The Isle of Man’s Beneficial Ownership Act takes effect from 21 June 2017. Anyone holding or administrating an Isle of Man company, partnership, or foundation will be effected, and non-compliance is an offence. Understandably, some parties will have concerns about the implications of this new Act, so we have set out below the key information you will need to know.

Summary

Here’s the short version:

  • Anyone holding more than 25% of an Isle of Man entity, either directly or indirectly, through the holding of shares or voting rights, will be added to the Isle of Man Government’s beneficial ownership register along with some identifying information.
  • The information will not be public. It will be accessible to a limited number of functions within the Isle of Man Government and the data will be shared with the UK Government when required.
  • A Nominated Officer, either an individual or a Corporate Service Provider (CSP), must be appointed by 21st June 2017 and forms submitted to Companies Registry within one month. They will have certain responsibilities under the Act for maintaining and reporting beneficial owner information.
  • Beneficial owner’s ‘required details’ must be supplied separately, but in conjunction with, annual returns, with a longstop date of 30 June 2018.
  • Whilst it is an additional reporting burden for businesses and CSPs, it is less onerous than had been first expected.
  • Due to the rushed implementation and limited consultation and guidance, there are still several questions on the details of how the new Act will be implemented, particularly surrounding entities that are ‘owned’ by corporate trustees of a trust.

For further detail, read on below.

Context and Implementation

Following the outcome of the G8 summit in 2013, and further commitments made to the UK in 2016, the Isle of Man Government has implemented the Beneficial Ownership Act 2017. It replaces entirely the Companies (Beneficial Ownership) Act 2012. The intention of the legislation is to ensure that both local and international law enforcement can easily identify the beneficial owners (natural persons) behind a legal structure.

As it is driven by changing international norms, this is not something that is or will be unique to the Isle of Man, with most or all respectable international financial centres following suit in the coming years, where they haven’t already (see below for details of what other jurisdictions are doing). Indeed, for wealth holders concerned with privacy, the Isle of Man remains one of the more discreet jurisdictions in the world, whilst nevertheless ensuring a high level of compliance with international standards and empowering law enforcement to weed out bad actors.

The central database goes live on 1 July 2017, with all entities due to be reported by no later than 30 June 2018. These timescales are tight, given a lot of guidance still needs to be issued, but in most cases CSPs should already hold the information they are required to report on behalf of their clients.

Potential Concerns

The register does add another reporting burden for CSPs by having to disclose the details of substantial beneficial owners, however this is information that is already recorded by CSPs under AML legislation and can already be obtained by law enforcement agencies where there is a formal request for information. Importantly, the legislation stops well short of a public register, with access being relatively limited. Bearing in mind also that other jurisdictions are implementing similar or even more stringent transparency rules, we do not believe there is any reason to consider moving structures away from the Isle of Man as a result. Owners of legitimate businesses should not be overly concerned by this change.

Reasonable concerns regarding the database currently revolve more around the details of implementation than they do around the fundamental nature of the information and reporting itself. One of the major unanswered questions at the time of writing is how the register will apply to corporate trustees of a trust which own an IOM company. For example, where a CSP acts as a corporate trustee for a client trust, which in turn holds companies reportable under the Act, the CSP will be required to look through the ownership of the corporate trustee.  Under IOM legislation, corporate trustees must be owned by the licensed CSP which ultimately means that the shareholders (or those holding 25% of more in shares or voting rights) of the CSP must be added to the Register. If this were the case, the owner(s) of CSPs could indirectly be recorded as the registered beneficial owner(s) of hundreds of client companies, when this is demonstrably not the case.

What is a beneficial owner?

Here, we quote the Isle of Man Government, for clarity:

“In the Act, ‘beneficial owner’ means the natural person who ultimately owns or controls a legal entity to which the Act applies, in whole or in part, through direct or indirect ownership or control of shares or voting rights or other ownership interest in that entity, or who exercises control via other means, and ‘beneficial ownership’ is to be construed accordingly (whether or not this is the name recorded in the legal entity’s share register).

“The Act defines any beneficial owner who owns or controls more than 25% of the beneficial ownership of a legal entity to which this Act applies as a ‘registrable beneficial owner’ and the required details of any registrable beneficial owner must be submitted electronically to the Isle of Man Database of Beneficial Ownership by the nominated officer/CSP.

To clarify, nominee shareholder and similar arrangements will therefore not protect a beneficial owner from appearing on the database. Note that where shares are jointly held, both holders will be reported e.g. if two people hold 40% jointly, then both individuals will be registered as holding 40%.

Who can access the information?

The information will not be made public at any time.

Within the Isle of Man Government, the following Departments and Statutory bodies may access the database for a permitted purpose or give Notice to the nominated officer in respect of the beneficial ownership of a legal entity

  • Department of Economic Development
  • The Financial Services Authority
  • The Gambling Supervision Commission
  • Employees of the Government Technology Services Division of the Cabinet Office
  • The Financial Intelligence Unit
  • The Attorney General
  • The Assessor of Income Tax
  • The Chief Constable
  • The Collector of Customs and Excise

The Isle of Man Government will also make the database accessible to UK Government agencies as appropriate, but the exact information regarding those who will be able to access the data, and how, has not yet been made public.

What information will be held?

For all beneficial owners holding (directly or indirectly) more than 25% of the shares or voting rights in a company, the following information will need to be recorded.  These are defined in the legislation as the “required details”:

  • Name
  • Usual residential address
  • A service address
  • Nationality
  • Date of birth
  • Gender
  • The date when the interest was acquired
  • The nature and extent of the interest

Who will be responsible for maintaining this information?

Every organisation will need to appoint a ‘Nominated Officer’. They must be either a natural person or the holder of a Class 4 IOM FSA Licence (a corporate service provider).  A legal entity may have more than one Nominated Officer.  A 2006 Act Company’s Registered Agent will be its Nominated Officer. A Nominated Officer under the CBOA 2012 (i.e. non-2006 Act companies) may continue to be the Nominated Officer, however the company will need written confirmation of the Officer’s consent to the continuation of appointment.

A legal entity must appoint a Nominated Officer and give notice to the Isle of Man Government within one month of the appointment once the legislation comes in to force. Any change in Nominated Officer, or change in the existing Nominated Officer’s details must be notified to the Isle of Man Government within one month. A register of Nominated Officers should be maintained and record the Officers’ names and addresses. In all Nominated Officer cases written confirmation of the consent to the appointment must be held.

The Nominated Officer will be responsible for maintaining a register for each entity, recording details of the Nominated Officer and the ‘Registrable Beneficial owners’ and for submitting the information for inclusion in the database.

However, the ‘legal owner’ i.e. the shareholder has ultimate responsibility for ascertaining the Beneficial Owners of the legal entity.  In practice, the Nominated Officer will write to the legal owner and the legal owner will need to provide the Beneficial Owner information within one month. Note that it is an offence for the legal owner not to provide the required information.

If the Beneficial Owner information changes, the legal owner must notify and provide new details to the Nominated Officer within one month. They will need to be verified by an independent source.

Comparison to other Jurisdictions

Because the changes in the Isle of Man are being driven by its agreements with the UK, similar arrangements are being put in place in other British Overseas Territories and Crown Dependencies. Jersey has had a central register of beneficial owners for some time, and Gibraltar, Guernsey, the BVI, and the Cayman Islands are following suit with non-public registers very similar to the new Isle of Man arrangements.

Although nothing is yet set in stone, it would appear that all of these territories in the British sphere of influence are in a better shape than their EU counterparts, such as Malta and Luxembourg. These jurisdictions will be subject to the Fourth and Fifth AML Directives in the near future, which are set to require that beneficial ownership registers are not only maintained but also made fully public.

The only offshore jurisdictions of interest to wealth holders operating in the EMEA region which do not appear to be developing registers of beneficial ownership at this stage are those in the Middle East, with the Dubai International Financial Centre (DIFC) being the most prominent example. It is yet unknown whether the changes being driven by the EU and UK will be adopted further East. If you would like to know more about the DIFC, please contact us.

Where can I get further information?

If you need any further guidance on compliance with Isle of Man legislation and regulation, please get in touch with us and we will endeavour to answer your questions.

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