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OFFSHORE FOUNDATIONS

The Isle of Man Foundation

Overview Key Elements of the Legislation

OVERVIEW

The Foundation Act 2011 received Royal Assent on 15th November 2011 and provides the Isle of Man with an alternative vehicle to Trusts for asset holding, asset management and estate planning and enhances the Island's offering as a centre for international wealth and management. The Isle of Man Private Foundation will also appeal to individuals and families from civil law jurisdictions where Trusts are not legally recognised.

The many attractions include:

  • excludes forced heirship
  • the Foundation Instrument will be recorded in the public records
  • separate legal personality
  • limited liability
  • can arrange for its own funding
  • beneficiaries can be named on establishment or at a later date
  • no initial property is required on establishment
  • the "founder" can be a beneficiary or an "enforcer" of the foundation.

The legislation came into effect on 1st January 2012.

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KEY ELEMENTS OF THE LEGISLATION

Instrument

The foundation consists of one or more "founders" who instructs the fiduciary service provider to apply to the Registrar for the establishment of the Foundation. The application must be made in a form and manner published by the Registrar and accompanied by:

  • A copy of the foundation instrument (document of public record)
  • The published fee
  • Declaration from fiduciary service provider stating:
  • The fiduciary service provider will become the Registered Agent of the Foundation upon establishment
  • The fiduciary service provider is in possession of the foundation rules which have been approved by both the founder and the licence holder.
  • The address in the Isle of Man, specified in the declaration is the business address of the fiduciary service provider.

The Foundation Instrument must be in English and specify the name of the Foundation and end with the word "foundation". The name must not be identical or similar (ignoring the suffix) to any other name under which a company or foundation has been established in the Isle of Man under:

  • The Companies Act 1931 – 2004
  • The Companies Act 2006
  • The Limited Liability Companies Act 1996
  • The Foundation Act 2011
  • The Charity Registration Act 1989

The name must not in the opinion of the Registrar be offensive, misleading or otherwise undesirable. The Registrar may publish restricted words and phrases.

The foundation instrument may prohibit future name changes but if not strictly prohibited the name can be changed but said change must be notified to the Registrar.

The Foundation instrument must specify the objects for which the foundation is established. The objects must be:

  • Certain, reasonable and possible
  • must not be unlawful, contrary to public policy or immoral
  • the objects may be charitable, non-charitable or both
  • the object may benefit a person or class of persons
  • the objects may carry out a specified purpose

The foundation instrument must also include:

  • Full names and addresses of the Council Members
  • The procedures to appoint remove and remunerate council members, enforcer and the registered agent
  • Provide rules in relation to the office of enforcer, if appointed
  • Rules in relation to any initial or further dedications of assets
  • Rules in relation to the duration of the foundation, destination of surplus assets or winding up
  • Rules in relation to beneficiaries
  • Rules in relation to the administration of assets
  • Rules in relation to delegation of duties

The Rules

The Foundation Rules may be in any language but the foundation must supply an accurate English translation of the rules to the Registered Agent. The rules must include:

  • The procedures to appoint, remove, retire and remunerate council members, enforcer and the registered agent
  • The full name and address of the council members and enforcer, if appointed
  • Procedures in case of the death of the Registered Agent
  • Provide rules in relation to the office of enforcer, if appointed
  • Rules in relation to any initial or further dedications of assets
  • Rules in relation to the duration of the foundation, destination of surplus assets or winding up
  • Rules in relation to beneficiaries
  • Rules in relation to the administration of assets
  • Rules in relation to delegation of duties

The rules may provide for or restrict amendments to the foundation instrument or the foundation rules.

Perpetuity Period

A Foundation can run in perpetuity unlike a trust which has a limited life span.

Assets

Assets are added to the Foundation by dedication and are not initially required. Assets may be dedicated after the foundation's establishment in which case the details of the dedication must be specified in the foundation rules.

The definition of assets:

  • Any assets (including money, investments and other property) dedicated to the foundation
  • Any capitalised income added to the assets so dedicated

The dedication of assets to a foundation by a person does not:

  • Make the person a founder
  • vest in the person a right vested in a founder of the foundation

All Dedications by a "Dedicator" must be recorded by the registered agent who is required to maintain a register of all names and addresses of dedicators.

Founder

The person establishing the Foundation is known as the "Founder" similar to a Settlor in a trust. The name of the Founder will not be on public record.

Enforcer

An enforcer is optional and may be an individual or body corporate. The enforcer can be the Founder. If the foundation does have an enforcer the foundation rules must specify the full name and address of the enforcer, provide for the enforcer's appointment, retirement and remuneration

Council Members

Council Members are appointed in a similar manner to Trustees of a trust, the minimum number being one. Council members are bound to act within the scope of the foundation rules and have exposure to unlimited liability if they engage in misconduct. The Company Officers (Disqualification) Act 2009 applies to foundations.

Beneficiaries

The beneficiaries of the Foundation are entitled to information on the Foundation but not necessarily a right to any income.

The Act defines a beneficiary in respect of a foundation that has the provision to benefit a person or class of persons as one of its objects, as a person (whether or not yet born or otherwise in existence) who is or who becomes a member of class of persons that is:

  • Specified in the foundation instrument or
  • Determined in accordance with the foundation rules

Limited Liability

A Foundation is similar to a company in that it carries limited liability.

Taxation

The rules applying to Limited Companies will also apply to Foundations. A Foundation will incur no tax on profits other than those connected with the business of Isle of Man property which will pay corporate tax at a rate of 10%. A withholding tax at the same rate is imposed if the dividend is paid to a non resident individual or corporate body.

VAT

The Foundation may only engage in commercial trading if it is attainable of its objects. Isle of Man foundations may be registered for VAT purposes and the VAT prefix will be "GB", which is recognised in Europe.

Financial Statements Required

Whilst there is no requirement to file audited financial statements with the authorities, it is important to note that a Foundation is required to keep financial records, which reflect the financial position of the Foundation.

If accounting records are kept at a place outside the Isle of Man they must be sent to the Foundation's registered office in the Isle of Man at not less than 6 month intervals.

Failure to maintain accounts or make them available for inspection at a company's registered agent is an offence punishable by imprisonment or a fine.

The Assessor of Income Tax reserves the right to call in the financial records for inspection.

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OTHER SERVICES

Foundation Council Fee

We levy an annual fixed responsibility fee for the provision of Council Members. This fee will be dependent on the responsibility and complexity of the foundation and its activities. The minimum fee is rendered and cannot be applied on a pro-rata basis and does not include administration work or time. The minimum fee is $1,350

Accounting

Where OCRA Worldwide provides Council Members we shall prepare financial statements for all foundations and where appropriate arrange for audit thereof. The minimum fee includes the establishment of books of account. Thereafter accounting work is charged on a time basis.The minimum fee is $900

Administration

When we undertake administrative, compliance or management work on behalf of client trusts, we render fees based on:

  • One-off recurring package fees for administration and management
  • Activity/time charge fees
  • Transactional fees

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CONTACT A CONSULTANT

A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact the consultants below directly, without obligation. Should you prefer, click on the button below and request that a consultant from the Isle of Man office calls you back.

REQUEST A CALLBACK

Alternatively, right click to download the order forms and complete and submit by email or fax to any of the office consultants listed below:

Isle of Man Foundation Order Form

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Disclaimer: Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other
professional advice. OCRA Worldwide does not accept any responsibility, legal or otherwise, for any errors or omission.