Bookkeeping and accounting are integral components of any business. Bookkeeping services will ensure that reliable and accurate books are kept for your business, which will assist you to make informed decisions promptly and therefore to minimise risk and maximise opportunity. An effective accounting system can have a significant impact on a company’s productivity as well as its profitability.
Although there is no requirement for private Isle of Man companies to file their accounts with the Companies Registry, all Isle of Man companies are required to produce accounts and complete a tax return. The annual return should verify that accounts have been prepared up to a specified date.
The Isle of Man Companies Act 2006 requires a company to maintain “reliable accounting records” that are sufficient to correctly explain transactions, enable the company’s financial position to be determined with reasonable accuracy at any time, and allow financial statements to be prepared.
Section 80A of the Act also empowers any director or shareholder to demand the preparation of financial statements within six months by depositing a notice at the registered office.
Accounting records and registers must be retained at the office of the Registered Agent. These records should be kept for not less than six years from the end of the financial period to which they relate.
Audit exemption rules
Generally, an Isle of Man company is required to appoint a recognised auditor whose appointment should run from one annual general meeting until the next. However, companies may be exempt from auditing procedures if they meet two of the following criteria:
- Annual turnover is below £5.6 million.
- Balance sheet turnover is £2.8 million or less.
- Fewer than 50 employees.
- Throughout the year, all its members are directors, and it exists wholly for the purpose of holding shares, securities, other investments or land.
Corporate residence
Under the Income Tax Act 1970, a company incorporated in the Isle of Man is automatically resident for tax purposes and must therefore file an annual income tax return, whether it pays tax at 0%, 10% or 20%, or a combination of these rates.
A company that is incorporated elsewhere will be considered resident in the Isle of Man if it is ‘managed and controlled’ in the Isle of Man, and it will therefore be taxed on its worldwide income. ‘Managed and controlled’ is generally regarded as being the place where the board of directors meets, but the question is one of fact and may change from one period to the next.
In cases where a company is resident in a country with which the Isle of Man has a double taxation agreement (DTA) then a tie-breaker may operate to determine residence.
All companies incorporated outside the Isle of Man that are tax resident because they are centrally managed and controlled in the Island are required to register with the Assessor. The company must provide sufficient evidence to prove that the company is managed and controlled in the Isle of Man, plus all other information requested.
The company’s reporting obligations under the Income Tax Act 1970 apply with effect from the date that the company became tax resident in the Island.
The Income Tax Act 1970 contains a specific provision that allows a company incorporated in the Isle of Man to apply to be considered as not resident if it can prove to the Assessor that:
- Its business is centrally managed and controlled in another country.
- It is resident for tax purposes under the other country’s law either under a DTA a tie–breaker clause or the highest rate at which any company may be charged to tax on any part of its profits in the other country is 15% or higher.
- There is a bona fide commercial reason for its residence status in the other country.
VAT returns
Under the terms of the Customs and Excise Agreement, the Isle of Man forms a single territory with the UK, and the VAT rules are broadly identical.
The VAT registration threshold, above which persons making taxable supplies are required to register and account for VAT, is £90,000 per year. Businesses can still opt to register voluntarily if their taxable turnover is below this.
Supplies that are exempt from VAT, include insurance and financial services, betting and gaming, education and healthcare.
VAT returns are usually filed on a quarterly basis, although some businesses may be required to file monthly or annually. These must be submitted within one month and seven days after the end of the VAT accounting period along with payment of any VAT liability.
Sovereign Accounting Services
Isle of Man entities are required to produce accounts and file tax returns in a timely fashion if they are to remain in compliance and avoid fines and other penalties. Sovereign can either offer in-house bookkeeping and accounting services to clients or can recommend a range of accountancy firms that we work with closely.
By outsourcing these functions, you can reduce internal operational costs and devote more time and resources to value-added and revenue-generating tasks. Acting as a ‘Fiscal Agent’ for your entity, Sovereign will complete and file the necessary returns, assist with the preparation of the accounts, if applicable introduce a suitable auditor, and liaise with the tax department to ensure that all a client’s obligations are met in full.
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Please contact us if you have any questions or queries and your local representative will be in touch with you as soon as possible.
