ABOUT THE AUTHOR: Steve Hull TEP is Director of
Fiduciary Services for West Corporation Ltd in Douglas in the Isle
of Man
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.
Tax implications
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. 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.