The Isle of Man brings together a number of characteristics that make it one of the top locations in Europe for fund domiciliation. A low tax regime is among the top of these reasons.
The types of investment funds in the Isle of Man that are available to investors suit a number of purposes, they can have different investment levels, they can be sold to the general public (or not) and they can be specialist funds.
Our team of Isle of Man company registration specialists highlights the main types of funds available to foreign investors and enumerates some of the conditions applicable to locally domiciles fund products.
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The main types of funds available to investors in the Isle of Man
The Collective Investment Schemes Act 2008 and its subordinate legislation govern collective investment schemes or funds in the Isle of Man. Currently, seven current schemes are recognized, with the following characteristics:
- Authorized collective investment schemes: it is the type of fund subject to the highest regulation; must appoint a manager and a trustee.
- Regulated fund: can be open or close-ended, there are no restrictions as per the type of investor;
- Qualifying fund: there is no minimum initial investment level and no regulatory pre-approval;
- Specialist fund: a minimum investment level above 100,000 US$, no formal requirements for the custodian, no regulatory pre-approval;
- Exempt scheme: possible with less than 50 investors, based on private arrangements and not directly subjected to regulation.
- Recognized scheme: for those investment schemes established outside of the Isle of Man; it is the equivalent of an authorized investment scheme.
- Overseas scheme: formed outside of the Isle of Man, the equivalent of the exempt scheme.
There are also two types of superseded fund types, the full international scheme (replaced by the regulated fund) and the experienced investor fund or EIF (replaced by the qualifying fund).
One of our agents who specialize in offshore company formation in the Isle of Man can provide investors with more details about each of these types of funds and the applicable regulations, as per the Collective Investment Schemes Act. For example, specialist funds are regulated in Paragraph 4 of the Collective Investment Schemes Act 2008 and the Collective Investment Schemes (Specialist Fund) Regulations 2010. One of our agents can give you more details.
Open-ended retail funds in the Isle of Man
Open-ended retail funds are a type of investment fund in Isle of Man that is open to retail investors, designed to provide individual investors with access to a diversified portfolio of investments, which may include equities, bonds, and other asset classes.
There are three types of open-ended retail investment funds in Isle of Man that can be set up, which differ in their level of regulation:
- Authorised Funds are the most strictly regulated type of fund and must be formally authorized by the Financial Services Authority (FSA). They are subject to specific requirements around management, custody, and asset management. They are also the only type of fund in the Isle of Man that offers an investor compensation scheme;
- Regulated Funds must also be pre-approved by the FSA, but are subject to less strict rules than Authorised Funds. However, they must still meet high standards in relation to their structure, operation, and documentation. They are also obligated to meet specific criteria about management, promotion, and custody. Our accountants in Isle of Man can help you with setting up and managing a regulated fund if you are interested.
- Recognized Funds are retail investment funds in Isle of Man established outside of the country, but that want to be promoted to the general public as well. They can apply for recognition by the FSA, but must already be subject to regulatory requirements in their home jurisdiction.
Please contact our specialists for guidance in the different types of open-ended retail investment funds, as well as with opening a company in Isle of Man.
Closed-ended retail funds in the Isle of Man
Closed-ended retail funds are a type of investment fund in Isle of Man where participants invest their money for a fixed term and are not able to withdraw their investments during that period.
These closed-ended funds are regulated funds and are subject to regulation under the Collective Investment Schemes. However, closed-ended funds that are not available to the public, such as those that have 49 or fewer investors or require a minimum initial investment of USD100,000 per investor, are exempt from these regulations.
You can discuss more about close-ended retail funds with one of our lawyers, who can also offer insight about setting up a company in the Isle of Man if you are interested.
Conditions for opening a fund in the Isle of Man
For some of the types of investment funds presented above, an important regulation is to have an Isle of Man manager. Moreover, it is also a common condition to have an appointed trustee or fiduciary custodian.
investors who are interested in Isle of Man domiciled fund products should also have in mind a number of other issues:
- if the fund will be sold to the general public: for this purpose, an authorized scheme is commonly chosen by investors, with an Isle of Man manager.
- the investment level: if the minimum investment level is below 100,000 US$, investors will not be able to form a specialist fund.
- target investors: when the fund is aimed at retail investors, a common choice is the regulated fund.
- promotion: the manner in which the funds will be marketed, this can be done directly to the public in the Isle of Man.
- licenses: functionaries who provide services to funds need to be properly licensed under the Financial Services Act.
The Isle of Man offers a wide array of vehicles that can be used as fund structures, among which the open-ended investment companies, the protected cell companies or the limited partnerships. Setting up a company in the Isle of Man is straightforward and interested foreign investors can receive personalized assistance from our experts.
Taxation on investment funds in Isle of Man
The Isle of Man has a tax system that is very friendly to investors because there is no capital gains tax, inheritance tax, or stamp duty. There is a type of tax called corporation tax, but it is charged at a zero percent rate, except for income from deposit-taking (which is taxed at 10%) and real estate in the Isle of Man (which is taxed at 20%). Our accountants in Isle of Man can help you with the taxation of investment funds.
Also, The Isle of Man has made agreements with many other countries to prevent double taxation. Investors and fund managers need to be aware of these agreements and how they might affect the tax treatment of investment funds in the Isle of Man.
The fees charged by fund administrators and investment managers in the Isle of Man are not subject to a type of tax called VAT, except for certain types of funds. If VAT is charged, it depends on where the fund is established.
Different types of investment funds in Isle of Man may have different tax treatments, so it’s important to understand the specific tax implications of each fund before investing. You can contact any of our Isle of Man company registration specialists for more details regarding this subject. They can also help you with moving to Isle of Man if you wish to know more about immigration policies.
Investors in the Isle of Man can rely on the expertise and the services provided by our local team of accountants. Taxation in the Isle is favourable for companies, however, the consistent advice and the recommended approach offered by a CPA can be invaluable, especially for tax planning purposes in the context of using an investment fund. Contact our accountants in the Isle of Man for details about our services and solutions.
According to a statistical bulletin issued by the Isle of Man Financial Services Authority, there were:
- 5 regulated funds and 10 specialist funds registered at the end of 2022;
- these funds had 251,26 million US$ (for the regulated ones) and 534,91 US$ (for the specialist ones) as a total asset value in December 2022;
- There were over 100 collective investment schemes administered or managed in the Isle of Man in 2022;
- The top asset class was private equity, with more than 80 funds, followed by property, in nearly 45 funds – in December 2022.
These statistics are useful for showing Isle of Man’s position as a fund center in the region. For more information about the types of investment funds, their management, control, and other considerations, please contact our team of Isle of Man company formation agents.