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Isle of Man: The Final Piece in the Private Client Jigsaw

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The Isle of Man continues to be recognised as an international finance centre of excellence, no more recently than during the Professional Advisor International Fund and Product Awards 2015 where they won ‘Best International Finance Centre’, fending off strong competitors like Jersey, Guernsey, Dublin and Luxembourg.

Having successfully encouraged diversification of its economy over the years, the Island is currently home to a number of high performing sectors, one of the most successful being its financial services industry. This is due to having a proactive government, a robust regulatory framework and the ability to recognise that engaging with its stakeholders and forming positive relationships with professional service providers, such as Abacus, helps for a successful business environment in which all can flourish.

Abacus is one of the Island’s longest established and reputable service providers currently celebrating 40 years of excellence in providing a range of financial and professional administration services. Delivering value through the provision of corporate, trust, funds and tax solutions, our longevity and success is predominantly due to our underlying principles of integrity, independence and insight.

However, some of our success can be attributed to being ideally located in a jurisdiction that is home to a politically stable and proactive government, a robust regulatory framework and evolving industry sectors – one of its biggest and most successful being Financial Services, a sector which offers all of the pieces in the Private Client jigsaw…well almost!

What does a Private Client jigsaw look like…? Firstly, there is no ‘typical’ private client – anyone working in the financial services industry knows that each and every client has bespoke needs and requirements. However for the purpose of this piece, a private client could be an ultra-high net worth individual who has acquired his wealth through the family business which is involved in UK property development; he owns a private jet and is currently looking to purchase a yacht.

So which pieces of the jigsaw does the Isle of Man have to offer? And where does Abacus fit in?

Firstly, the Isle of Man is the perfect jurisdiction for the establishment and operation of property holding structures, offering efficient and cost-effective arrangements for all types of property acquisition through various vehicle types, ranging from private wealth structures to collective investment schemes that can facilitate a commercially effective pooling of investor capital and a convenient reporting mechanism. With the right advice and structuring it can be a tax effective solution, particularly for UK non-resident and non-domiciled individuals.
At Abacus, we establish and administer property holding structures designed to meet our client’s individual objectives and requirements and provide a range of support services to ensure that the structure is correct and runs efficiently.

Secondly, the Isle of Man is a one-stop shop for private global aviation business. Not only does it have an aircraft register which has been voted the best in the world in a survey of leading aviation lawyers from around the globe, it offers owners a neutral nationality registration prefix, a secure mortgage register and a professional infrastructure with experience in aviation finance. The Isle of Man Aircraft Registry is renowned for its high customer service ethos and its focus on safety and service…what more could you want for your aircraft?

With strong relationships across the Island’s aviation industry, we assist owners and their representatives in understanding the diverse requirements associated with owning and operating an aircraft, whilst providing tax efficient ownership structures that facilitate aircraft operation on a private and/or commercial basis.


Thirdly, is the Island’s strong history and heritage in shipping – it has one of the fastest growing ship registers in Europe and a Registry that provides a high quality and fast response customer service with a low cost scale of charges. It is also favourably on the much sought after ‘White List’ of the Paris Port State Control Memorandum of Understanding and has been a popular register for yachts, with a significant number currently waving the Isle of Man Ensign.

As a highly experienced corporate service provider, Abacus has significant experience in a wide range of international ownership structures and administration services for yacht owners, making us well placed to assist with the complexities of yacht ownership. We work with our clients to ensure that custody and management of their prized vessel stays on an even keel, from establishment of the structure through to its ongoing administration. We also offer yacht registration services but understand that choosing a flag for a vessel is very much a personal choice and that the Isle of Man may not always be the most practical or effective place for a client. It is here that our office in Malta, a jurisdiction which is growing rapidly in popularity amongst the yachting industry, can offer a full range of yacht ownership, registration and administration services in an alternative EU jurisdiction.

Another is that the Isle of Man is a cost effective alternative for private clients and their investment, fund management and administration requirements. With a well-established fund sector, supported by a range of professional service providers including investment managers, fund administrators, legal firms, custodians, auditors and fiduciaries, the Island offers a compelling and cost-effective alternative for the domicile of investment funds.

As an established fund services provider, Abacus offers a fully cross-border administration solution to fund managers and intermediaries establishing and operating fund structures for clients internationally. We deliver support by providing market leading technology customised to provide added value and improve our client’s relationship with shareholders, promoters and other service providers. Our proposition includes an efficient and effective cost base coupled with a client service ethos designed to add speed, quality and flexibility to the fund administration service.

As we come closer to completing the puzzle, we come to the Island’s Residence and Citizenship opportunities. The UK Tier 1 (Investor) Visa is aimed at High Net worth Individuals and their families who are looking to obtain alternative residence and citizenship by making a qualifying investment into the Isle of Man. An applicant must meet the eligibility and due diligence requirements and complete the application process but if successful can obtain British citizenship.

With understanding and experience of citizenship programmes, we are able to advise and assist individuals and their families wishing to apply for citizenship in an alternative EU jurisdiction. We can help clients choose an appropriate programme and country of residence (we can also offer three Maltese residence and citizenship programmes) and guide them through the application process to ensure that preparation and submission of their application is correct and processed in an expedient manner.

So now the picture is near complete, what is Abacus’ part in the puzzle? Simply, we are the final piece…we utilise the Island’s capability and apply our knowledge and experience to develop and provide solutions that keep pace with change and ever more sophisticated tax planning, to ultimately assist private clients in the effective structuring and management of their wealth. We are the piece that holds it all together and make the Private Client jigsaw complete!


Malta as a Jurisdiction to Hold Intellectual Property

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Malta has been described to me by some of my clients as a very well kept secret. While I am not sure that this is a good thing for us practitioners, it is true that our tax system offers a myriad of opportunities for cross border tax planning which are only just beginning to be tapped by foreign investors. Once case in point is the use of Malta for holding of intellectual property.

The Advantages in a Nutshell

1. A step-up provision upon migration of foreign IP companies to Malta allows the intellectual property (which can remain situated outside Malta) to be raised from historical cost to fair market value at the date of the migration

2. IP rights can then be amortised using the new fair market value over a three year period

3. Research and development taking place outside Malta and which leads to inventions – Income and royalties arising from such patented inventions are tax exempt in Malta. Moreover the patent can be registered anywhere in the world

4. There are no withholding taxes on payments of royalties to licensors outside Malta (provided the IP is used outside Malta by the Maltese registered company)

5. Malta’s extensive network of double tax treaties (which at the moment number almost sixty including with all EU countries as well as Canada, USA and China), together with the EU Interest and Royalty Directive, lead to 0% of withholding taxes on incoming royalties in most cases and hardly ever more than 10% in a worse case scenario

6. Tax refunds: The Maltese tax refund system has already been tackled in previous articles of mine, and I will not bother the reader by repeating the details, however suffice to say the upon a payment of the corporate tax (35%) a 6/7 refund of the tax suffered on the declared dividend is paid out within a maximum period of 6 weeks to the shareholder (individual or corporate). Thus effectively leading to a 5% net tax

7. Therefore, if a foreign IP company enters into a license agreement with a Maltese company for the foreign company’s EU patent rights, the Maltese company can now utilise these rights within the EU. The Maltese company retains a license fee and passes the rest to the foreign company with which it has the license agreement

The resultant net income of the Maltese company is considered as taxable trading profits which will be taxed at the Maltese corporate tax rate of 35%. However, with the use of the refund system, the non resident shareholders can claim a 6/7 refund of this , thus mitigating the net overall tax rate to 5%.

There will be no withholding tax on the royalty income remitted to the foreign entity.

And if the same company also holds IP rights directly and receives royalties from abroad this will be taxed at 35% and will be subject to a tax refund of 5/7 thus resulting in a net effective tax of 10%.

Moreover, when no double taxation relief is claimed this rate can be further mitigated by making use of what is known as the Flat Rate Foreign Tax Credit or (FRFTC) for short.

This involves getting the foreign royalty income net of any foreign tax suffered, grossing up the net resultant income by 25%, taxing the resultant notional income at 35% and then deducting from the notional tax charge the 25% grossed up income. The result is the tax payable in Malta, which will be in region of 18% to approximately 7% (depending on whether there are local expenses or not) . Then the shareholder will apply for a 2/3 refund on the Malta tax paid. This will lead to net Malta tax charge of 6.25%. Furthermore, where local expenses are present these are included in the computation, further reducing the net tax charge to a minimum of 2.49%.

In practice it is also possible to utilise this provision where tax treaties are in place, by simply not applying the tax treaty and going for this provision if deemed more beneficial.

Worked Example:


We can help you with:

• Advice on the tax system with regards to income from IP property in Malta
• Company incorporations
• Maltese tax compliance
• VAT compliance
• Corporate services
• Application for a hedge fund license in Malta
• Application for an investment service license
• Application for a QROPS license
• Application for on line gaming license
• Trustee services
• Fiduciary (nominee) services
• Accounting
• Auditing
• Payroll
• Secreterial and back office work
• Rent of office space
• International tax advise (through our international Network – AGN International –
• Legal Services in Malta – (through our associated law firm).


Lessons From Not Taking Tax Advice

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As the ancient Greek and Latin fables tell, life and law teach us important lessons. The ancients would call those lessons ‘morals’, meaning a series of behavioural models typical of certain social contexts, achieved by pursuing an honest rules-based conduct. In Latin, Mos-moris, or morality, refers to behaviour, manner, character, habit. ‘Moral’ means what is pertinent to the conduct and therefore susceptible to evaluation and, to follow, judgment.

In this regard, the situation warrants us to report a recent well-discussed Manx legal case. It is interesting for the case law itself as well as significant for professional trustees in the Isle of Man.

In the recent case of AB and CD, the High Court of Justice of the Isle of Man was asked to consider if Call Options fulfilled by trustees should be set aside on the basis of the Hastings-Bass rule or not. The trustees did not obtain tax advice before granting call options to beneficiaries. This resulted in beneficiaries receiving unwanted UK tax liabilities. The Isle of Man Court ruled that the trustees had made a mistake and that the Call Options were deemed never to have taken effect.

Leaving the professional technical implications, the outcome of the case would pass some morals down:

• Isle of Man Court is deeply aware of the nuances of Manx practice when applying legal principles. The process and the Court’s judgment took just several weeks to be completed; the expedition in resolving a similar matter for the parties highlights the speed of judicial system in the IoM as well as its expertise.

• UK and Isle of Man law are not necessarily one and the same and the case explicitly recognises the potential for differences in approach and outcome between the two legal systems. Professional trustees in the Isle of Man have to be aware of those differences as well as derivate implications. Manx law is not always required to follow English law, especially in respect of some specific matters. Again, Isle of Man and UK public policy may experience differences.

• Every trustee should, where appropriate and useful, take professional legal and tax advice to avoid potential criticism. The right and safest approach going forward is to ensure advice from tax advisers is sought before making decisions. Failure to contemplate such advice could result in serious risks. This approach may be more expensive but it offers a higher degree of protection.