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Typical Isle of Man Structures

The Isle of Man has long strived to introduce legislation which allows the island to offer as broad a range of corporate structures as possible in order to boost the Islands attractiveness.

The usual three choices when it comes to setting up an Isle of Man company are as follows;

• Sole Trader
• Business Partnership
• Limited Company
Each have their own various advantages and disadvantages. The most popular type of Isle of Man company is a Limited company, which is very similar to a UK Limited Company, but with the benefit of zero taxation in most cases.
Sole Trader

This generally means that you are running your business as an individual, although you are allowed to hire staff. The advantages of this are that you can keep all the business profits after the tax has been paid on them and any decisions will be instant. However, a distinct disadvantage of Sole Trader companies is that there is no limited liability, this means that you will be responsible for any losses that the company makes, also the business will discontinue in the event of the owners retirement or death.
From a tax point of view a sole trader will initially qualify for tax benefits such as a write off of expenses. However profits on Sole Traders are taxed as income so on anything above £9, 300 you will be paying a standard rate of 10% and this could raise to the higher rate of 20%.
Business Partnership

In the Isle of Man partnerships are governed by the Partnership Act 1909. The business partners share responsibility for the company. Profits are shared between the partners and each partner must pay the tax on their share of the profits. Again this does not have limited liability and therefore you will be responsible for any losses and debts of the company. Perhaps more importantly you will also be responsible for any debts that have incurred due to your partner(s) and so it is important that you have financially sound partners and that you have trust in the person(s) that you are doing business with. Again profit will be taxed as income and there are various other aspects to consider such as National Insurance.

Limited Company

A limited company is run by the directors. The main advantage to a Limited company is that it does have limited liability, this means that the wealth of the company is separate from the wealth of the owner and they will not be accountable for the company’s debts unless any wrong doing can be proven. Limited companies are will often benefit from the zero percent corporation tax in the Isle of Man. Income tax is only paid if the company pays you a salary so this has much more attractive tax appeal than Sole Traders or Partnerships, which is why it is the most popular choice for incorporation.

Limited Companies can be used for specific purposes such as the following;
- Isle of Man Holding Company

This is where an Isle of Man Holding Company is established to hold shares in one of more other companies. The Holding company will then receive dividends paid by those subsidiaries. Advantages to setting up your holding company in the Isle of Man are
• that the Isle of Man has an excellent reputation and business infrastructure
• Political and economic stability
• Long established legal system
• Sophisticated and extensive banking system
• 0% corporate income tax (dependant on certain circumstances for example companies engaged in banking or Isle of Man property transactions may be subject to a 10% tax rate)
• Dividends made to non-residents are taxed at 0%
• No withholding tax
• No capital gains tax
• No stamp duty
• No thin capitalisation rules
• Losses can be carried forward indefinitely provided a continuity of business test is satisfied. There are also provisions for loss relief within groups of companies
• Double tax relief is available for foreign tax paid
• No inheritance tax

- Isle of Man Royalty Company
No withholding tax is levied on Isle of Man royalty companies. Although the Isle of Man is not part of the EU trade marks are recognized and protected and the Isle of Man is party to various international agreements with regards to intellectual property.
- Isle of Man Agent Company

The concept for this is that an Isle of Man company may be used as a nominee or agent for an undisclosed principal often being an offshore company or a company in a low tax jurisdiction.

Conclusion

The Isle of Man government strives to maintain its reputation and seek to ensure that the Isle of Man continues to be a popular destination for company incorporation one way in which they have done this is the introduction of legislation for captive insurance and gaming companies.


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