Foundations for the future

  • Author : Phillip Dearden
  • Date : September 2011
ABOUT THE AUTHOR: Phillip Dearden is a Director of West Corporation Limited

A number of developments have taken place in the Isle of Man in recent months. This article looks at three of these: Isle of Man foundations, the EU Savings Directive notice, and recent tax-information exchange agreements.

Foundations set to become a reality

The Foundations Bill 2010 has been passed by the Isle of Man parliament and is due to become law shortly. This will create a new legal entity, the Isle of Man foundation.

Among other things, this is designed to appeal to clients and practitioners in civil-law jurisdictions.

The Foundations Bill will create a new vehicle that will have some traits familiar to trust lawyers in common-law jurisdictions, while also being, in some ways, similar to a civil-law foundation or a company. One specific market that may benefit from the use of Isle of Man foundations is the charitable or philanthropic market.

The Isle of Man foundation will be a separate legal entity and will have the ability to manage and own assets in its name and arrange for its own funding.


The parties involved in an Isle of Man foundation include:

  • a ‘founder’ – similar to a settlor of a trust
  • an ‘object’ – the purpose of the foundation, which may be charitable or non-charitable, and may simply be to benefit a person or class of persons
  • a ‘beneficiary’ – a person or class who may be permitted to benefit under the objects
  • a ‘foundation council’ – similar to a board of directors, or trustees in a trust. Council members are bound to act within the scope of the foundation rules and have explicit responsibilities and exposure to liability if they engage in misconduct
  • a ‘registered agent’ – who must be a licence holder in the Isle of Man under the Financial Services Act 2008
  • an ‘enforcer’ – the instruments may or may not require the foundation to have an enforcer (which may be a company), to whom the council is accountable
  • ‘foundation rules’ – the rules governing the foundation, including the procedures for appointing, removing and remunerating council members and the registered agent. The rules are not public documents;
  • ‘foundation instrument’ – the document submitted by the registered agent on behalf of the founder, which records the name of the foundation, the object(s), who the registered agent is and who the council members are. This is a public document.

Foundations have characteristics that are similar to a traditional trust arrangement, but also have some traits seen more commonly in companies.

An Isle of Man foundation will be a separate legal person in its own right, as opposed to a trust, which is a legal relationship between trustees and settlor/beneficiaries. Assets held by a foundation will be held in its own name; a foundation could trade and arrange for finance in its own right.

A foundation is similar to a company in that it carries limited liability. There are proposals to extend the perpetuity period of Isle of Man trusts. Unlike a trust formed in the Isle of Man, a foundation can run in perpetuity.

The creation of a foundation will be on public record and details, such as the foundation’s name and the council members’ names and addresses, will be available for public scrutiny. This is contrary to a trust arrangement, which is a private relationship.

Nonetheless, not all of the foundation’s records are available for public examination. The foundation rules, which govern how the foundation is run (and thus fulfil a similar purpose to a trust deed), are not a public document.

Foundation beneficiaries have no legal automatic right to foundation income, whereas they can have rights and expectations within trusts.

It is expected that a foundation beneficiary’s right to information could be wider than the rights available to a trust beneficiary. Clause 31 of the Foundation Bill 2010 suggests that upon written request by a ‘person with sufficient interest’, a foundation must provide full and accurate information about various functions, including the assets of the foundation, the financial statements and the foundation’s administration.

Unlike trusts, an Isle of Man foundation will be required to have a licensed Registered Agent on the Isle of Man and to be able to prepare financial statements, should the request arise, along the lines of an Isle of Man company.


The Isle of Man foundation will be similar to those created in other jurisdictions, but will have a few distinctions.

Some jurisdictions, such as Jersey, require council members to be recognised licence holders, whereas the council members appointed within an Isle of Man foundation do not need to hold a foundation licence, although a Manx foundation does require that an Isle of Man licensed registered agent be appointed.

Unlike some jurisdictions in which there is foundation legislation, there is no requirement for an Isle of Man foundation to have an enforcer; it is an option.

The foundation instrument, which is a public record, must be written in English. Although there is no requirement for the foundation rules to be written in English, an English translation should be available.


The general company tax regulations will apply to foundations, so they will incur no income tax on profits other than those generated by the exploitation of Isle of Man land, which is taxed at ten per cent.


The purpose of the new vehicle is to offer a framework suitable for civil-law jurisdictions. Foundations may be used for charitable or non-charitable purposes and can offer an attractive asset management structure when combined with the existing high levels of corporate services available on the island.


Although the Isle of Man is not part of the European Union, it voluntarily agreed to introduce measures similar to the EU Savings Directive (EUSD) with effect from 1 July 2005.

In June 2009, the Isle of Man government announced its intention to move to automatic exchange of information for accounts held in the Isle of Man where the beneficial owner is resident in the EU.

This policy came into effect from 1 July 2011 and thereafter there is no option for EU-resident account holders to opt for tax retention rather than information exchange.

The responsibility for reporting the information rests with the paying agent, who is a person, usually a bank, established in the Isle of Man, who makes the payment of interest in the course of their normal business.


The Isle of Man government has been at the forefront of negotiating, concluding and implementing Tax Information Exchange Agreements (TIEAs) in recent years.

A TIEA is not a document allowing two jurisdictions to freely exchange tax information. Instead, TIEAs determine the procedure to follow when requesting information from another jurisdiction. An authority should ensure that the request is made for valid purposes. The procedures dictated by a TIEA should ensure that the tax authority receiving an information request makes sure the requesting authority has done its best to obtain the information in its own country, so that use of a TIEA is only ever a last resort.

A TIEA should include some latitude for a recipient authority to decline a request if it believes that the requesting authority has not exhausted all information-gathering avenues in its own jurisdiction, if the request does not adhere to the specific TIEA procedures, or if the request is too general in nature.

TIEAs are usually based upon the model developed by the OECD. A lack of tax information exchange was one of the criteria highlighted by the OECD when determining harmful tax practices and a factor for a jurisdiction becoming ‘blacklisted’.

The OECD and G20 suggested that there should be a requirement for countries to enter into at least 12 effective TIEAs with OECD members to be thought of as cooperating in matters of tax transparency.

In recent months, the Isle of Man has signed TIEAs with Mexico, Japan, Indonesia, Poland and Slovenia. This brings the total to date to 24 signed TIEAs: 16 in full operation and eight signed but awaiting ratification by their respective parliaments.


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