Month: December 2019

Why Use the Isle of Man?

Isle of Man companies benefit from a zero rate of tax on trading and investment income.  They are also able to register for VAT, and businesses in the Isle of Man are treated by the rest of the EU for VAT purposes as if they are in the UK.

Isle of Man companies are therefore particularly useful for:

• Holding investment portfolios and participations in other companies. This is due to the zero rate of tax on such activities and the lack of withholding taxes on dividend income from such companies.

• Moody’s Investment – 23 October 2020 – The Isle of Man’s (IoM, Aa3 stable) credit profile reflects the very high wealth levels, which provide a significant buffer against shocks. The IoM has a long track record of strong GDP growth, with very low volatility. Fiscal policies are forward-looking and prudent, exemplified by the large fiscal buffers accumulated over many years and status as a whitelisted jurisdiction. Moreover, the IoM has no direct debt. Linkages between the IoM and the United Kingdom (UK, Aa3 stable) are substantial; these also fortify the IoM’s institutional strength.

• Trading within the EU. Due to the zero rate of tax on trading income and the ability to quote an EU accepted VAT number.

• Holding UK commercial property. For VAT purposes the UK and the Isle of Man are treated in the same manner.

• Isle of Man companies wishing to borrow money from banks benefit from being in a well-regulated jurisdiction with a public register of mortgages and other charges.

• As the Isle of Man is a signatory to the Paris Convention on Patents and Trademarks, many intellectual property companies base themselves in the Isle of Man.

The key points above outline some of the most frequent reasons for the use of Isle of Man companies. Please note it is not a definitive list of reasons for using such companies.

Formation of Companies in the Isle of Man

Isle of Man companies can currently be formed and regulated under two separate Acts.

This Jurisdiction Note outlines the formation and regulation of companies as embodied in the Isle of Man Companies Act of 1931 (as amended).  A second Jurisdiction Note is available which details companies governed by the Isle of Man Companies Act of 2006.  Please request this second note if you wish to consider both types of Isle of Man company.

1. Incorporation 

Standard incorporation of a Company occurs within 48 hours of receipt of the relevant documents to the Isle of Man Registry, however for an additional fee companies can be incorporated in 2 hours or “while you wait”.

2. Company Name

The proposed name must be approved by the Companies Registry. The Company can have its name ending in any of the following:

• Limited
• Ltd
• Public Limited Company
• PLC

3. Capitalisation

Companies may be incorporated with a single share, which can have a par value as low as one pence. There are thereforefe no thin capitalisation rules.

4. Shareholders

Companies can be incorporated with only one shareholder. Shareholders need to be recorded at the registered office of the company and at the Companies Registry.  

5. Nominee Shareholders

These are permitted and can be provided by Dixcart.

6. 6. Minimum Number of Directors

The minimum number of directors is two. Directors do not need to be resident in the Isle of Man. 

7. Secretary

A company secretary is required. The secretary does not need to be resident in the Isle of Man.

8. Registered Office

The registered office must be situated in the Isle of Man a service of which Dixcart can provide.

9. Annual Return

There is a requirement to file an annual return.

10. Accounts

Accounts must be prepared but these do not need to be filed with the Companies Registry.

11. Audit of Accounts

A company need not have its accounts audited if it meets two of the three following criteria:

• Its annual turnover is £5.6 million or less
• Its balance sheet total is £2.8 million or less
• Its average number of employees is 50 or fewer 

12. Taxation

A tax return must be prepared and filed at the Isle of Man Treasury. These are not publicly available.

All Isle of Man companies are now treated as resident companies.  Resident companies are taxed at a rate of 0% on their trading and investment income.  Income derived from land and property situated in the Isle of Man is taxed at a rate of 10% and banks are taxed on their banking business at a rate of 10%.

13. VAT

The Isle of Man has a Customs and Excise agreement with the UK. This means that for VAT, Customs, and most Excise duties, the two territories are treated as one.

The European Union’s VAT Directives instruct other member states to treat transactions involving Isle of Man businesses as if the transactions originated in or were intended for the UK.

14. Beneficial Ownership Register and Nominated Officer

The Isle of Man operates a non-public Beneficial Ownership Register and a nominated officer is required for each entity, a service which can be provided by Dixcart. The register is only accessible by Isle of Man regulatory bodies and/or law enforcement agencies for a permitted purpose. It is not available to the public.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority

Updated 24.01.2020

Why Use the Isle of Man?

Isle of Man companies benefit from a zero rate of tax on trading and investment income.  They are also able to register for VAT, and businesses in the Isle of Man are treated by the rest of the EU for VAT purposes as if they are in the UK.

Isle of Man companies are therefore particularly useful for:

• Holding investment portfolios and participations in other companies. This is due to the zero rate of tax on such activities and the lack of withholding taxes on dividend income from such companies.

• Moody’s Investment – London 16 November 2019 – the Isle of Man’s credit rating is Aa2 negative , the same as the United Kingdom. The negative outlook on the IoM’s ratings reflects Moody’s view that the UK’s sovereign credit trend continues to have a significant impact on the IoM’s credit profile, due to the close and material institutional, economic and financial linkages between the two jurisdictions. Moody’s noted the IoM’s credit strength is the island’s very strong public finances. Very high wealth levels provide a significant buffer against shocks, and the IoM has a long track record of strong GDP growth, with very low volatility. Fiscal policies are forward-looking and prudent, exemplified by the large fiscal buffers accumulated over many years.

• Trading within the EU. Due to the zero rate of tax on trading income and the ability to quote an EU accepted VAT number.

• Holding UK commercial property. For VAT purposes the UK and the Isle of Man are treated in the same manner.

• Isle of Man companies wishing to borrow money from banks benefit from being in a well-regulated jurisdiction with a public register of mortgages and other charges.

• The Isle of Man is a signatory to the Paris Convention on Patents and Trademarks, and therefore many intellectual property companies base themselves in the Isle of Man.

The key points above outline some of the most frequent reasons for the use of Isle of Man companies. Please note it is not a definitive list of reasons for using such companies.

Formation of Companies in the Isle of Man 

Isle of Man companies can currently be formed and regulated under two separate Acts.

This Jurisdiction Note outlines the formation and regulation of companies as embodied in the Isle of Man Companies Act of 2006 (“the Act”).  A second Jurisdiction Note is available which details companies governed by the Isle of Man Companies Act of 1931 (as amended). Please request this second note if you wish to consider both types of Isle of Man company.

1. Incorporation

Standard incorporation of a Company occurs within 48 hours of receipt of the relevant documents to the Isle of Man Registry, however for an additional fee companies can be incorporated in 2 hours or “while you wait”.

2. Company Name

The proposed name must be approved by the Companies Registry. The Company can have its name ending in any of the following:

• Corporation
• Corp
• Incorporated
• Inc
• Limited
• Ltd
• Public Limited Company
• PLC

3. Capitalisation

A company may be incorporated with a single share, which can have a par value of zero.  Therefore no thin capitalisation applies.

4. Shareholders

Companies can be incorporated with only one shareholder. Shareholders need to be recorded at the registered agent of the company.  

       5. Nominee Shareholders

These are permitted and can be provided by Dixcart.

6. Minimum Number of Directors

The minimum number of directors is one. Directors do not need to be resident in the Isle of Man. Corporate Directors are permitted. In addition a single natural person can act as a Director of a 2006 company. 

7. Secretary

There is no requirement for a company secretary.

8. Registered Agent

A registered agent is required and can be an Isle of Man licensed corporate service provider.

9. Annual Return

There is a requirement to file an annual return.

10. Annual General Meeting

There is no requirement to hold an annual general meeting. 

11. Accounts

There is a requirement to “keep reliable accounting records” which:

• correctly explain the transactions of the company; and
• enable the financial position of the company to be determined with reasonable accuracy at any time; and
• allow financial statements to be prepared.

The accounting records are to be kept at the office of the registered agent of the company or at such other place as the directors of the company think fit.  Where records are not kept at the office of the registered agent, the company must provide the registered agent with a written record of the physical address of the place where the records are kept and copies of the records at intervals not exceeding 12 months.

There is no requirement to prepare financial statements however any member or director of the company may at any time demand that financial statements be prepared where the company has not prepared statements for a continuous period of 18 months.  Any such statements prepared, should relate to the period following the end of the financial period to which the preceding financial statements relate, or if no such previous financial statements exist, since the incorporation of the company.  Originals of statements prepared must be kept at the office of the registered agent of the company.

12. Audit

A company is free to appoint an auditor however where the company’s securities are listed or admitted to trade on a securities market or exchange, the company must appoint an auditor.  Any auditor appointed must be appropriately qualified in accordance with the Act.

13. Taxation

A tax return must be prepared and filed at the Isle of Man Treasury.

All Isle of Man companies are now treated as resident companies.  Resident companies are taxed at a rate of 0% on their trading and investment income.  Income derived from land and property situated in the Isle of Man is taxed at a rate of 10% and banks are taxed on their banking business at a rate of 10%.

14. VAT

The Isle of Man has a Customs and Excise agreement with the UK. This means that for VAT, Customs, and most Excise duties, the two territories are treated as one.

For VAT purposes, trading within the EU will be subject to the same rates as the UK.

15. Beneficial Ownership Register and Nominated Officer

The Isle of Man operates a non-public Beneficial Ownership Register and a nominated officer is required for each entity, a service which can be provided by Dixcart. The register is only accessible by Isle of Man regulatory bodies and/or law enforcement agencies for a permitted purpose. It is not available to the public.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority

Updated 24.01.2020

The location of a holding company is an important consideration in any international structure where one of the objectives is to minimise the tax charged on the income flow.  

Beneficial Characteristics for the Location of an International Holding Company

Ideally the holding company should be resident in a jurisdiction which:

• Has a good double tax treaty network, thereby minimising withholding tax on dividends received.

• Exempts dividend income from taxation.

• Does not charge capital gains tax on the disposal of subsidiaries.

• Does not impose withholding tax on distributions from the holding company to its parent or shareholders.

• Does not impose capital gains tax on profits arising from the sale of shares in the holding company by non-resident shareholders.

• Does not impose capital duty on the transfer of shares.

• Has certainty of tax treatment.

Malta holding companies can benefit from all of the above.

Advantages Available to Malta Holding Companies

• Tax Treaty Network and Attractive Withholding Tax Rate

Malta has an extensive network of Double Tax Treaties.

In most situations where a Malta company owns more than 10% of the issued share capital of an overseas subsidiary, the rate of withholding tax on dividends received by a Malta company from a treaty partner is reduced to 5%.

As Malta is part of the EU, it also benefits from the EU Parent/Subsidiary Directive, thereby reducing withholding tax to zero on dividends from many EU countries.

Tax Efficiencies Available to Malta Holding Companies

• Participation Exemption and Capital Gains Tax Exemption 

Qualifying dividends and capital gains derived from a “participating holding” are (at the option of the taxpayer) exempt from Malta tax.

In order for a holding to be classified as a ‘participating holding’, one of the following conditions must be satisfied:

• the company holds directly at least 5% of the equity shares of a company not resident in Malta, OR
• the company is an equity shareholder in a company not resident in Malta and has the option to acquire all of the equity shares, OR
• the company is an equity shareholder in a company not resident in Malta and is entitled to first refusal on any proposed disposal, redemption or cancellation of the equity shares of that company, OR
• the company is an equity shareholder in a company not resident in Malta and is entitled to either sit on the Board or appoint a person to sit on the Board of that company as a director, OR
• the company is an equity shareholder and invests a minimum €1,164,000 in a company not resident in Malta. This investment must be held for an uninterrupted minimum period of 183 days, OR
• the company is an equity shareholder in a company not resident in Malta and the holding of shares is to further develop business for that company, not as trading stock.

Additional anti-abuse provisions are applicable.

Please speak to our Dixcart office in Malta: advice.malta@dixcart.com for a definition as to what constitutes a participating holding.

• Sale of Shares in the Holding Company 

Malta does not charge capital gains tax on the sale of shares in Malta companies.

• No Withholding Tax

Malta does not impose withholding tax on the distribution of dividends to shareholders or parent companies.

Zero withholding tax is applicable, regardless of where in the world the shareholder is resident.

• No Capital Duty 

In Malta there is no capital duty on the issue of share capital and there is no stamp duty payable on subsequent transfers. 

• Other Income 

Income other than dividends and capital gains is subject to tax at Malta’s normal rate of 35%.  However, on payment of a dividend from this “other income”, a tax refund of between 6/7ths and 5/7ths of the tax paid by the Malta company is payable to the shareholder. This results in a net Malta tax rate of between 5% and 10%.

Where such income has benefited from double tax relief or the Malta flat rate tax credit, a 2/3rds refund applies.

Certainty of Tax Treatment

It is possible to obtain formal tax rulings in Malta.  Rulings provide certainty on a specific transaction and the application of the law, and are binding on the Malta Revenue for five years.

There is also a system of informal Revenue guidance.  This takes the form of a letter of guidance from the Revenue.  Such letters are not expressly regulated by law, but create a legitimate expectation on which a taxpayer can rely. The Malta Revenue Authorities consider such letters as binding.

Conclusion

A Malta holding company is an attractive option for international trading groups.

The potential advantages include:

• The benefits available through Malta’s extensive double tax treaty network.
• Exemption of dividends from taxation in Malta.
• Exemption from capital gains tax on the disposal of participating holdings.
• The absence of capital gains tax on the sale of shares in a holding company by foreign shareholders.
• The absence of withholding tax.

How Can Dixcart Help? 

Dixcart has an office in Malta, which can assist with: 

• Formation of holding companies
• Registered office facilities
• Provision of serviced offices
• Tax compliance services
• Accountancy services
• Director services
• All matters in relation to acquisitions and disposals

Additional Information

Below is an example of how a Malta Holding Company can be used as part of a tax efficient structure.

Contact

If you would like further information on this subject, please contact the Dixcart office in Malta – advice.malta@dixcart.com or your usual Dixcart contact.  

Example of the use of a Malta Holding Company 

The classic structure for the use of a Malta holding company is as follows:

In the above example, where the trading company is situated in the EU, the Malta company would benefit from the EU Parent/Subsidiary Directive, resulting in no withholding tax on the payment of dividends to the Malta company.

Where the holding is a “participating holding” there will be no taxation on dividends and capital gains at the Malta holding company level.

Dividends can therefore be paid to the Nevis company without any deduction of tax.

Please also see our Corporate Services page for further information.