MAYER & RISER, PLLC ATTORNEYS AT LAW HIGHLANDS, NORTH CAROLINA (828) 526-3731 OFFSHORE JURISDICTIONS Isle of Man

Overview

The Isle of Man is an island in the Irish Sea between England and Ireland.  It is 33 miles long and 13 miles wide and populated by about 75,000 people.  Frequent flights to all major UK airports and Ireland provide connections for international flights.

The Isle of Man, like Jersey and Guernsey, is a self-governing British crown dependency.  It is also home to the world's longest continuous democratic parliament, known as Tynwald. Vikings established Tynwald over 1,000 years ago and formalized the legal and political land divisions that still exist today.

The Isle of Man's political stability has helped it quickly become a world class financial center. The UK is responsible only for foreign affairs and defense.  It enjoys a special relationship with the EU which enables free trade and movement of goods in industry and agriculture within the EU, and it neither receives nor contributes funds to the EU.

The island has quickly become one of the world's key offshore players over the last ten years, a highly regulated, financial center with a highly educated work force. Over 45 per cent of the IoM's GDP is earned from offshore financial services, surpassing its tourism industry as the main revenue earner.

The IoM is a major player in the offshore life insurance business.  There are over a dozen life insurance companies with over $20 billion under management and the insurance sector continues to grow.  The Isle of Man is also a major center for captive insurance company management, banking, company and trust administration services, and ship registry.  While not as large a center as Jersey in the banking and fund management sectors, there is over $35 billion on deposit in Isle of Man banks and over $10 billion on deposit in investment funds managed from the Isle of Man.

The legal system is based on English common law. The island has long been a low tax area. There are very low corporate and personal tax and there is no capital gains tax, no estate tax and no gift tax.  Unlike Jersey and Guernsey, however, the Isle of Man does have a customs union with the UK for value added tax (VAT) purposes.  The island imposes VAT at a rate identical to the UK (17.5%).

Isle of Man residents pay a 15 to 20 percent income tax, while non-residents are usually exempt. Isle of Man resident companies pay a 20 per cent corporate tax, while non-resident companies are generally exempt.

As of August 1998, there were 65 banks, three building societies, 167 captive insurance companies, 16 life companies, 42,278 registered companies, 76 accountancy firms and 45 legal firms on the island. As of March 1998, there was US$33 billion held in deposit in the Isle of Man.

In 1983, the Isle of Man was the first offshore jurisdiction to institute a Financial Supervision Commission, and is the first and only crown dependency to introduce depositor protection provisions. It also has an extensive arsenal of legislation against financial crime and money laundering.

Advantages

For the international investor, The Isle of Man's advantages include:

• Low taxation for companies and individuals.
• Excellent financial supervision and regulation. 
• Government committed to supporting international financial activities. 
• Strong economy. 
• Long-term stability and independence. 
• Trust and company law based on principles of English Common Law. 
• Excellent world-wide communications. 
• Fast and inexpensive company formation. 
• Low costs.
• Financial services of the highest caliber
• No Isle of Man or UK estate or gift taxes
• No Isle of Man or UK capital gains taxes
• No Isle of Man or UK income tax for non-resident individuals and companies

Isle of Man Planning Opportunities for U.S. Persons

• Isle of Man Offshore Variable Life Insurance and Variable Annuities
• Isle of Man Limited Liability Companies (LLCs)
• Isle of Man Hybrid Companies (Companies Limited by Guarantee)
• Isle of Man Asset Protection Trusts
• Isle of Man Exempt Companies

Isle of Man Trusts

Manx law allows for the creation of "self-settled spendthrift trusts," often commonly referred to as "asset protection trusts."  A person (called the "settlor") can transfer assets to a trustee under a trust agreement to which Manx law applies, and under which the settlor has retained the right to receive distributions of income and principal in the discretion of the trustee.  The trust agreement can provide that, if the settlor becomes bankrupt or is liable to a judgment creditor, the trustee can cut off the settlor's rights to distributions, thereby preventing the trust assets from being used to satisfy the settlor's debts.

Because the Isle of Man has no specific asset protection legislation, it has been overlooked as a trust jurisdiction.  However, with the recent bad publicity regarding some of the jurisdictions which have enacted specific asset protection legislation, e.g., the Cook Islands and the Cayman Islands, it may be prudent to form trusts in a jurisdiction such as the Isle of Man, the law of which offers protection, but which is not really thought of as an "asset protection jurisdiction."  Adding to the advantage of the Isle of Man's low profile is a recent Isle of Man case, Re Heginbotham's Petition, which clears up what had been an important ambiguity in Manx fraudulent transfer law.  In short, the court held that Manx fraudulent transfer law will not apply to benefit future potential creditors.  Mayer & Riser, PLLC firm member Chris Riser published a short article on the case in the January/February 2000 issue of the Journal of Asset Protection.

For more information about offshore planning opportunities in the Isle of Man, contact Chris Riser at (828) 526-3731.