Companies are formed under the U.K. common law: introduced locally as The Companies Act of 1932 to 1993. The Isle of Man enjoys a high degree of respectability in the world's financial circles. There are no political parties and the constitution dates back to 1205. It boasts one of the largest reinsurance and asset management markets in the world. The commercial law is constantly reviewed and updated.
An International Company may qualify for tax exemption in the Isle of Man and yet be registered for VAT for European trading purposes and get the benefit of certain tax treaties. This may be very useful for companies trading within the EU. Bearer shares are not permitted and beneficial owners must be disclosed. The minimum capital duty is 28 GBP 28 and the annual fees to the government are GBP 705 for non resident exempt and GBP 345 for non-resident companies. Registration can be accomplished within a week. Shelf companies are not easily available. The companies' name must end with the word "Limited". Certain words, e.g. "Insurance", "Assurance" etc. require further approval.
The Isle of Man is one of the few offshore areas which forms part of the European Union for customs and VAT matters. Although the Island itself is not an EU member, it is associated with the UK for VAT and customs purposes and a Isle of Man company can therefore be an ideal offshore vehicle for trading within the EU. The ability to register for VAT is essential, in various situations:
The Isle of Man, sometimes called Manx, is one of the world’s most famous tax havens. Located in the Irish Sea, just a few hours by plane from London (including a change in Liverpool), the Isle of Man, like the Channel Islands, does not tax “foreign source income” of Manx companies managed and controlled outside the island.
The Isle of Man is geographically part of the British Isles, but is not part of the United Kingdom. It is a self-governing territory within the British Commonwealth. Like the Channel Islands, the Isle of Man is a Crown possession with its Chief of State being Queen Elizabeth II. The queen’s official title here is “Lord of Man”, and she appears on Manx postage stamps as such.
The Court of Tynwald is the legislative body on Man. It claims to be the oldest representative legislature in the world. Tax laws passed in England have no effect on Manx business or residents unless consultation with the Court of Tynwald is held beforehand and written legislation passed.
(a) Any company which is registered within the EU whose turnover exceeds the legal minimum must register for VAT in its home jurisdiction. Thereafter that company must charge VAT on any invoice to another EU company. If the recipient company is not registered for VAT then it will have to pay the VAT and this cannot be claimed back. If the recipient company is registered for VAT then the recipient company may claim back the VAT it has paid so if a company trades within the EU it is essential and advantageous to be registered for VAT.
(b) Where a group of consultants sets up an offshore company to bill for their services supplied within the EU they may find that their clients are unhappy paying them unless they are registered for VAT. This is because without the payee being VAT registered the paying company will not be able to zero rate the payment. Additionally if the payee is VAT registered the service company can claim VAT back on equipment purchased which is to be used for the business of the company and cannot if it is not registered.
A common practice to save tax is to re-invoice for goods extracting profit offshore. If goods are purchased from one EU company and sold to another then it is essential that the company in the middle is registered for VAT so that the seller can zero rate the goods. For exemple, if goods were being purchased in Germany and sold in France and the client wished to take the profit offshore to avoid tax then a non VAT registered offshore company would have to physically export the goods outside the EU and then re-import those goods to France. If the offshore company were VAT registered then the goods could move directly from Germany to France and all invoices raised could be zero rated thereby cutting down on administration and creating a cash flow advantage. The re-invoicing must have economic substance in order to withstand audit by tax authorities. This required good documentation and planning.
An Isle of Man VAT number is indistinguishable from a U.K. VAT number and can be applied for by a Isle of Man or foreign registered company which operates from the Isle of Man.
Ships which are majority owned by companies or individuals resident in the European Union and certain British dependent territories can apply for registration in the Isle of Man. The Isle of Man is not deemed to be a flag of convenience and has a quality register maintaining high standards based on U.K. legislation and offers a practical approach to Maritime rules and regulations. The Isle of Man register is part of the British register and the British Red Ensign is normally flown on Isle of Man yachts. Fees are competitive and are set only to recoup administrative costs. There are no annual tonnage taxes.
Resident Property Owning Companies
Companies receiving income from trading or investment purposes would generally be structured as exempt or non-resident so as to pay a flat rate tax or duty instead of a percentage tax on profits. However, if a company is to be completely dormant only holding a property, it may be wise to structure it as a resident company. Resident companies pay 20% tax on profits but as the company would have no income, there would be no current tax liability and future potential tax liabilities could be handled by appropriate planning.
The entry clearance and general residency requirements of the Isle of Man are very similar to those of both the United Kingdom and the Republic of Ireland. Unlike Jersey there are no special residency permit or financial constraints placed upon prospective permanent residents. The tax rate for Isle of Man residents is 20% on their world-wide income. There may also be significant capital gains and inheritance tax savings, however British nationals may not be able to avail themselves of all the potential fiscal benefits as a result of the Island's lone Tax Treaty with the United Kingdom.
The Isle of Man can provide significant tax savings for organizations which trade within the EU and may do so on a disclosed basis. It is practicularly useful for publicly listed companies and investment funds. It is not recommended for persons needing complete privacy nor is it a low cost solution.
In 1989, Manx Treasury Minister David Cannan announced that a new companies regulation similar to the exempt companies law in the Channel Islands would be enacted. These new laws are now in effect.
There are currently about 9,000 Manx registered nonresident companies, almost a third of the companies registered as Isle of Man companies and the rest foreign registered. Granting of the nonresident status to a company is done by the Manx Assessor of Income Tax under the Non Resident Duty Act 1986.
Isle of Man Banking Act of 1975
Under the Isle of Man Banking Act of 1975 (as amended) all banks have to be licensed by the government. Interest on deposits paid to nonresidents is free from withholding tax.
The Isle of Man has extensive common law trust legislation to guide the local courts and help planners draft and execute a trust instrument. Formal registration of a trust deed is not required, and there are no stamp duties. It is common for a nonresident beneficiary. Trust profits can accumulate 100% tax-free as long as the income of the trust is from foreign sources.
Marshall Langer’s “Peripheral Tax Havens”
Marshall Langer is the adjunct professor of law at Miami University and has practiced law for over 40 years. He writes…
“From time to time we hear about tax havens. Some are real countries, often remote and impossible to reach, while others may not exist except as a figment of someone’s imagination. The Pitcairn Islands in the far off South Pacific are tax free, but with a total population of only about 70 persons, and no bank and trust facilities to speak of, it’s not at all suitable as a tax haven.”
North Korea and Albania abolished income taxes in 1974 and 1969 respectively. Unhappily, both these nations are communist dominated; it may easier getting your money (and yourself) into these Communist places, than out of them.
Svalbard off the coast of Norway has its own income tax laws, and rotes are much lower than in Norway. Corporations pay a flat rate tax of 10%.
According to Professor Langer, there’s a major obstacle should you choose Svalbard. Svalbard experiences total darkness from the end of October until the beginning of March. The annual mean temperature is well below freezing. There’s no regular air service, and boats arrive on a limited schedule every two weeks, weather permitting. There are also no lawyers or accountants practicing in Svalbard. Svalbard seems more fitting a place for polar bear and sea lion, than for people and financial planners.
Minerva is a series of reefs in the South Pacific, which were classified as the “Free and Independent Republic of Minerva”. The King of Tonga objected to this attempted creation of a new country and took steps to annex the Minerva reefs – some 250 miles away – to Tonga, rather than have neighbors he doesn’t know. While the Minerva reefs may have no taxes (or tax laws), they may not be above sea level at high tide!
The Sealand Fantasy
According to an article by Tony Heatherington, which appeared in the Offshore Financial Review (London), Sealand is administered from a post office box in Villach, in Austria – “for technical reasons”, Baier says. But its real location is about seven miles off the east coast of England, near the port of Harwich. As anyone with a passing knowledge of this bit of coast line will know, there are in fact no islands in the area. What there is, though, it Rough’s Tower, a metal and concrete anti-aircraft gun platform left over from World War II and abandoned by the British government in 1947.
In 1967, the disused tower, which resembles an oilrig, was seized by a formed army major named Roy Bates, who promptly issued a declaration of independence from the United Kingdom, labeled himself as Prince Roy of Sealand, and his wife as Princess Joan.
Their venture could have been laughed off, but for the fact that a year or so later, their son, Prince Michael opened fire with a riffle on a ship which he decided was sailing too close to Sealand. Hauled before a court in Essex on firearms charges, Prince Michael demanded to be released immediately as the UK courts had no jurisdiction over Rough’s Tower. To the surprise of everyone - probably including the Prince himself – the judge agreed.
With this legal ruling behind him, Prince Roy and his Royal family have exploited their independence ever since. There have been plans for a casino and private radio station, but neither has materialized.
During the Falklands War, a group of Argentineans negotiated to buy Sealand, to set up a piece of Argentine territory just off the coast of England. Prince Roy turned them down. But the venture, which attracted most official attention, came in the 1980s, when Prince Roy took on board as a partner an American banker named Wallace Kemper. Together, they unveiled Sealand Television, with a 1,000-foot mast and a potential audience of 200 million. Kemper announced plans to broadcast daily from 5 pm to 2 am, with 20 new films each months, plus sports events, music videos and variety shows. Advertising slots were offered at £10,000 for 20 seconds of prime time, and topless page 3 girl Suzanne Mizzi was recruited as the station’s presenter. “I’m talking to Roy Bates about making her Sealand’s first countess”, Kemper boasted.
The scheme came to nothing, though. Sealand Television collapsed amid claims Kemper had ripped off his partners. All of which should not exactly have come as a surprise to anyone. For in 1983, Kemper was in hot water over allegations that his Arab Overseas Trust & Bank – registered in Anguilla – had been charging fees of up to $2,500 for business loans, which then failed to materialize. And in 1986 he and three other men were charged with conspiracy to defraud, involving a $3 million bank draft. At the same time, Kemper described himself as head of the European Overseas Bank. In 1988, Kemper, who was born in New Orleans in 1932, was jailed for three and a half years for fraud.
Sealand’s state affairs then seem to have gone quiet for a while, until in 1990 they burst into life again. Suddenly, Sealand passports began to crop up. Advertisements offering Sealand citizenship appeared in newspapers in the Gulf. The government of Qatar warned that Sealand’s claims to offer a back door into the European Community were false. Close on the heels of phony passports came phony banks. The Sterling Bank of Sealand was chartered, headed by well-known flim-flam Teddy Hunsaker.
And now, with Sealand already issuing stamps, currency, passports and banking licenses, as well as “trade missions”, almost the only thing missing is Sealand’s bible! But Sealand has yet to name its first spiritual leader, so we must give it time.
Norderfriedrichskoog – A Cow-shed Tax Haven Inside Germany
According to the Offshore Financial Review, the world’s most provincial tax haven has loomed from the depths of nowhere. It is Norderfriedrichskoog on the North Sea coast. Norderfriedrichskoog consists of 13 thatched homesteads, 50 inhabitants and er…70 offshore companies. There is no pub, no shop, no hotel in this hamlet along the coast of the German state of Schleswig Holstein.
But a number of companies have come rushing in to the hamlet spurred by the huge tax incentives of the village. Indeed there is no taxes whatsoever.
A thoroughly disgruntled tax office has apparently accepted the tax incentives of the village, but ruled that a company’s records, communications and core business activities must be based in Nordfriedrichskoog to benefit.
First came the nameplates, and then farmers began renting out attics, barns and cowsheds. Wives were hired out as office managers and Deutsche Telecom came in to lay extra telephone cables among the cabbage patches to cope with the explosion of faxes. It’s all abuzz in Nordfriedrichskoog amidst the pigs and the chickens.
For example, Margaret Dirks has 19 firms based in her farmhouse. Another farmer has three in his. Business, by all accounts, is booming.
The Schleswig Holstein audit office is not exactly happy with the situation. One company made Dk220m in the hamlet and because of the zero trade tax the federal government missed out on DK1.5m in tax.
There is nothing the government can do as German communities can set their own taxes. The hamlet was founded on a tax exemption. Around 300 years ago a local duke issued a decree freeing locals from “tithes and other tributes” in return for building a dyke to keep the sea out.
No one knows the wealth of the locals, although it is said that the boom has created up to 20 new jobs in a community of just 50 people. The number of firms has been estimated at around 70 and office rents, for prospective businesses, are said to be around £1,000. Luxembourg eats your heart out.
(Courtesy of New Providence Press: Tax Havens of the World).
Find the contact names, addresses, numbers and information for local government offices, banks, accountants, company formation services, investment and management companies, advisors, experts, maildrops, real estate agents and other useful local contacts in the THE OFFSHORE MANUAL & DIRECTORY.