Isle of Man Private Companies

Isle of Man companies pay 0% corporation tax, are straightforward and reasonably cheap to form and have historically been used extensively in global tax planning most especially by the English and Irish. Their main use has been the holding of UK property but they are a very flexible vehicle. Isle of Man is currently under review (along with the Channel Islands) and it is our opinion that the use of such companies is likely to be greatly curtailed. For more information on this matter generally please see our main page on offshore structures. Isle of Man companies are well regulated and the Island has a good reputation (amongst tax havens).

Types of Isle of Man Companies
Before going further it should be noted that there are two types of Isle of Man private companies, 1931 Act traditional companies and 2006 Act companies. The 2006 Act companies are formally called New Manx Vehicles (NMVs) but we use the term 2006 Act and 1931 Act. If the distinction is relevant it will be highlighted otherwise throughout this article the term ‘company’ shall be used loosely to refer to both types. In the event of formation advisors will recommend the appropriate type. Here follows a summary of the differences.

1931 Act Companies
Companies formed under the 1931-2004 Companies Acts are called 1931 Act companies. They pay 0% tax, have a director or board of directors (and a secretary) who manage the company for the benefit of its shareholders, they have share capital and are very straightforward companies of the sort one would find anywhere. Any legal or natural person can be the secretary but the directors must be natural persons only and there must be two of them. Any legal or natural person can be the shareholder of an Isle of Man company and they can be formed by any person. 1931 Act companies can be converted to 2006 Act companies but the reverse is not true.

2006 Act Companies
2006 Act Companies (or NMVs) are an attempt to implement a BVI style of international companies with reduced reporting requirements and simplified operation into the Isle of Man’s legal system but without altering the existing law. Companies formed under the 2006 Companies Act operate under a parallel legal system running completely separately to the 1931-2004 Companies Act. These companies also pay 0% tax and have directors (which in this case can be legal or natural persons and they can have a single director) but they do not have secretaries or share capital. 2006 Act companies can only be formed by a licensed service provider and must appoint a registered agent (who is a licensed service provider) with whom all responsibility rests notwithstanding the actions of the directors.

Isle of Man companies not having local shareholders are not subject to any tax whatsoever though they pay a nominal fixed fee to the government on formation and annually. The only exception is local banks and income derived from local property. 

The Isle of Man is part of the UK for VAT purposes only. The consequence of this is that it is possible to very quickly (and relatively cheaply) obtain a UK VAT number using an Isle of Man company (in a matter of weeks rather than months). The disadvantage is that VAT registration is often compulsory and may be an associated cost even if not desired, as opposed to non-EU offshore countries where it is not relevant. In any case if VAT registration is desired the Isle of Man is the only country which provides a 0% tax environment in which it can be achieved. VAT registration is of course also possible in all EU countries and some tax saving can still be achieved through the use of,low tax EU countries, such as Malta (where the tax rate is 5%) or the UK (where tax transparent structures can achieve an effective rate of 0% however much greater delays should be anticipated with UK registration as opposed to Isle of Man registration).

The Isle of Man is a well regulated country and its service providers are licensed which means that costs are not cheap. The bulk of fees is always in management services which local agents insist on providing (see below). Even excluding this service Isle of Man cannot compete with the UK or Caribbean countries for companies formation (at a fraction of the cost). If an offshore (0% tax) country is required, cheaper alternatives include the BVI, St Kitts and Nevis or Belize companies perhaps used in combination with a UK LLP.

Registered Office
All Isle of Man Companies must have a registered office in the Isle of Man though this is a service all local providers offer.

Managed v. Non-Managed Companies
The Isle of Man has for a long time pushed the use of managed companies (these are companies where the local formation agent provides the directors and secretary) instead of companies with client directors. In fact it is now very hard to find Isle of Man providers who take on business where the clients intend to act as director (the service of merely forming the company for foreign directors is elsewhere taken for granted). In the case of both 2006 and 1931 Act it is legally possible for the directors to be not based in the Isle of Man however in the case of 2006 Act companies the responsibility remains with the registered agent (which must be a local service provider) which provision effectively prohibits the use of foreign directors on Isle of Man companies. For information on the distinction between 1931 Act and 2006 Act companies please see above. Isle of Man service providers cite the reason for not allowing clients to manage companies (so called formation and registered office only) as based on reputational consideration however it also has the effect of hugely increasing operating costs. Generally speaking the use of local directors is a sensible first step towards building substance to protect from Controlled Foreign Corporation (CFC) attacks (for more information please see our main article on business incubation) but in the Isle of Man you do not have a choice. 

Banking in the Isle of Man is problematic with most banks only dealing with managed companies (that is companies where the local providers acting as director, see above). Indeed it can be difficult to find a service provider who will provide formation without also providing directors. There is no requirement for an Isle of Man company to bank in the Isle of Man (or anywhere). Where the service provider is supply local directors these directors will need to be the signing authority on the account.

Accounts and Audit
All Isle of Man companies must prepare and file accounts, and above a certain limit these must be audited Isle of Man accounts can be prepared by any person (so this work can be moved inhouse or outsourced to a cheaper country) but audits must be undertaken by local providers.

Isle of Man companies can have any name (in English or another language) provided it does not imply some regulated activity (ABC Bank Limited) for example and it is not offensive. The ending of company names of private companies must be either ‘limited’ or ‘ltd’ for 1931 Act companies but can also be ‘inc’ or ‘plc’ for 2006 Act companies. This means that it is a cheap way of forming a vehicle which appears to be a public company but in fact has no share capital. Genuine Plcs can also be formed, for more information please see our main article on Isle of Man public companies. Finally 2006 Act companies can be formed with names written in non-Roman characters.

Isle of Man companies take around one week to form, on receipt of all paperwork and fees. Banking can take a couple of weeks and one month at the most should be allowed for VAT registration. If more urgency is required shelf companies can be used, see below.

Shelf Companies
Shelf companies are companies which have been formed for some time but not used for trading (and a confirmation of this point should always be requested to ensure there will be no attacks from creditors of the company under its previous operators). These companies provide two benefits over forming a new company: firstly, they are ready immediately, which means contracts can be executed the same day; and, secondly, they imply some trading history which may be desirable. Their names are generally meaningless and  can be changed at a later date. The purchase of shelf companies has an associated cost to cover its historic filing and annual fees which increases depending on the age. The Isle of Man does not provide shelf companies with bank accounts.

Nominee shareholders are widely used and all service providers offer this service. Nominee directors are generally not used since, in theory at least, Isle of Man directors have autonomy of operation. Nominee directors in other countries may be used subject to permission of local service providers (which may be difficult to obtain). For an analysis of the pros and cons of the use of nominee shareholders please see our main article on nominee services. It should be noted that the use of nominee directors is likely to make banking problematic except with certain institutions which are familiar with the nominee director in question.