Geography, Population, Languages
The Isle of Man is not part of the United Kingdom. The Isle of Man is located in the Irish Sea equidistant from England, Scotland and Ireland. Its area is 588 sq. km. The population is about 70,000 resulting in a population density of roughly 120 people per sq. km. A third of the population live in the capital, Douglas, and its suburbs. The official language is English. Because of the Celtic origins of the Island, Gaelic is also spoken.
History, Political Structure and Law
The Isle of Man is politically very stable. Constitutionally it is a self-governed territory within Commonwealth, although the Queen of England holds the title Lord of Man and is ultimately responsible for the island’s defence and foreign affairs. The Tynwald, the Island’s two-tier parliament, was founded by the early Vikings over 1000 years ago, and boasts the longest history of any legislature in the world. Today, the Tynwald legislates on all domestic matters affecting the Isle of Man, including taxation. The Tynwald consists of two houses; the Legislative Council, which consists of eight members elected by the lower house, the House of Keys, the Bishop and the Attorney General, neither of whom has voting rights. The House of Keys has twenty-four members who are elected and serve for a 5-year term. Legislation passed by the Tynwald must have royal assent. The system of law in the Isle of Man is Common Law, based on English Common Law. The government of the Isle of Man follows the British legislature, and decrees relating to the British Courts apply also to the Manx Courts.
The Isle of Man is not a member of the EU, although it has “special relationship” status. This guarantees free trade between the island and the countries of the EU, while absolving the island from involvement with the EU budget and long-term programmes such as harmonisation of taxation.
The Isle of Man is an excellent, highly regarded jurisdiction for the establishment of a range of corporate structures with differing tax status, as outlined below.
Economy and Infrastructure
There are daily airline services from Ronaldsway Airport in the south of the island some eight miles from Douglas to London, Manchester, Birmingham, Cardiff, Dublin, Belfast, Blackpool, Liverpool and Glasgow. There are also services to other cities in the UK and the Channel Islands. However, there are no direct international flights. The Isle of Man has excellent telecommunication facilities. The island is part of Great Britain’s telecommunications network, with direct dialling to 160 countries around the world including the leading financial centres. The island has 800 km of roads, mostly maintained to a high standard, and main roads connect all the major towns. Rail services are seasonal and largely provided for the benefit of tourists. The Isle of Man, confronted with a decline in its two principal sources of income, agriculture and tourism, now places greater reliance upon industrial investment and financial activities.
The currency is the Manx Pound, which is on a par with the UK Pound. There is no exchange control on the Isle of Man.
The principal Corporate Legislation includes the following Acts:
• The Companies Acts 1931 to 1993.
• The International Business Act 1994.
• Limited Liability Companies Act 1996
English is the language of Legislation and Corporate documentation. An Isle of Man company has all the powers of a natural person.
The following types of company are used for international trade and investments:
• The Non-Resident Company: By law, central management and control of Non-resident Companies must be exercised away from the Isle of Man. This would normally be in a low or tax-free area to avoid corporate taxation.
• The Exempt Company must by law have at least one Isle of Man resident director and must appoint an Isle of Man resident company secretary who must be a natural person and hold a professional qualification. The Exempt Company is normally used for personal or corporate investment holdings and for trading with European Union countries.
• The Resident Company is used for all types of domestic business, but may also be used for foreign property ownership. If no income derives from such investment the company is not subject to taxation in the Isle of Man.
• The Limited Liability Company is based on US LLC legislation. Manx LLCs must have two members and appoint a local registered agent.
Other Isle of Man entities used for international tax planning are:
Trading and business operations are subject to the following restrictions:
– A Company must not trade within the Isle of Man.
– A Company must not engage in the business of banking or insurance.
– A Company must not engage in the business of investment, other than investment of the company’s own assets.
– A Company must not solicit funds from the public nor offer its shares to the public.
Incorporation procedure depends on the type of company:
• Exempt Companies must submit the Memorandum and Articles of Association, together with “Form I” nominating the first directors and secretary, advise the location of its Registered Office and submit the form applying for approval of the company’s name. Immediately after incorporation the company must elect Resident, Non-resident or Exempt status.
• LLCs must file the Articles of Organisation with the Registry.
Manx Exempt companies must maintain a registered office in the Isle of Man. Off-the-shelf companies are available.
Company names are subject to the following requirements and restrictions:
• Names may be expressed in any language that uses the Latin alphabet, if the Registrar of Companies is in receipt of an English language translation and the name is not considered undesirable.
• A name similar or identical to that of an existing company is not acceptable.
• A name known to exist elsewhere is not acceptable.
• A name that implies illegal activity is not permitted.
• A name that implies royal or government patronage is unacceptable.
• For Exempt Companies, many names such as “International”, “European”, “Trust”, “Trustees” or “Fiduciary”, “Holdings”, etc. require justification or high capitalisation for their use to be permitted.
• The following names or their derivatives require consent or a licence: bank, building society, savings, loans, insurance, assurance, reinsurance, co-operative, council, Chamber of Commerce, trust, municipal, finance or their foreign-language equivalents
• Exempt companies must utilise the suffix Limited or Ltd; LLCs must utilise the suffix Limited Liability Company or LLC.
The number of directors required depends on the type of company:
• For Exempt Companies the minimum number of directors is two. Exempt companies are required to appoint at least one resident director. A corporate body may not be appointed director.
• LLCs must have one manager, either a natural person or a corporate body of any nationality.
A company secretary is required for all Isle of Man companies. This may be a natural person or corporate body. The company secretary of an Exempt Company must be a natural person resident in the Isle of Man and must hold a professional qualification. The minimum number of shareholders is one for an Exempt Company, two for an LLC.
The normal authorised share capital for Exempt Companies is GBP 2,000 or its equivalent, this being the maximum to qualify for the minimum capital duty payable on incorporation. The minimum issued share capital is one share with par value. Exempt companies may have the following classes of shares: registered, bearer, preference shares, redeemable shares and shares with or without voting rights. Exempt companies may have bearer shares, but these cannot be allotted directly to the bearer. They must be allotted in registered form and then transferred. It is a requirement of Isle of Man legislation that the Register of Members must state the name and residential address of holders of bearer warrants.
Annual Taxation and Fees
The Island is a low tax area. Income tax in respect of individuals has a lowest rate of 10%. The company rate and highest individual rate is 18%. There is no capital gains tax, gift tax, wealth tax or death duty. VAT is at the same rate as the United Kingdom and is collected by the Isle of Man Customs & Excise.
The currency is pound sterling and the Island issues its own notes and coins. There is no exchange control.
Exempt Companies and International LLCs do not pay income tax but pay a fixed annual fee to the Government:
• An Isle of Man Exempt Company pays GBP 475 per year, due on 6th April. (Please note that from 1 April 2007, Exempt status fee will no longer be payable as all companies will be classified as zero rated for tax purpose.
• An Isle of Man International LLC pays GBP 400 per year, which must be paid within 30 days of applying for International LLC status and annually thereafter.
Apart from a limited agreement with the United Kingdom, the Isle of Man is not party to any double tax agreements.
Although there is no requirement to file audited accounts with the authorities, a company is required to keep financial records reflecting the financial state of the company. The Assessor of Income Tax has the right to call in the accounts.
For more information on incorporation in this jurisdiction contact us.