04/11/2019

Isle of Man Company Formation

Private Company Limited By Shares
The Isle of Man is a high-reputable international finance and international business center due to its political stability, business-friendly policies and an attractive fiscal and regulatory environment.

In 2006, it came into force the Companies Act 2006, which currently co-exist with present and future companies incorporated under the previous Isle of Man Companies Act 1931.

The newest Companies Act presents several advantages over the previous one:

Under the Companies Act 2006, the ultra vires doctrine does not apply. This means that a company has unlimited capacity to carry out any business or transaction if it is in the best interests of the company to do so, notwithstanding any provision to the contrary in a company’s memorandum and articles of association.
Companies incorporated under the Companies Act 2006, may have a single director and may be corporate, instead of the two individual directors required by the Companies Act 1931.
Share capital and class of shares issued provisions are more flexible.
There is not a distinction between private and public companies and therefore shares may be offered to the public.
Directors may authorize distributions by the company to its shareholders at such time and of such amount they deem appropriate if the company if the financial viability of the company is not compromised immediately and the company passes the solvency test.
Accounting requirements are noticeably lower. Companies subject to the Companies Act 2006, are only required to keep accounting records and those may be kept anywhere. Financial statements preparation is not mandatory and private companies are exempt from audit. In the Companies Act 1931 Act, companies are required to file financial statements and audit their accounts if their turnover, balance sheet and the number of employees exceeds a certain threshold.
2006 Act Companies are not required to file with the Registrar details of any change in its directors as they occur, share capital variation or alteration, any allotment of shares or any shareholders’ resolution.
These changes have been aimed at competing with jurisdictions that offer international companies that are easy to manage and with advantageous tax systems such as the British Virgin Islands, Cayman Islands or Bermuda. With the addition that Manx companies are not restricted from carrying out onshore transactions or own assets located on the island.

Companies incorporated in the Isle of Man are subject to corporate income tax at a 0% rate. A 10% tax rate for companies engaged in the financial services business and Isle of Man’s property transactions.

Dividend distributions, royalties, and interests paid to non-Manx residents are subject to withholding tax at the rate of 0%.

In addition, the Isle of Man is part of the customs territory of the EU under Protocol 3. Therefore, Manx incorporated entities benefit from free trade with the EU and EU VAT registration.

However, the recent BREXIT has created uncertainties on the Isle of Man’s future relationship with the EU and companies holding EU assets and trading with the EU.

The Isle of Man is a signatory to the Paris Convention on Patents and Trademarks, making the Isle of Man limited company an interesting vehicle to hold intellectual property.

The Isle of Man has also enacted legislation for businesses dealing with cryptocurrencies. The Designated Business (Registration and Oversight) Act 2015 regulates cryptocurrency businesses, such as exchanges, and requires them to register with the Isle of Man Financial Supervision Commission and comply with Anti-Money Laundering and Countering Terrorist Financing legislation and the Proceeds of Crime Act 2008.

The country has also a strong E-Gaming industry, due to its gaming license simple application process, low betting duties, its extensive cluster of services providers/advisors with experience in the industry and its supportive legislation.

The Isle of Man has started to undertake the first OECD automatic exchange of information (AEoI) through Common Reporting Standard (CRS) in 2017 and has signed over 50 tax information exchange treaties (TIEa) and 11 double taxation agreements (DTA).

Companies conducting relevant activities such as fund management, banking, insurance, finance and leasing, distribution and service center business, headquarters business, intellectual property business, shipping, and holding company business – are required to meet economic substance requirements:

conduct its core income-generating activities in Isle of Man (which are defined in the law).
be directed and managed from within the Isle of Man.
have an adequate amount of operating expenditures incurred in or from within the Isle of Man.
have an adequate physical presence (including maintaining a place of business or plant, property, and equipment) in the Islands.
have an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.
Holding companies which only hold equity participations in other entities and only earn dividends and capital gains will be subject to a reduced economic substance test – it must have complied with all applicable filing requirements and must have adequate human resources and adequate premises in the Islands for holding and managing equity participations.

With respect to IP holding companies – companies that are exploiting IP rights and:

have not created such IP
have acquired the IP from a company of the same group structure or from a third-party that has conducted research and development out of Isle of Man and licenses the IP to a company(s) of the same group
or does not carry out research and development, branding or distribution as part of its Isle of Man core income generating activities – are considered high-risk intellectual property businesses and may be subject to an enhanced substance requirements test.

All in all, an Isle of Man company is an excellent vehicle for movable and immovable assets holding, investments companies and SPVs, e-gaming and wealth management.