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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?