within other jurisdictions?

Dixcart has good relationships with all of the banks on the Isle
of Man and can facilitate banking services on fully managed
entities. In circumstances where Dixcart are not providing
Directors, we can make appropriate introductions.

Taxation of Isle of Man Companies

Tax advice is almost always essential for non-Isle of Man
residents, when considering incorporating an Isle of Man company.
There are so many factors at play – what activity is the
company carrying out? Are there Economic Substance requirements to
be met? How are foreign companies treated within the UBOs local
jurisdiction? How involved can they be with the management and
control of the company? Is the company conducting cross-border
transactions? Etc.

Furthermore, as a compliant whitelisted jurisdiction, the Isle
of Man has signed up to a number of information exchange and
double-taxation agreements. There can be reporting requirements
that must be taken into account.

As you can see, even considering these basic questions there are
a lot of things to clarify, much of which can have complex tax
implications and require professional advice. Generally, the place
to start will be to take advice in the UBO’s local
jurisdiction. Whilst our Isle of Man office does not provide tax
advice, we have built up a network of contacts over our 30+ years
of trading, and will be able to make an appropriate introduction to
an adviser local to the UBO.

How Are Isle of Man Companies Used?

Isle of Man companies have a huge variety of uses, and can be an
option in most circumstances where the planning allows for the use
of the Isle of Man. Below, I have covered a number of areas where
Isle of Man companies are commonly utilised.

Holding Companies

A large range of capital, from participations in other companies
to investment portfolios and luxury assets, can benefit from being
owned via an Isle of Man company, due to the local legislative
environment and tax regime. In such situations it is particularly
important to ensure that placing the assets with the Isle of Man
company will not attract any unintended taxation or liabilities
– this needs to be considered at outset. Often the question
can be whether the cost of maintaining and administering an Isle of
Man company will outweigh the benefits or vice versa.

Below I have noted some of the most common types of Isle of Man
holding companies:

• Equity Holding: Isle of Man companies
  offer a great vehicle for holding participations in other
  companies. This can take the form of a personal portfolio of stocks
  and shares, or even the Isle of Man company acting as TopCo of a
  group of companies. Regardless, the UBO will need to confirm
  whether the Isle of Man company’s activity falls within a
  Relevant Sector for the purposes of Economic Substance legislation
  – contained in 
  Part 6A Income Tax Act 1970.

Under Economic Substance, if an Isle of Man company’s sole
function is to acquire and hold controlling equity positions in
other companies i.e. more than 50% of the company’s share
capital, then the company is considered a Pure Equity Holding
Company. A Pure Equity Holding Company must demonstrate that its
Core Income Generating Activities (CIGA) occur on the Isle of Man.
The required CIGA is usually met through the provision of Directors
and other management services in the Isle of Man, enabling Adequate
Substance to be met.

However, if the Isle of Man company meets these requirements but
has no income i.e. no dividends are paid up from the equity
holdings, then it falls out of Economic Substance.

You can 
find the latest guidance on Economic Substance here.

• Real Estate Property Holding:  Isle of
  Man companies are often used to purchase, develop and/or generate
  income from Real Estate. This option is particularly attractive in
  circumstances where the UBOs are in a number of geographic
  locations or outside of the jurisdiction being invested into.

• Yacht Holding:  Isle of Man companies are
  often used for the management of luxury assets. We have particular
  expertise in Superyacht management structures, whereby we work with
  industry professionals to deliver a ringfenced and efficient
  corporate ownership structure. You can 
  read more about our superyacht services here.

• Honourable Mentions: as noted above, in
  the right circumstances it can be beneficial to hold almost any
  asset via an Isle of Man company. Other typical assets held by Isle
  of Man companies include; intellectual property, aircraft, and
  tangible investment property such as works of art, wine etc.

International Structuring

The Isle of Man provides a great non-EU base from which to
structure companies that operate internationally. There are several
instances where this makes particular sense:

• Geographic diversity – The company
  may have Shareholders, workforce or activities that are located
  within multiple jurisdictions or trade areas;




• Restructuring – An Isle of Man
  company may be established for the purposes of carrying out
  acquisitions and mergers. Further where a TopCo needs to relocate
  to a well-regarded jurisdiction, the Isle of Man company offers a
  great option for redomiciliation.




• Equity Finance – The company and or
  its subsidiaries may wish to commoditise their assets to attract
  new investment i.e. converting immovable assets, such as land and
  real estate, into shares or debt instruments. New investors would
  purchase positions within the new TopCo, thereby providing the
  group of companies with a source of capital for growth etc.




• Access to markets – As a
  well-regulated and reputable jurisdiction, the Isle of Man provides
  a platform for certain types of regulated business to attain and
  manage licenses to provide international activities e.g.
  eGaming.

Estate Planning

Trusts have been the mainstay of estate planning for
generations, delivering a degree of certainty and protection to
Settlors and their assets. However, a Trust is not an incorporated
entity and therefore has no separate legal personality and limited
liability – the Trustees hold legal title of the assets and
are responsible for the Trust’s liabilities. Additionally,
the Trust cannot engage in commercial activity, and must do so via
a company. Further, Trusts are not recognised in all jurisdictions,
and therefore predominantly attractive to Settlors from Common Law
jurisdictions. You can 
read more about Isle of Man Trusts in this series of articles,
and this accompanying
video presentation.

In recent times, many offshore jurisdictions, such as the Isle
of Man and Channel Islands, have introduced legislation to support
the use of Foundations. Foundations provide an incorporated vehicle
that is comparable to a Trust but possesses separate legal
personality and limited liability – albeit there is no share
capital. The Foundation is traditionally used within Civil Law
jurisdictions. Therefore, the tax treatment of a Foundation is less
certain within Common Law jurisdictions such as the UK, and seems
to be assessed on a case-by-case basis – in part governed by
the purpose of establishment i.e. if formed to carry out company
activities it may be treated as per a company. As with the Trust,
the Foundation cannot engage in commercial activity, and must do so
via a company. You can 
read more about Isle of Man Foundations in this series of
articles, and this accompanying video
presentation.

Isle of Man companies, incorporated under the CA 2006, can be
used as a viable alternative to both Trusts and Foundations.
Delivering an entity with separate legal personality, limited
liability and share capital. Further, companies, unlike Trusts, are
recognised as legal structures throughout the world and can engage
in commercial activity directly. Therefore, given the right
circumstances, an Isle of Man company can present a more efficient
option than a Trust or Foundation.

The UBO, or Founder, transfers their assets to the Isle of Man
company. Transferring those assets to the Isle of Man company can
have tax implications and as such will require tax advice within
the Founder’s jurisdiction of domicile and tax residency.

Through the issuance of different classes of share, various
powers and rights can be attributed to different parties. For
example, issuing a class of shares to the Founder can provide them
with voting rights and therefore increased control during their
lifetime. This mechanism can also provide the beneficiaries with
access to income and/or capital and the appointed Directors with
management rights. The class rights would be detailed within the
Articles of Association. It is important to note that where the
Founder possesses voting rights, this can have tax implications,
even though there is no right to participate in income or
capital.

Dixcart can provide for the provision of Trustees, Council
Members and Directors as required by the client and their adviser,
and are well placed to assist in all international planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.