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IoM Clarifies Tax Treatment Of Foundations

Monday, May 28, 2012

The Isle of Man government has released a new Practice Note, providing additional guidance on the tax treatment of the Foundation company form, following the entry into force on January 1, 2012, of the Foundations Act 2011.

The Isle of Man government has clarified that under an amendment to Section 120 of the Income Tax Act 1970, foundations should be treated as though they were corporate taxpayers for income tax purposes. This is despite the foundation company form having many similar features to a trust, in that it has a founder who is similar to a settlor, beneficiaries who have similar rights to those of a discretionary trust, and a foundation instrument and rules which are similar to a trust deed.

As foundations are taxed as though they were corporates, an income tax rate of 0% is applicable on the majority of income, with a 10% rate applicable where the foundation receives income from Manx land and property.

Tax returns in respect of foundations are due 12 months after the end of a foundation's accounting period, with penalties applicable for late filing.

Lastly, the Practice Note clarifies that under Manx legislation governing foundations and Schedule 1 of the Income Tax Act 1980, the Assessor of Income Tax may take action to combat personal income tax avoidance through the use of Manx foundations. In cases where the Assessor believes that a foundation was created for the purpose of avoiding personal income tax liability, an assessment can be made to counteract the avoidance or reduction in tax due.