LOCATION: The Isle of Man is located in the Irish Sea equidistant from the Republic of Ireland, Scotland and England. Population: 70,000. Capital: Douglas.

ADVANTAGES OF A MANX COMPANY:

The indigenous corporate tax rate for Manx residents conducting business in or from the Isle of Man with a company is 20%. Where real or beneficial ownership does not so rest, the above tax rate will not apply, even if management and control is carried out on behalf 'of a non-resident. The taxation liabilities of non-indigenous companies are as follows:

EXEMPT COMPANIES: To qualify as a tax exempt company it is necessary to show that no beneficial ownership rests with a Manx resident and that the objective of the business is not to penetrate the local market. Further, exempt companies must appoint at least one local director (normally a nominee) and a professionally qualified company secretary. In lieu of local taxation, the company is liable to pay an annual exempt duty of Sterling £450.00 plus a filing fee of £50.00. Exempt companies are ideal for passive activities such as holding property but it is generally agreed, are not suitable for trading - especially with the United Kingdom. The reason for this is not Manx law based but the very likely -boomerang1 effect, for taxation purposes, that could occur in the home jurisdiction of the beneficial owner. For example, if a British resident established a Manx Exempt Company to invoice for goods purchased in the US but to be sold in China. It is likely that the British Inland Revenue, using their reverse burden of proof would, if they knew about the structure, try and claim that the UK was the real centre of management and control. If it is, then all profits become subject to British taxation. The very nature of an Exempt Company, i.e. that there can be no real Manx owner, providing prima facie proof of external tax liability.

(2) INTERNATIONAL COMPANIES: An international company is a relatively new Manx vehicle. It was introduced under Part 1 of the International Business Act, 1994. In concept, it has many similarities to an exempt company save that rather than subscribe to an exempt annual duty it pays a percentage of its gross profits to the Manx authorities. The benefit of paying tax is that it provides additional evidence of genuine local management and control which gives added credibility to a trading company structure. Of course, full accounts must be maintained and submitted (such accounts not being kept on public record) at the end of the financial year but again these help prove veracity. The percentage to be paid against gross profits varies between 1% and 35%. The exact rates will depend on the requirements of the applicant and on the acceptance thereof by the Manx Assessor of Income Tax. Importantly, unlike an indigenous company, dividends can be distributed gross without any form of withholding tax. The agreed tax rate only applying to the balance left in the International Company. The minimum income tax charge, however, will be the same £400.00 as for Exempt Companies. The modus operandi behind such companies is to circumvent anti-avoidance provisions which only become operative if no, or little, tax is paid. Further, it may be possible to combine such companies with a Manx international limited partnership, also introduced in 1994, in a beneficial manner.

(3) NON-RESIDENT COMPANIES: As the name implies, a non-resident company is one which is registered in the Isle of Man and governed by its company law but managed and controlled in another jurisdiction. The tax liability if any occurring in the latter. Therefore, if a Manx company was controlled in the UK it would be subject to British tax. If it was controlled in tax-free Sark, in the British Channel Islands, it would - at least ostensibly - be a tax free company. Non-resident companies should have non-Manx directors located in the jurisdiction of management and control. Thus, such companies normally require nominee directors, accepting that the purpose is to mitigate taxes, to establish bona fide control in the fiscally advantageous area. As with Exempt Companies an annual duty must be paid to the Manx authorities. The amount is stg £1,000.00 plus a £115.00 filing fee. It should be noted that Manx Non-resident Companies are less popular than Irish or Delaware LLC equivalents since these jurisdictions have significantly less tax haven stigma.

HOW TO INCORPORATE A MANX COMPANY

The formation procedure in the Isle of Man is very similar to that of the Republic of Ireland and uses in many cases virtually identical forms. The principal governing legislation is the Companies Consolidation Act of 1931 with various amendments up to 1993. Directorship, registered agent and office details are kept on public record. Nominees can be used for anonymity. Importantly, it should be noted that Exempt and Non-Resident duties are prospective. If such duties are not paid, or an International Company does not make a proper election, full local tax at 20% may be enforced.

CORPORATE REQUIREMENTS

Name: The name of the required company should be checked with the Registrar. The ending will be either 'Limited' or Public Limited Company. Certain types of company, i.e. those wishing to use International' in their name, will need significantly higher authorised share capital.

Capital: There is no specific minimum capital requirement. In most cases, a registration agent will only issue two £1.00 shares. The maximum authorised capital available paying the minimum duty is £2,000.00. If sums are required over this amount, additional duty will be payable.

Registered Office: All Manx companies require a local registered office for service of process.

Registered Agent/Nominees: Apart from Manx non-resident companies, all other undertakings must have at least one local director and a professionally qualified secretary.

Board of Directors: There must be at least 2 directors in a Manx company and (as in Ireland) such directors must be real people. Details are on public record. Apart from the Exempt and International Company requirements, there are no other nationality/residence restrictions.

Shareholders: Since the Single Members Companies Act 1993 it has been possible to register a Manx company with only one subscriber. Nevertheless, there is still a need for two directors. There are no nationality/residence restrictions.
Books, records and seal: A full register of members and charges must be kept at the registered office in the Isle of Man. It is no longer legally necessary to adopt an official company seal although most companies still request one.

Powers of attorney: All Manx companies may grant a general or specific power of attorney to any person, to act on its behalf, to execute contracts, agreements, deeds and other instruments. These powers are not a matter of public record.
Certificates of good standing: Certificates of good standing can be obtained upon proper application to the Registrar.

Bearer shares: Both registered and bearer shares may be issued.
Annual Meetings: All Manx companies must hold an annual general meeting every calendar year. Such meetings, for Exempt and International Companies, can be in or outside the Isle of Man. By definition, Non-resident Companies cannot hold meetings on the Island but must do so elsewhere.

Trusts: Manx trust law is based upon that of England with similar Settlor, Trustee, Beneficiary and Protector concepts. However, unlike England there are still many fiscal benefits available. The main governing legislation is the Trustee Act, 1961. The principal vehicles are 'discretionary' and 'charitable' trusts. Anti-avoidance provisions in the UK and most other common law jurisdictions may create difficulty in their application. There is no specific asset protection legislation.

ANNUAL FEES & GOVERNMENT TAXES

All Manx companies must submit an annual return to the local authorities whether or not the company has traded. The current filing fee is £50.00. If a company has conducted no business (business including however the activation of a company bank account), no duty or general tax liability will exist. For indigenous and International Companies full and proper accounts must be submitted on the specified annual return date. Tax, at the applicable rate, must then be paid. In the first year the assessable period can be up to 18 months from the date of incorporation. Thereafter, every 12 months.

Indigenous companies are subject to a withholding tax on the distribution of dividends. International Companies are not. Exempt and Non-resident Companies must pay their respective duties but need not submit proper and full accounts. In addition, they need not have appointed auditors.