The self-governing kingdom of Isle of Man is located in the Irish Sea, positioned between Great Britain and Ireland. As a British Crown sovereign nation, it does not belong to either the United Kingdom or European Union. 

Anyone looking to start an international company should consider Isle of Man as an ideal jurisdiction due to its stable secure economic regulatory framework. Isle of Man has a strong and robust banking, financial services, tourism, and manufacturing sector has significantly contributed to its GDP per capita of $89,112. International investors, both private and corporate, are attracted to Isle of Man due to its taxation regime. In Isle of Man, there are no capital gains taxes, turnover tax, capital transfer tax, stamp duties, and low rates of income tax.

The Isle of Man is not a full-pledged member of the EU but carries an associate status. This allows Isle of Man traders free trade with the rest of the EU member states with no liability for financial contributions or access to EU grants. As a result, the Isle of Man is an attractive location for the registration of trading companies and trust formation that require a genuine EU VAT number but also want to take advantage of Isle of Man’s full corporate tax exemptions. 

What are the Benefits of Registering a Company in Isle of Man?

• 0% Corporate Tax

Provided a company is not a property company or retailer earning more than £50,000 income derived from Isle of Man.

• Dividends  to non-residents are taxed at 0%

• No Capital Gains Tax

There is no tax levied on capital gains derived from the sale of any holdings. 

• No Inheritance Tax

The absence of inheritance tax makes it a highly efficient way of owning properties. 

• No withholding tax is due on dividends payable to shareholders.

• Doble tax relief for foreign tax paid. 

Isle of Man Business Vehicle Types

As stated in the 1931 Act and 2006 Act, companies in the Isle of Man operates in two different streams of corporate entities.

• The 1931 Act Companies structure operates as a traditional corporate entity , thus is subject to operational and filing requirements. 
• The 2006 Act Companies structure is updated, specifically designed for greater flexibility in its management and operation, while still upholding the necessary safeguards. 

Under both 1931 and 2006 Companies Act, investors can choose from three types of company structures, including:

Company Limited by Shares

• The most used company structure, where liability of members is limited to the amount unpaid on shares they hold. 

Company Limited by Guarantee

•  A company with no fixed capital and no shares, The liability of members is limited to the amount they contributed. 

Unlimited Company

• Company structure operating similarly to a civil law partnership. It is used for limited to situations where a corporate personality is a requirement. The company has a set share capital, without limited liability among its members. 

Incorporation Requirements of Foreign-Owned Company in the Isle of Man

Company formation of a foreign-owned company in the Isle of Man translates to registering a limited liability company. To be eligible to form a limited liability company in the Isle of Man, certain requirements must be met:

• Company name section. Business name must end in Ltd., Limited, Public Limited Company, or PLC. 
• Appointment of a company director, who may or may not be a resident of the Isle of Man.
• Preparation for registering documents of incorporation
• Carrying a legal address in the Isle of Man. 
• Company must have a bank account in the Isle of Man. 

Even when a foreign-owned company is incorporated in the Isle of Man, its activities cannot be held in the country. Additional steps must be taken for companies who wish to engage in commercial activities locally. Regardless of whether a company records trading activities over the past year, it must file an annual return. Fees for annual return filing vary based in the company type. It is generally less for standard companies and higher for companies that are registered as charities. Penalties are applicable in case of failure to file a return. Additionally, actions may be taken upon the company offices. In some cases, a company may become unregistered as a result of failure to file a return.

Company name change is possible after a successful Isle of Man company registration, provided all the necessary documents are filed with involved parties. Details such as the name of directors and secretary can be changed, in situations like appointment and resignation. Fees are applicable in the above-mentioned changes. Typically, fees will be higher if more than three months have passed between the time a change has occurred and the time the changes are registered. 

Isle of Man Company Management

Investors can appoint an officer or a nominee director or shareholder. 

• This measure is undertaken to increase the level of confidentiality for a company’s beneficial owners. 
• The nominated office must be a resident of Isle of Man. 
• A nominated office will be responsible for holding relevant information on behalf of the beneficial owner. 

Annual Declaration in the Isle of Man and other Pertinent Requirements

Isle of Man companies with a registered business name must fulfil a set of requirements. 

• Annual declaration stating a business will continue to trade and will not change any of its particulars. 
• Deadline of file is on the anniversary of the name registration, each year without any additional fee. 
• Business name change will require companies to file different forms. 
• Changes can be made for registration by an individual, a partnership, or a corporate entity. All requirements must be filed with the Isle of Man Companies Registry. 
• Annual return must be filed by company owners in the Isle of Man, reflecting the situation of the company on its registration anniversary.
• Compliance to annual return is mandatory. Failure to do so can result in prosecution of company officers or being struck of the register. 
• Three annual returns that must be filed will be based on company type, whether it is for a 1931 Act company, 2006 Act company, or a foreign-owned company.

Most Common Uses of a Foreign-Owned Company in the Isle of Man

Foreign investors interested in Isle of Man company formation must know that entities can only be used for the following reasons:

• Trading activities with companies within EU 
• For investment purposes
• For holding purposes

Companies with Specific Purposes

• Companies that are incorporated for specific purposes, such as in the case of insurance, mutual funds, and other financial services will be under the supervision of the Isle of Man Financial Services Authority. 
• The Financial Services Act of 2008, Insurance Act of 2008, and the Collective Investment Schemes Act of 2008, are all crucial legal resources for investors in starting a business in the financial sector in Isle of Man. 
• Companies who wish to engage in e-gaming and gambling activities in the Isle of Man are required to adhere to specific regulations set forth by the Gambling Supervision Commission. 
• Gambling activities are required to comply with licensing requirements, while ensuring the industry is crime-free. 

Step-by-Step Process in Company Name Registration

Step 1- Company Name Reservation 

• Check for name availability. 
• Check name suitability. There are certain words restricted upon registration, while some may require special permission for use. Applicants are required to check the Company and Business Names Name Regulations 2013 to check for restricted words or phrases. 
• Following submission of name application, the registry will recommend to file within 48 hours for approval. Upon approval, a unique number will be issued and reserved for three months. 

Step 2- Identify a Company Structure

Under the 1931 Act, companies are required of the following:

• Registered office address in Isle of Man. 
• At least two natural persons assuming the role of company directors. 
• There are no requirements for Isle of Man directors to be residents. 
• A natural person or entity may act as company secretary. In most cases, one of the directors may also act as secretary. A third party may also be appointed. 
• There must be one or two parties that will act as subscribers and shareholders following registration. Single member companies are prohibited., 
• One or more parties must act as nominated officer/s of the company. 
• Nominated officer must be a resident of Isle of Man.
• A company must set an authorized and issued capital. 
• Authorized capital under 1931 Act, companies must have an authorized capital of £2,000 that can be divided into 2000 ordinary shares of £1 each. 
• Issued capital consisting of £2,000 divided into 2000 ordinary shares of £1 each. It is also convenient to issue 100 ordinary £1 shares for consideration of £100 as this corresponds to Isle of Man’s incorporation fee. 

Step 3- Preparation and Submission of Incorporation Papers

All incorporation papers must be prepared, signed, and submitted to the Registrar of Companies with the prescribed incorporation fee of £10 and unique reservation number. 

Isle of Man incorporation papers consist of the following:

• Isle of Man Companies Registry Form 1, which includes details, such as registered office address, names of directors, company secretary, nominated office, and subscribers, all duly signed by concerned parties. 
• Memorandum of Association, containing rules and regulations by which a company operates. Under the 1986 Act Companies, it provides a set of model articles. These can be adopted in full, partially, or customized by the company.
• Articles of Association must be signed by all subscribers or shareholders in original and witnessed by an independent person. 

Step 4- The Registration of Companies Facilitates the Formation of a Company 

After submission of incorporation papers, the Isle of Man Registrar of Companies will review all documents and ensure their completion. It will use its power to incorporate the company.

Following incorporation, a unique company number will be assigned to a company, a certificate of incorporation will be used, and online public register will update the company’s details, including copies of the company’s documents. 

a unique company number will be assigned to the Company, a certificate of incorporation will be issued, and the online public register will be updated with Company’s details including copies of the company documents.

Isle of Man Taxation Regime 

Tax Residency

A company is recognized as tax resident in the Isle of Man given it is incorporated in the Isle of Man, or its place of central management, with full control located in the Isle of Man. Therefore, a company incorporated in the Isle of Man will be subject to certain conditions, with the approval of the Assessor of Income Tax. A company managed elsewhere will not be considered as a tax resident. 

Basis 

Resident companies will be taxed on a worldwide basis, while non-residents will be subject to tax on their income derived from the Isle of Man. 

Tax Rate

Corporate standard tax rate is 0%. A 10$ tax rate is applicable to companies conducting banking transactions in the Isle of Man and licensed by the Isle of Man Financial Supervision Commission, and the companies that conduct retail activities in the country. 

Income from real property located in Isle of Man will be assessed with 20% tax.

Capital Gains

All capital gains are exempt from taxation. 

Dividends

All dividends received from resident and non-resident entities will be assessed with 0% tax.

Interests

Interest income is taxed at a standard rate of 0%. 

Royalties

Royalties income is subject to a standard rate of 0%.

Foreign-Sourced Income

Foreign-sourced income is taxable at a rate of 0%. 

Withholding Taxes

All dividends, interests, and royalties paid to non-residents will be subject to withholding tax at a standard rate of 0%. Interest and rental income derived from land and property will be subject to a 20% tax rate. 

Losses

Losses arising from taxable income will be carried forward indefinitely. Meanwhile, carryback of losses to the preceding year Is allowed. 

Inventories

Inventories will be valued at a lower cost or net realizable value assessment is acceptable. The First In First Out method is permitted, but the Last In First Out method is not allowed for taxation purposes. 

Anti-Avoidance Rules

The Isle of Man has not enacted any transfer pricing regulations. On the other hand, thin capitalization rules and controlled foreign companies are also not applicable in Isle of Man. 

Labor Taxes

Employers are mandated to make contributions to the National Insurance at 12.8%  on employer’s income above IMP 118 per week. Reduced rates are applicable in certain situations. 

On the other hand, employees are required to make contributions to the National Insurance at 11% of their earnings above IMP 118 to 784 IMP per week, above this amount, a 1% contribution is applicable. 

Tax Credits and Incentives

Unilateral tax relief for foreign tax paid is available up to the tax payable in the Isle of Man. 

Under the Land Development Tax Holiday, relevant profits of Isle of Man companies may be exempted from tax, given they offer productive employment in the Islands. Profits included are those from new and improving commercial developments and rental income received on these commercial developments. 

Personal Income Tax

An individual is considered a tax resident in the Isle of Man if it is physical present in the island for at least 183 days or more in any given tax year, or an average of 91 days or more over four consecutive years. 

Residents are taxed on their worldwide income, while non-residents pay tax on their income derived from the Isle of Man. 

Income tax is levied at 10% on annual income up to £8,500 and 20% on the excess. Capital gains are not subject to taxation.

Investment income is taxed as ordinary income. 

For non-residents, income sourced from the island is taxed at 20% flat rate. On the other hand, non-residents don’t pay tax on dividends, while bank interest and building society interest are exempt from taxes. 

Other Taxes

Companies incorporated under the Companies Act 2006 are no subject to capital duties on the creation of new share capital. 

For Value Added Tax and Custom duties purposes, the Isle of Man and UK forms a single territory. Value Added Tax is set at a 20% standard rate. 

There are no property taxes more than 20% income tax payable from rental or development of land and property. 

In Isle of Man, there are no transfer, stamp, inheritance, or wealth tax assessments. 

Double Tax Treaty Network

At present, the Isle of Man has contracted double taxation treaties with 23 countries, including the United Kingdom, Luxembourg, Belgium, Germany, Finland, Denmark, Ireland, Australia, Malta, and many more. 

For instance, Isle of Man has agreed on a double taxation agreement with Luxembourg for the avoidance of double taxation and the prevention of fiscal evasion  with respect to taxes on income and capital.

Company formation in a foreign jurisdiction is never a simple activity. Intricacies such as obligations, procedures, schedules, and costs vary from country to country. In some cases, these factors may also differ across cities and provinces in the same country. Damalion aims to help foreign investors through a smooth and hassle-free Isle of Man company formation process. As a premier company in cross-border company formations, we have the resources, expertise, and knowledge to help you gain an edge in your chosen foreign investment jurisdiction. Our global service network consists of seasoned professionals, including lawyers, accountants, and advisors that can help you in the incorporation and management of your company in the Isle of Man. From business name selection, company type selection to opening a bank account, Damalion will be with you every step of the way. If you wish to learn more about how we can help you reach your business goals and objectives, reach out to a Damalion expert today. 

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.