The Isle of Man is committed to ensuring it remains competitive in the field of wealth management and it has now added to the available options for holding wealth. The Isle of Man Foundations Act 2011 came into force on 1 January this year, allowing new foundations to be established and existing ones to be redomiciled to the Island. This should appeal to people familiar with the operation of foundations in civil-law jurisdictions and those who are perhaps less familiar with the concept of trusts. Their introduction enhances the Isle of Man’s attractiveness to clients from a wider geographical base.
Isle of Man foundations are likely to have a significant impact as a tool in wealth management. It is also expected that wealthy individuals will establish foundations to facilitate the pursuit of charitable and other purposes. Foundations may prove to be a particularly flexible and useful tool for holding wasting or risky assets (e.g. artwork, aircraft, super yachts) owned by an individual for whose benefit the foundation is established.
The legislation provides for the dedication of assets to Isle of Man foundations for the benefit of a person or a class of persons, or to carry out a specified purpose. Assets may be dedicated by persons other than the founder. Once dedicated, the assets belong to the foundation, which has separate legal identity, and, if its rules so provide, may be established for an indefinite period. There is express statutory provision that the beneficiaries have no interest in the foundation assets. The foundation’s objects may be charitable or non-charitable.
There is to be a large degree of flexibility in the operation of Isle of Man foundations. For example, the rules governing administration may provide for their amendment; there is also statutory provision enabling changes to be made to the person or to the class of persons who are to benefit. There is no requirement for an initial dedication to establish the foundation. However, in keeping with their anticipated role as a tool for wealth management, foundations may not engage directly in commercial trading unless this is incidental to the attainment of their objects.
The identity of founders, dedicators, enforcers and beneficiaries, and the foundation rules will not appear on public record. The objects of the foundation need not appear beyond a statement that the person or class of persons to benefit may be determined in accordance with the rules, or that the purpose is to hold assets selected in accordance with the rules. However, unlike trusts, Isle of Man foundations will be registered, and the names of their council member, or members, and of their registered agent in the Isle of Man, will be available for public inspection.
For Isle of Man tax purposes foundations will be corporate tax payers, and as such will be liable to tax at 0 per cent on their income, i.e. they will not pay tax in the Isle of Man. The only exception is for income from land in the Isle of Man, which is taxed at 10 per cent. The use of Isle of Man foundations may have tax advantages for dedicators in other jurisdictions. However, before making a dedication to a foundation the dedicator should take advice as to the consequences in all relevant jurisdictions.
The Isle of Man, along with seven other countries (Australia, France, India, Ireland, Italy, Japan and Norway) is placed in the top flight of countries demonstrating strong adherence to international standards of tax cooperation and information exchange.1 Isle of Man foundations are expected to prove attractive to those seeking to avoid risks associated with jurisdictions unable to demonstrate high levels of adherence.
Admin and fees
All Isle of Man foundations need to have a registered agent, who must be licensed by the Isle of Man Financial Supervision Commission to provide corporate services. Only the registered agent will be able to make an application for the establishment of a foundation. The registered agent may also provide the sole, all, or some of the council members who will conduct its affairs. It may also supply an enforcer, who has supervisory duties and is required in certain cases. There will be an obligation to file annual returns and to keep accounts.
The costs of administration and the government fees levied on establishment, or on the submission of documents to the Registrar, are competitive with other jurisdictions. The general view is that as foundations provide commercial work generating local income and taxes there is no need for a tax on foundations themselves. There will inevitably be a level of wealth below which the costs of establishing and maintaining foundations will not be justified, but the Isle of Man is more than competitive with many other jurisdictions in this respect.
- 1. OECD Report on Tax Transparency Standards delivered to G20 in Cannes, Nov 2011.
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