Tax Structuring Opportunities using Isle of Man 

for Investing in the UK and European Union

Gregory Jones

Director of Taxation

KPMG LLC Isle of Man

The Isle of Man

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The Isle of Man

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• Self‐Governing British Crown Dependency

• Not part of the UK or EU (but ....)

• Independent legal and tax systems

• Company income tax generally 0%

• Personal income tax 20% (max £120k pa)

• No withholding taxes

• No capital taxes

• VAT as per UK

The Isle of Man

Key questions

How can I minimise the tax costs when I pay dividends back

to India?

Can I optimise my cash flows when importing my goods to Europe?

Where and how should I set up a

trading presence in Europe?

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European Hub – in the Isle of Man

Introduction

Key questions

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Goods

Goods

• Isle of Man VAT registration• Suspend payment of import duty and VAT using UK customs warehousing regime

• Customs clearance into the EU• Recover import VAT• Supply goods into UK• Supply goods into Europe by intra‐community supply or distance selling

• Deal with local customs office – quick response

Where and how to set up a trading presence?

Possible trading structure

Italian customers

IndianManufacturer

German customers

Spanish customers

Isle of Man trading structure

Centralised trading activities

UK and other

customers

No withholding tax

Trading HubIsle of Man

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Basic trading structure

IndianManufacturer

Italian sales company

German sales company

Spanish sales company

German customers

Sale of goods

Italian customers

French customers

Spanish customers

pay local VAT and tax

• The Isle of Man is an offshore jurisdiction which is in the EU for VAT purposes.

• This is an ideal location for selling into the UK, one of the largest online markets in Europe.

• The goods do not have to come to the Isle of Man: they can go into the UK through a major shipping port.

• You can deal with all your VAT and Duty requirements through Isle of Man Customs and Excise.  You would be dealing with a local office which facilitates the building of working relationships and quicker responses.

• You can use UK customs warehouse regime to help manage your cashflow.  VAT and Duty is not payable on importation until the goods come out of the warehouse and are on their way to the customer.

• There are well established trade routes from the UK into the EU.

• This would centralise your EU trading operations in a low tax jurisdiction.

• Disposal of the business is facilitated by no stamp duty or capital gains tax on the sale of shares.

What are the advantages?

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Yachts and aircraft

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Key questions

How should I structure ownership of my assets if I want to

keep them in the EU?

Key questions

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EU BorderImport VAT and Duty

Yachts and aircraft

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• A non‐EU resident can use his yacht or aircraft in the EU under Temporary Importation although there are certain restrictions such as:

The yacht or aircraft has to be removed from the EU within a certain time frame (every 18 months for yachts and 6 months for aircraft).

The yacht or aircraft cannot be chartered.

There are restrictions on EU residents being on board the yacht.

• If you don’t want the restrictions imposed on the use of your yacht or aircraft by Temporary Importation you can establish an EU company and hold the yacht as a private asset.

• The Isle of Man is a low tax jurisdiction in which to structure your asset ownership.  There is a wealth of yacht and aircraft management capability in the Isle of Man with a lot of expertise.  The Isle of Man yacht and aircraft registers are both widely recognised and held in high regard.

• If you want to charter the yacht or aircraft to third parties you can obtain a VAT registration and recover the VAT on the cost of the yacht or aircraft.

• VAT can also be recovered on corporate aircraft used predominantly for business purposes.

e the issues?What are the issues?

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Typical aircraft structure for the recovery of VAT

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Aircraft Manager

Company A

Company B

Company C

Company D

IndividualIndividual

IOM aircraft owning

company

Aircraft lease(no VAT)

CrewCrewAircraft charter

with crew

VAT back on purchase of aircraft

No VAT on charter as public transport

VAT treatment depends on where he is

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Can I charter out my yacht to get the VAT back?

IOM yacht charter company

Third party charter

Beneficial owner charter

Crew

VAT

Purchase + VAT

Local VAT on charter?

Yacht supplies

Third party charter

Yacht charter through the Isle of Man

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• Import the yacht into the EU using an Isle of Man entity.

• Can place the yacht on the Isle of Man yacht register.

• The yacht has to be used commercially ie must predominantly be chartered to third parties and charters to the beneficial owner needs to be on a commercial basis.

• VAT can be recovered on the import/purchase of the yacht provided yacht comes to the Isle of Man or UK.

• VAT can be recovered on services supplied to the yacht such as repairs and maintenance, and to some extent, goods.

• VAT may be due on the charters in the local jurisdictions eg Italy, Spain.

Yacht charter through the Isle of Man

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What about UK property

development?

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Property development

UK commercial

property

IOM property

developer

IOM construction

co

Isle of ManHold Co

costs of raising finance

construction costs

legal, advisory and other costs

• VAT grouping permits recovery of VAT on fund raising costs.• It also eliminates cashflow problems on construction costs as

intra-group charges not subject to VAT

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100%

What about UK taxes?

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UK property holding by non-resident

Mr X

UK property

rent

Mr X’s UK tax exposure:1Income tax @ 45% on rents2Inheritance tax @ 40% on value of property on death3No capital gains tax on sale

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Non-resident property holding via Isle of Man

Mr X

rent

UK tax position:1Income tax @ 20% on rents2No inheritance tax3No capital gains tax on sale

IOM Co Ltd

UK property

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UK property holding by resident non-domiciliary

Mr X

UK property

rent

Mr X’s UK tax exposure:1Income tax @ 45% on rents2Inheritance tax @ 40% on value of property on death3Capital gains tax @ 28% on sale

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Resident non-domiciliary holding UK property via Isle of Man

Mr X

rent

UK tax position:1Income tax @ 45% on rents2No inheritance tax3No capital gains tax on sale

IOM Co Ltd

UK property

IOM Trust

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Questions?