Publications
Doing Business in the Isle of Man
Contents
- Grant Thornton in the Isle of Man
- Foreword
- Country Profile
- Business Environment
- Foreign Investment
- Structure of Business Entities
- Workforce
- Taxation
- Financial Statements and Auditing
- Banking and Finance
- Legal System
- Shipping
- Aircraft Registration
- Other Important Legislation and Agreements
- New Manx Vehicle (Companies Act 2006)
- Online Gambling
Grant Thornton and Grant Thornton (Isle of Man) Limited, members of Grant Thornton International, provide
a range of services to clients worldwide whose size varies from single private individuals to subsidiaries of
international companies.
Our services include accounts preparation, audit, tax compliance and tax advice. In the area of audit we
have particular expertise in relation to owner-managed businesses, insurance companies and collective
investment schemes.
Through Grant Thornton (Isle of Man) Limited we can provide services in relation to the setting up and
administration of offshore structures for legitimate purposes, including tax planning, succession/estate
planning and confidentiality.
Grant Thornton and Grant Thornton (Isle of Man) Limited
International Practice Partner
Dennis McGurgan
P.O. Box 307
Third Floor
Exchange House
54-58 Athol Street
Douglas
Isle of Man
IM99 2BE
Telephone: +44 01624 639494
Facsimile: +44 01624 662249
Email: gtiom@grantthornton.co.im
or
dennismcgurgan@grantthornton.co.im
Grant Thornton (Isle of Man) Limited is licensed by the Isle of Man Financial Supervision Commission as
a Corporate and Trust Service Provider.
© July 2008
Grant Thornton International is one of the world’s leading organisations of independently owned
and managed accounting and consulting firms providing assurance, tax and specialist advice to independent
businesses and their owners.
The strength of each local firm is reflected in the quality of the international organisation. All
Grant Thornton International member firms share a commitment to providing the same high quality service
to their clients wherever they choose to do business.
If you require any further information, please do not hesitate to contact your nearest Grant Thornton
member firm.
This guide has been prepared for the assistance of those interested in doing business in the Isle of
Man. It does not cover the subject exhaustively but is intended to answer some of the important, broad
questions that may arise. When specific problems occur in practice, it will often be necessary to refer
to the laws and regulations of the Isle of Man and to obtain appropriate accounting and legal advice.
This guide contains only brief notes and includes legislation in force as of July 2008.
Grant Thornton is not a worldwide partnership. Member firms of the international organization are
independently owned and operated.
Services are delivered nationally by the member and correspondent firms of Grant Thornton
International, a network of independent firms throughout the world. Grant Thornton International is a
non-practising, non-trading international umbrella organisation and does not deliver services in its own
name.
Geography
The Isle of Man, with an area of 221 square miles, is situated in the Irish Sea. Its landscape varies
from inland mountains, through heather upland and lowland valleys to sea cliffs and a coastal plain.
Douglas is the capital of the Isle of Man and the location of the Island’s government. It is the
principal business town. The Island’s climate is temperate, influenced by the North Atlantic Drift.
Summer temperatures rarely exceed 25°C. Winter temperatures rarely fall below freezing and snow is
uncommon.
There are daily flights to London, Manchester, Birmingham, Liverpool, Dublin, Belfast, Edinburgh,
Glasgow and Newcastle, regular flights to Jersey, Guernsey, Luton, Southampton, Leeds, Blackpool and
Gloucester and good links with other places.
Population
The Isle of Man has a population of over 80,000 and has grown by over 11% in the last ten years. Almost
half of the population lives in Douglas or its environs. The principal language is English.
Political System
The Isle of Man is an internally self-governing dependency of the British Crown. It is not, and has
never been, part of the United Kingdom. The Island’s legislature (Tynwald) consists of two branches
– a lower branch (the House of Keys) consisting of twenty four members elected by adult suffrage and an
upper branch (the Legislative Council) consisting of ten members. Government Ministers, who are members of
the House of Keys, head the eight departments of government. The Isle of Man is not a full member of the
European Union. Its particular constitutional position in relation to the European Union was negotiated at
the time of the United Kingdom’s entry into the European Community in 1972. The effect of this is
that the Isle of Man falls within the EU common customs area and the EU common external tariff.
Living in the Isle of Man
The Isle of Man is in the same time zone as the United Kingdom (Greenwich Mean Time) and operates a
summer-time system between the end of March and the end of October, when clocks are advanced by one hour.
Normal business hours are 9:00 a.m. to 5:00 p.m. Monday to Friday. Shops are usually open also on
Saturdays and some are also open on Sundays. Businesses and industry are normally closed on the public
holidays, which may vary slightly from year to year.
The Isle of Man has a well-regarded educational system covering a comprehensive range of subjects.
Education is compulsory for children aged five to sixteen. All schools operated by the centralised state
educational system are free.
There is a mixed public (fee-paying) school with a preparatory school. Higher education is provided
through the Isle of Man College, which has links with the University of Liverpool. An international
business school has recently been established which offers courses at first degree level and higher.
There is a good national health service, which offers a wide range of services. Medical treatment is
free at the point of use, except for subsidised prescription and dental charges.
Privately let housing is widely available and there is a wide range (in style, location and price) of
owner occupied housing.
The Isle of Man offers a wide range of sporting and recreational facilities in a beautiful and safe
environment.
The Isle of Man has enjoyed continued economic growth for a consecutive 23 years and its per capita
income is now 13% higher than in the UK. The costs of living are broadly comparable to those in the
United Kingdom.
Summary
The Isle of Man Government’s policy is to provide an environment for business with the minimum
necessary controls. The objective is to preserve a mixed economy and the development of a variety of
sectors (agriculture, film, finance, light industry, tourism) is encouraged.
Economic Statistics
The Island’s Gross National Product (for the year ended 5 April 2006) was £1,700,935,000, a 5.7%
rise in real terms from the previous year. The proportions contributed by the various sectors of the
economy in the year to 5 April 2006 were as follows:
| Percentage |
|
| Manufacturing and Engineering |
8 |
| Finance |
39 |
| Tourist Industry |
3 |
| Construction |
8 |
| Agriculture and Fisheries |
1 |
| Public Administration |
5 |
| Prof. & Scientific Services |
20 |
| Other Services |
16 |
At May 2008 annual inflation stood at 5.6%. Economic growth (in gross domestic product) increase of
approximately 8% is forecast for the period 2007/2008, 6% for 2008/2009 and 6% for 2009/2010. A budget
surplus of £32.4 million is expected for 2008/2009.
Currency
The Isle of Man has a decimal currency system with the pound sterling as the principal unit. The
currency is essentially, the same as that of the United Kingdom, although the Isle of Man Government issues
its own notes and coins. The current policy in relation to the Euro is that the Euro will be adopted as the
Island’s currency if and when the British government does so for the United Kingdom.
Industries
Traditional Manx industries include agriculture, fishing and tourism; these industries have declined
somewhat in recent years and the finance sector has become increasingly important. Light manufacturing is
encouraged and there is a growing film industry.
There are no exchange controls.
Except for the items listed in (1) and (2) below there are no withholding taxes on payments made by
companies to non-residents.
(1) Rents paid by a company to a non-resident company will suffer a withholding tax of 10%.
(2) Rents and other taxable payments (such as remuneration) paid by a company to a nonresident individual
will suffer a withholding tax of 18%.
There are no authorisations required for borrowing in the Isle of Man and there are, in general, no
restrictions on lending to or borrowing from a foreign company. Subject to their complying with the relevant
regulatory “know your customer /customer due diligence” requirements, there are no restrictions
on foreigners holding bank accounts in the Isle of Man. There are no restrictions on Island residents holding
bank accounts abroad.
Summary
The following are the principal forms of business entity through which assets may be held or business
conducted:
- Companies (including the New Manx Vehicle)
- Non Isle of Man Incorporated Companies
- Partnerships and Limited Partnerships
- Limited Liability Companies
- Sole Proprietors
- Trusts
From the point of view of Isle of Man law there are no restrictions on non-residents or residents
acquiring or holding interests in Isle of Man companies, although acquisition by residents will result in
the loss of tax advantages in certain cases. There are no restrictions on residents acquiring or holding
interests in foreign companies. No government permission is needed in either case.
There is no restriction on the acquisition of Isle of Man situated real property except that it may not
be owned, directly or indirectly, by a purpose trust.
Special government incentives exist in relation to the production of films and television programmes in
the Isle of Man, manufacturing and services and e-business.
Isle of Man-incorporated companies which are publicly quoted are traded on the London Stock exchange;
there is no separate stock exchange.
Companies
Companies incorporated in the Isle of Man are governed by the Companies Acts and/or various other
related legislation. These also regulate non-Isle of Man companies and corporations with a place of business
in the Island. Companies are the usual form of business entity either in the Island or for conducting local
and international business from the Island.
A zero per cent general corporate tax rate is applied to Isle of Man resident companies with non-Island
beneficial owners.
The liability of members of a company may be limited or unlimited but it is extremely unusual for an
unlimited company to be used in offshore business. The company may be limited by shares; limited by
guarantee; limited by guarantee with a share capital; unlimited with shares; or unlimited without shares.
A limited liability company, which has some of the characteristics of a company and some of the
characteristics of a partnership, may be established; it may have a limited permitted life. Such a company
may be used (inter alia) to secure tax benefits in certain jurisdictions.
A company may be private (the most common form for offshore business, except for collective investment
schemes) or public, in which case it may offer shares to the public.
Non Isle of Man Companies
Non Isle of Man companies with a place of business in the Isle of Man must register with the Registrar of
Companies.
Statutory Requirements
The statuory requirements for all companies formed under existing legislation include:
- Maintaining registers of members, directors, secretaries or registered agent and charges;
- Maintaining accounting records and minutes of meetings;
- Maintaining a registered office or place of business in the Island;
- Filing an annual return and paying the statutory fee; and
- Filing notices of changes in various matters, including directors, secretary, registered agent and
registered office.
The ‘New Manx Vehicle’ (NMVs) introduced in 2006 has less onerous filing requirements.
All companies limited by share or guarantee are required to make a return of the appointment of directors
and company secretary (except NMVs), and any changes, within a month. The initial subscribing shareholders
are shown on the memorandum and articles of association. Changes of members (other than for limited liability
companies) are not filed except as disclosed in the annual return.
A company must hold an annual meeting of members (not applicable for NMVs).
The register of members, which must be kept in the Isle of Man, is open to inspection by the members of
the company and the general public (on payment of a reasonable fee) but the register of charges is open to
inspection, free of charge, by all creditors and members of the Company. All records held by the Registrar
of Companies are open to inspection by members of the public on payment of the appropriate fee.
The annual return includes details of shareholders and directors. Confidentiality as to membership can be
secured by the use of nominee shareholders. All companies are required to prepare annual accounts. There is
no provision for the accounts of a private company to be filed; however, the annual return of a company must
be accompanied by a declaration as to whether or not the company has complied with various legislative
provisions relating to accounts. The accounts of a public company must be filed at the Companies Registry.
Formation Procedures
One or more persons subscribe their names to the Memorandum and Articles of Association as the first
members. The Memorandum sets out the name of the company, the jurisdiction of situation of the registered
office, the authorised share capital (in the case of a company limited by shares) or the liability of the
guarantee members (in the case of a company limited by guarantee) or both (in the case of a hybrid company)
and the fact that the liability of the members is limited. The Articles of Association set out the procedure
for the day to day running of the company. The proposed name is usually first cleared as available and
acceptable with the Registrar of Companies and usually reserved. The Memorandum and Articles and the statement
of first directors, secretary (or registered agent) and registered office, together with the appropriate fees
are then submitted to the Registrar, who registers the Company. A certificate of incorporation is issued after
which the company is legally in existence. The required documents and procedures are slightly different for a
limited liability company.
Audits
Certain companies, other than a public company, a corporate service provider, a banking or insurance
company and a company authorised to carry on Investment Business, may, if permitted by their articles,
resolve not to appoint an auditor if the companies comply with the requirements of regulations. A company may
be exempt from audit if it meets 2 of the following 3 criteria:
- Its turnover in a financial year does not exceed £5.6 million;
- The balance sheet does not exceed £2.8m at any time during that year;
- It employs no more than 50 persons at any time during the year.
Minority Protection
In spite of the fact that the activities of a company are governed by the majority principle (unless the
constitutional documents provide otherwise) the Companies Acts contain compulsory provisions to protect #
minority shareholders.
Winding Up
Winding up may be either:
- By the court, in a variety of circumstances, including company insolvency; or
- Voluntarily, principally by a resolution of the members.
There is a statutory framework of responsibilities and a timetable in relation to both methods of
winding up.
Other Entities
Limited Partnerships, Partnerships and Sole Proprietorships
Ordinary partnerships (and sole proprietorships) may be formed whereby all partners are (or the sole
owner is) liable without limit for the debts of the partnership (or business) not satisfied by the
partnership (or business) assets. There is a trend away from this for professional firms in the Island.
Limited partnerships may also be formed. A limited partnership consists of at least one general partner
whose liabilities for the debts is unlimited and other, limited, partners whose liability is limited to their
agreed capital contribution.
Limited Liability Company
The limited liability company has a corporate personality distinct from that of its members, but its
articles of organisation may provide that it shall have much of the flexibility of a partnership.
The liability of its members, as such, is limited to the extent of their agreed contribution. In many
respects it can operate as an incorporated partnership.
Trusts
Trusts have a centuries-long history in the Isle of Man. The law in this area embodies the main
principles of English trust law supplemented or varied by legislation. It is most unusual for a trust to
engage directly in business; however, a company engaged in business may be owned by a trust. A purpose trust
may be used for asset-holding activities.
Business Registration
A business (other than an individual or a company carrying on business in the individual’s or the
company’s name, as the case may be) carrying on business in the Island must register its business
name.
Banks, Collective Investment Schemes, Insurance Companies and Pension Providers
Banks
The Financial Supervision Commission determines applications for banking licences and supervises the
activities of banks.
Two kinds of banks may be licensed:
- ‘Domestic banking institutions’, which must (under present policy), be subsidiaries or
branches of banks set up in other jurisdictions;
- ‘Offshore managed banks’ – where a domestic banking institution is appointed the
bank’s manager in the Isle of Man.
There is a depositors’ protection scheme for the compensation of depositors in Isle of Man banks.
The scope of this booklet precludes giving detailed information on the application for a banking
licence. To maintain the Island’s high reputation in this area, the licensing procedure is carried out
thoroughly and quarterly returns and audited accounts are required to be submitted to the Financial
Supervision Commission.
Collective Investment Schemes
Collective Investment Schemes (and other investment businesses) are also supervised by the Financial
Supervision Commission. There are regulations relating to the constitution and management of schemes, the
powers and duties of the operator and trustee and the rights and obligations of the participants.
There are, broadly, five classes of schemes:
- An ‘authorised’ scheme;
- An ‘international’ scheme – which may not be promoted or advertised in the Isle of Man;
- An ‘international restricted’ scheme – which may or may nor be promoted or advertised in the
Isle of Man, which has fewer than fifty participants and which is not open to the public;
- A ‘professional investor fund’ – aimed at professional investors or ‘high net worth
’ individuals; and
- An ‘experienced investor fund’ – aimed at experienced investors but lacking some of the
restrictions applying to a professional investor fund.
Insurance Companies
The insurance market is carefully regulated and consists of the local market for normal insurance risks
and the offshore captive insurance and reinsurance market. Insurance activities are supervised by the
Insurance and Pensions Authority. Detailed information on the making of an application to carry on insurance
business is outside the scope of this booklet. The details of requirements for applications for licences
vary slightly according to the nature of the business sought to be carried out and a licence specifies the
authorized class(es) of business.
Quarterly returns and audited accounts must be provided to the Insurance Supervisor. A statutory
policyholders’ compensation scheme has been established.
Pension Providers
A ‘light touch’ regulatory environment has been created in relation to the establishment and
operation of international occupational pension schemes. The regulation focuses on the trustee and the
manager rather than the schemes themselves.
A proposal document has been launched in the Isle of Man which is designed to provide greater flexibility
in the provision of pension schemes for the benefit of both residents and non-residents. Key aspects of the
document include:
- The purchase of annuities for a personal pension will be a choice not a statutory rule;
- Changes as to how funds can be withdrawn;
- The extension of investments permitted by a scheme which may include property;
- An increase in the possible lump sum withdrawn to 30% of the scheme and removing the maximum amount of
£150,000 available for withdrawal;
- Increase in the annual contributions allowance to £300,000 reviewed annually.
Residence
No consents or permits are required for a national of any of the member states of the European Union or
for anyone having a right of abode in the United Kingdom to take up residence for an unlimited time. There
are no qualification requirements for an individual buying any industrial or commercial property or for
buying or living in residential property.
Work Permits
Non Isle of Man workers (as defined in the relevant legislation) may not, other than in relation to a
limited range of work, be employed or self-employed unless they hold a work permit. The applicant for a work
permit needs to show that there is no suitable Isle of Man worker available; in practice, obtaining a work
permit for managers and executive staff or for workers with unusual, specialised or technical skills is not
usually difficult.
The tax regime for companies and individuals is discussed on the following pages within the Taxation
section.
Taxation and National Insurance
Employers and employees are required to make National Insurance contributions at rates currently broadly
the same as the United Kingdom. Full credit is given in the United Kingdom and the Isle of Man in respect of
contributions made in the other jurisdiction. Eligibility for benefits (and the level of benefits) in each
jurisdiction is broadly comparable.
Taxation of Companies
Parameters for Determining Income Subject to Income Tax
Companies resident in the Isle of Man are subject to income tax on their worldwide income. Companies
incorporated outside the Isle of Man but with a place of business there will be taxed on their Manx source
income. Companies are, in general, taxed at 0%. However, due to changes in the Man taxation laws affecting
Isle of Man resident companies and their Manx shareholders, taxation will be applied differently in the
following circumstances:
Distributable Profits Charge
The taxation regime of the Distributable Profits Charge (DPC) affects Isle of Man Companies with Isle
of Man resident shareholders. In the mainstream, from 6th April 2006 (2006/07 tax year), Companies which do
not distribute the minimum requirements to the Isle of Man resident shareholders will be liable to pay a
Distributable Profits Charge on behalf of the shareholders. Once a distribution has been made from profits
subject to DPC a credit will be attached which is creditable in the Isle of Man resident shareholders
personal assessment.
Types of Companies
Companies falling under DPC will be classified as Trading Companies, Investment Companies or Mixed
(where a proportion of income is earned by investments and trading).
Investment Companies
These companies are required to distribute 100% of the distributable profits to their Isle of Man
resident shareholders. If a company does not distribute its distributable profits then the company will
incur a Distributable Profits Charge of 55% x 18% of the distributable profits available.
Trading Companies
These companies are required to distribute 18% of the distributable profits to their Isle of Man
resident shareholders. If a company does not distribute its distributable profits then similarly the
company will incur a Distributable Profits Charge of 55% x 18% of the distributable profits available.
Mixed Companies
Companies may have a mixture of investment income and trading income and in such cases the company will
have to ascertain the proportion of each type of income and follow the rules for investment and trading
companies for each type of income earned.
Attribution Regime for Individuals
The Attribution Regime for Individuals (ARI) will apply to Isle of Man resident individuals who have a
shareholding in an Isle of Man resident company. In certain circumstances the taxable/distributable profit
of the company will be attributed and assessed to tax on the shareholders.
For simplification, under ARI a company will either be defined as a trading company or a non trading
company as with DPC, however in order for a company to be deemed as a trading company the income from
trading activity must comprise at least 50% of the gross turnover. ARI will be introduced for companies
with accounting periods commencing on or after 6th April 2008. Previous accounting periods are subject to
DPC rules.
Trading Companies
In order for the company to avoid having its profits attributed to its Isle of Man resident
shareholders it must distribute at least 55% of its distributable profit. The company must make this
minimum distribution no later than 12 months after the end of its relevant accounting period. If the
minimum distribution is not made then 100% of the company’s distributable profit will be attributed
to the shareholders 12 months after the end of the relevant accounting period.
If the distributable profit of a company is attributed to the shareholders then any subsequent
distribution from the relevant accounting period will not be charged to income tax on the shareholder.
Non - Trading Companies
The distributable profits of the company will be attributed to the shareholders in all cases 12 months
after the end of the relevant accounting period.
Any distributions made from the relevant accounting period will not be charged to income tax on the
shareholder.
Rates of Income Tax
The income of companies is subject to income tax. The profit of companies other than banks and building
societies (the profits of licensed banks from their banking a business is taxed at 10%) is 0%. There are
also special rules in relation to income derived from land and property in the Isle of Man which is taxed
at 10%. The rates of resident income tax, non-resident income tax and amount of allowances are proposed to
Tynwald by the Treasury Minister on Budget Day in February each year and for the tax year 2008/2009 were
as follows:
- Basic (personal rate 10%
- Higher (personal) rate 18%
- Corporate (standard) rate 0%
Income Subject to Income Tax
The Tax Base
Taxable income is, broadly, profits from Island situated property and the profits of a trade, business
or vocation less allowable expenses. Such expenses will include expenditure incurred wholly and exclusively
for the purpose of the trade, interest payments to Isle of Man lenders and capital allowances for buildings,
plant and machinery.
Income received by companies that is derived from land and property in the Isle of Man (including rental,
mineral extraction and property development) are taxed at a rate of 10%. Where the dividend or interest
payment is made from outside the Isle of Man and subject to withholding tax in the country of payment, it is
possible that unilateral relief may be claimed against Isle of Man income tax to prevent a double charge to
tax on the same income; the amount of relief will be such that the total (Isle of Man and overseas) tax
suffered on the overseas income will be no more that if the income had been wholly Manx source.
Capital Gains
Capital gains arising in a business are not themselves subject to income tax but may (if the gain is in
respect of an item on which capital allowances have previously been claimed but where the sale price exceeds
the unallowed portion) give rise to a balancing charge.
Depreciation
Assets are depreciated in accordance with their estimated useful life.
Taxation of Shareholders
No withholding tax is required to be deducted from any dividend or interest paid to non-residents.
Film and Television Industry Incentives
The earnings of certain individuals involved in film production in the Isle of Man may also receive
favourable treatment.
Taxation of Individuals
Income Tax
Income is taxable on either of two criteria:
- Residence in the Isle of Man of the taxpayer – the taxpayer’s worldwide income is taxable;
- Isle of Man source income arising or accruing to a non-resident of the Island.
An individual’s income tax liability is capped at £100,000.00 or £200,000.00 in the case of a
jointly assessed married couple.
A person who spends more than six months in the Isle of Man will be regarded as a resident. An
individual who has Isle of Man accommodation available for use but the total period of whose residence,
together with that of his family, in two consecutive years does not exceed four months may elect to be
treated (for income tax purposes) as a non-resident. There are detailed rules regarding the commencement
and termination of residence.
An individual’s gross income is subject to various reliefs and allowances. All resident taxpayers
are entitled to a personal allowance. Each of a husband and wife is entitled to a personal allowance. The
personal allowance of one member of a married couple may be wholly of partly transferred to the other
member. Relief is allowed (at the highest marginal rate) for loan interest paid to an Isle of Man institution
and for contributions made to an approved pension scheme.
Expenditure incurred wholly and exclusively for the purpose of a profession or trade is also allowable.
There are special rules dealing with the valuation (for income tax purposes) of benefits in kind,
particularly cars provided by employers.
National Insurance Contributions
The rate varies according to whether the individual is employed or self employed.
Losses
The scheduler system of income tax means that losses arising in one schedule must first be set against
income arising in the same year in the same schedule. Any surplus losses may be carried forward and set
against the first available profits of the same schedule in a subsequent tax year; losses may be carried
forward until relieved in full.
Double Taxation Relief
A full double taxation agreement between the Isle of Man and the United Kingdom exists which provides
that:
- Trading profits belonging to a resident of one territory are taxable there unless attributable to a
permanent establishment in the other territory;
- Profits from operating ships and aircraft by a resident of one territory are taxable there;
- Certain personal services performed in a territory are exempt in that territory if performed by a
resident of another territory for a resident of that other territory; and
- In circumstances where there might otherwise be a liability to double taxation, which is possible in
the case of dividend income and interest, relief may be allowed.
Recent negotiation between the Isle of Man and Sweden, Norway, Finland, Iceland, Denmark, Greenland and
the Faroe Islands have resulted in agreements between Isle of Man and the seven members of the Nordic
Council in the areas of double taxation for individuals, companies, shipping and aircraft. It also provides
for an agreement on the exchange of information (in line with the OECD principles of effective exchange of
information). A similar agreement is now in operation between the Isle of Man and the Netherlands.
Returns and Payments
Taxation Period
The tax year ends on 5 April. Assessments are on an actual basis (for companies, partnerships, sole
traders and individuals), i.e. in respect of the accounting year ending in the same tax year.
Tax Returns
Tax returns (for both individuals and other taxable entities) must be returned to the Assessor of
Income Tax by 6 October immediately following the relevant tax year; fines may be levied where returns are
filed late. Employees who have had tax deducted at source must complete and file a return.
Deduction at Source on Employment Income
Employers carrying on business in the Isle of Man are required to deduct from the employment income of
their employees a sum on account of the employee’s income tax liability and to pay that deducted sum
to the Assessor of Income Tax under the ITIP (Income Tax Instalment Payment) system. In calculating the
amount of tax to be deducted, account should be taken of the allowances and reliefs to which the employee
is entitled.
Payment Dates
Income tax is required to be paid, following an assessment, by individuals by 6 January in the year
following the tax year to which the payment relates. Interim assessments may be raised earlier than the
final assessment and require a payment on account of the tax liability by 6 January in the year following
the year of assessment; any interim payment made will be taken into account in assessing a final liability
to income tax in respect of the tax year. In the case of companies, payment of income tax is due by twelve
months and a day after the financial year-end of a company.
Additional Assessments
The tax authorities can make an additional assessment within six years after the end of the tax year if
the taxpayer has filed an incorrect return. In the case of fraud or deliberate nondisclosure there is no
limit on the period where assessments may be reopened.
Advance Rulings
In general, the Assessor of Income Tax is not prepared to give binding advance rulings on the manner in
which any given transaction will be treated for tax purposes. However, the Assessor is prepared to take
part in informal discussions in relation to proposed transactions and to give non-binding indications of the
tax treatment which he is likely to apply.
Other Significant Taxes
Value Added Tax
The Isle of Man forms a common customs area with the United Kingdom. Accordingly, for almost all
practical purposes, the Value Added Tax regime in the Isle of Man is the same as that in the United Kingdom,
although it is administered by the Customs and Excise Division of the Isle of Man Treasury, and not by any
United Kingdom agency or authority. The VAT numbers issued are ‘GB’ numbers.
Other Taxes
There is no capital gains tax, inheritance tax, death duty, wealth tax or stamp duty. Rates are payable
on commercial industrial and domestic property according to their value.
Company accounts are prepared according to accounting standards adopted by the Accounting Standards
Board in England and Wales. Companies conducting business in the Isle of Man are required to keep books of
account.
Current accounting records must show all transactions changing the financial position of the company.
Each transaction must be supported by a document of verification. All accounting records must be kept for
ten years. A parent company must prepare consolidated accounts for the group. Assets must be stated at the
lower of cost and net realisable value (the sales value less estimated sales costs). Fixed assets should
be stated at cost or valuation in respect of investment properties.
The financial year usually covers twelve months. However, the financial year may be extended beyond or
reduced below twelve months in some circumstances.
The Companies Acts require Isle of Man companies to prepare financial statements to the end of the
financial year (less prescriptive rules exist for NMVs). In general, the accounts must be audited and
submitted to members for their approval at the annual general meeting of the members. However, certain
categories of companies (not including companies entitled to carry on banking, investment business, and
insurance business or to act as an insurance manager) may, if their constitutions permit, make their
accounts exempt from the requirement of audit as mentioned earlier.
The Companies Acts specify the form and content of accounts. Accounts for a partnership may follow any
format which is in accord with generally accepted accounting practices.
Many large internationally-known banks are present in the Isle of Man. The nature of business in the
Island means that many are familiar with international trade and business and various forms of financing.
The most common security for long term loans are mortgages on real property and fixed or floating
charges over company assets.
Isle of Man publicly quoted companies are traded on the London Stock Exchange – either on the main market
or on AIM (the Alternative Investments Market). The offer of shares to the public entails producing and
filing (at the Companies Registry) a prospectus which complies with the relevant provisions of Isle of Man
company law (again less prescriptive rules govern NMVs); if the shares or stock are to be listed on a stock
exchange, the relevant listing rules will need to be complied with.
As at October 2007, the Isle of Man was the leading offshore jurisdiction for company incorporations
listed on London’s Alternative Investment Market (AIM). 57 of the 409 non-UK countries of operation
listed and 15 of the Non-UK AIM 100 companies were incorporated in the Isle of Man.
Most finance companies offer financial leases. For tax and accounting purposes, there are distinctions
between rentals and purchase by instalments. Some finance companies provide a secured financing called
factoring, in which the debtor’s receivables are pledged as collateral.
The Isle of Man’s legal system is a common law system. The Island’s own legislature
legislates for the Island.
In many respects, the principles of law are similar to English principles. In areas particularly
relevant to international business the Island’s legislation is considerably different from that of
England; this is so in the area of company law, employment law, tax law, the law of trusts, the law
regulating insurance activities, collective investment schemes and financial services and the law relating
to shipping and aircraft registration.
The Isle of Man has its own system of courts, with a High Court and a Court of Appeal. Appeal ultimately
lies to the Judicial Committee of the Privy Council.
To be registered in the Isle of Man, a ship must, in general, be over twenty-four metres in length. A
majority interest (33/64 shares or more) must be owned by a ‘qualified person’ which includes
bodies corporate incorporated in the Isle of Man or Ireland or any British Colony and limited partnerships
having their principal place of business in the Isle of Man or an Island resident general partner.
A merchant ship can be registered in the Isle of Man only if its management is undertaken by a
ship’s manager who is resident in the Isle of Man.
There is also provision for the registration in a separate small ships register of ships that are less
than twenty-four metres in length and are not fishing vessels.
The Isle of Man introduced an international aircraft register for private and corporate aircraft in May
2007. It is the intention of the Isle of Man Government that the Aircraft Register will mirror the quality
and success of the Island’s highly respected and successful Shipping and Superyacht Register.
An aircraft registered in the Isle of Man will carry the prefix ‘M’ on it which has been
designated as the Isle of Man country designation for registered aircraft.
To register an aircraft it must weigh more than 5,700kgs other than for residents or businesses operating
from the Isle of Man and have an EASA Type Certificate. Should it meet the criteria laid down by the Isle of
Man Aircraft Registry, it is possible for an existing aircraft to be transferred from another aircraft
register with proof of an Export C of A or equivalent document together with a letter of confirmation of
deregistration.
In the first twelve months of operation the Aircraft Register has already registered more than 50 aircraft
and expects this high volume of registration to continue.
Corporate and Trust Services
The providers of certain services in relation to companies and trusts must be licensed by the Financial
Supervision Commission. The services to which this requirement relates includes the incorporation of
companies, the provision of directors (including corporate director for NMVs), secretary, registered agent,
registered office and carrying out any administration activities acting as a trustee. Grant Thornton (Isle
of Man) Limited is licensed to provide these services.
Anti-Money Laundering
The Isle of Man recently passed the Criminal Justice (Money Laundering) Code 2007 which updates the
Anti-Money Laundering Code and amendments of 1998. The Code has also brought updates to the Anti-Money
Laundering Guidance Notes which impact on the administrative requirements on businesses such as banks,
investments, collective investment schemes and fiduciary services amongst others.
Insider Dealing
Legislation has been enacted prohibiting dealing, whilst holding unpublished price sensitive information,
in securities listed on a recognised stock exchange including shares, debt securities, warrants, depositary
receipts, options, futures and contacts for differences.
Criminal Activity and Proceeds of Crime
There are various offences in connection with involvement in criminal activity and dealing with the
proceeds of such activity.
Consolidation and Review of Regulatory Legislation (“CAROL”)
The Isle of Man Financial Supervision Commission is currently undertaking a review of all the financial
services regulatory legislation under which it operates with the aim of consolidating this into one Act and
one “rule-book” that will apply to all the activities and financial products it is responsible
for regulating. The review and consultation programme is ongoing with expected action due in 2008.
The Isle of Man Companies Act 2006 which came into force on 1 November 2006 has introduced a simplified
corporate structure based on the International Business Company model adopted in other international centres
such as Bahamas, Barbados and the British Virgin Islands. The ‘New Manx Vehicle’ exists alongside
companies incorporated under the existing Companies Acts 1931-2004 and although the 2006 Act maintains
established concepts, it does offer different approaches to traditional company law formalities.
Some of the key features of an NMV are:
- Minimal registry filings;
- Unlimited capacity, but restricted objects permissible;
- No capital maintenance requirements (subject to solvency);
- No authorised capital;
- Shares of no par value possible;
- Redemptions and purchases of shares and distribution of income and capital possible (subject to
solvency);
- No financial assistance prohibitions;
- In general, no annual return requirements;
- Requirement for a registered agent;
- Corporate directors permitted (subject to holding the appropriate licence issued by Isle of Man
Financial Supervision Commission);
- Single director permitted;
- No prescriptive accounting requirements;
- No distinction between public and private companies;
- Simplified offering document requirements.
Online Gambling is an increasingly significant sector of activity. Businesses (which must be Isle of
Man-incorporated companies limited by shares) need to be licensed by the Department of Home Affairs. As part
of the application process, the directors and the beneficial owners of more than 5% of the applicant or its
ultimate parent company need to provide information to the Department – in order to enable the Department to
carry out its inquiries to satisfy itself that the company is controlled by persons of integrity and managed
by persons of competence and integrity.
A licenceholder must have a “Designated Official” who must be a director and reside
permanently on the Island.
The profits of an online gambling business can, if structured appropriately, be taxed in the Isle of Man
at 0%.
Online Gambling Duty is payable on gross gaming yield (which is defined in detail, but is broadly, bets
less winnings and prizes) as follows:
- 1.5% on yield not exceeding £20 million per annum;
- 0.5% on yield of more than £20 million but not exceeding £40 million per annum;
- 0.1% on yield exceeding £40 million per annum.
A separate regime, from the above, applies for internet and telephone sports betting. The profits can,
again, be taxed at 0% and betting duty is payable, the rate depending on the place where the persons placing
the bets are located.
In the case of both regimes, licence fees are payable.
Grant Thornton (Isle of Man) Limited
July 2008