Isle of Man lures U.S. operators with promised tax incentives
The new Isle of Man aircraft registry could be a possible safe haven for N-registered business aircraft based in Europe. European civil aviation authorities, such as those of France and the UK, have indicated that they are unwilling to tolerate the situation in which aircraft that spend most of their time in Europe remain on the U.S. registry for a variety of reasons, including operators’ desire to avoid making costly technical modifications.
According to Douglas Aviation Services, which handles the affairs of companies and individuals registering aircraft in the Isle of Man, European aviation officials have indicated that they view the offshore registry as an acceptable alternative. Aircraft registration experts have told AIN privately that this could be a face-saving opportunity for European aviation authorities, which they say do not have strong legal grounds to force N-registered aircraft onto their registries. In fact, the Isle of Man is also seeking to attract aircraft currently registered in other European countries, as well as in Asia and the Middle East.
The Isle of Man already has an established shipping registry that is the third largest in the world. It specializes in high-value super-yachts and in this respect complements the role of the new aircraft registry.
As a precursor to opening its aircraft registry in May 2007, the Isle of Man appointed its first Director of Civil Aviation to establish a regulatory framework that draws heavily on the structure and standards of the UK Civil Aviation Authority. The job went to former CAA official and corporate pilot Brian Johnson. His team is part of the Isle of Man’s Department of Trade and Industry.
However, significantly for issues such as taxation and employment law, the Isle of Man is not part of the 27-state European Union. It is a self-governing British Crown Dependency located in the Irish Sea between the UK and Ireland.
“The Isle of Man registry allows companies and individuals to have European-based aircraft without having European tax [exposure],” explained Douglas Aviation Services chief executive Niall McNamara.
The main tax benefits of registration in the Isle of Man are its zero-ratings for corporation, capital gains and inheritance tax. The island also doesn’t charge insurance premium tax (currently 5 percent in the UK). Depending on an aircraft owner’s tax domicile, the Isle of Man registration can reduce or eliminate any exposure to value-added tax on aircraft purchases.
One other possible tax issue is the trend for countries such as the UK to more aggressively seek to tax the income and assets of people who live in the country
but who have registered themselves as non-domiciled for tax purposes. “No one really knows where this [non-domicile tax policy] is going to end up, but with an aircraft registered in the Isle of Man at least they will know where that asset stands [i.e. not subject to tax],” said McNamara.
Referring to the ongoing squeeze on credit, McNamara said that lenders are increasingly particular about where the assets that they fund are registered. They want any collateral assets to be on an absolutely firm legal footing.
A Selective Registry
For the time being, the Isle of Man aircraft registry is open only to business aircraft that are operated under private rules, and there are no immediate plans to accept aircraft flown for charter or fractional ownership. The main issue is that the Isle of Man does not yet have provision for issuing its own aircraft operating certificates (AOCs). “The government might seek to do this in the future, but does not want to push the issue for the time being,” said Douglas Aviation Services chairman P.J. McGoldrick.
One possible future option could be that Isle of Man-based companies might own aircraft registered on the island and then lease them back to operators based elsewhere. “This would maintain the value of the aircraft and keeps operation first class [in terms of having a credible registry],” argued McGoldrick.
The government of the Isle of Man is determined that the island should be viewed as an entirely respectable offshore jurisdiction that does not get associated with questionable legal and financial practices, so the registry is selective about the aircraft it accepts.
In fact, according to McNamara, Douglas Aviation Services effectively pre-screens applicants for the Isle of Man government. “More aircraft are turned away than are accepted,” said McNamara. “About 80 percent of calls that we get relate to aircraft or operations that are unsuitable. For the Isle of Man it is a case of enlightened self-interest. They want to keep the quality aircraft and not devalue the register. It’s in no one’s interests to bend the rules.”
In the year since it was established, just over 50 aircraft–more than four times the number the government hoped for–have taken the Isle of Man’s M- tail numbers. “The government’s prediction was for one aircraft a month, but we have done one a week,” said Johnson. The new register already has a wide range of business jets, although as yet there are no Boeing Business Jets or Airbus Corporate Jetliners.
Around 10 of the aircraft belong to residents of the island, who are able
to register light aircraft. Non-residents are able to register only corporate jets of 12,500 pounds max takeoff weight and above, and all aircraft joining the register must have type certificates from the European Aviation Safety Agency.
The first aircraft to be added were Cessna Citations, but Bombardiers are most common now with six jets, including a new Global 5000 and a couple of Challenger 605s. From Hawker Beechcraft, the registry already has a Hawker 800XP and a pair of Premier IAs. Four Hawker 900XPs are coming this year, and at least two of the new Hawker 4000 super-midsize are in the pipeline. One company placed a new Dassault Falcon on the register and has declared itself to be so satisfied with the service and benefits received that it will now add its other five aircraft, including a Falcon 7X.
The Isle of Man aims to combine the tax advantages associated with the island’s fiscal regime with a convenient registration process based on a high level of personal service. The main goal is to boost opportunities for the island’s financial services business.
One of the greatest coups pulled off by Johnson and his team was to secure the
M- registration. This was once assigned to Spain but, as luck would have it, had subsequently been transferred to the UK Civil Aviation Authority, which agreed to let the Isle of Man have it.
Some of the M- tail numbers available are pretty distinctive. “M-USIC has been reserved,” said Johnson, “while three people were after M-ONEY, which will be going on an aircraft shortly. Someone just took M-YWAY, which will go on a new helicopter–as it matches the company slogan–but he’s also a Sinatra fan.” The first on the register was M-AGIC.
Another attractive feature of the register is the portability of registrations. For example, a Sikorsky S-76 helicopter registered M-ONTY has been re-registered as
M-ERRY so that M-ONTY can be transferred to the owner’s new helicopter. This allows owners to keep the same registration as they trade up.
Johnson now believes that the register will be “pretty big in a few years time” and predicted that “for the foreseeable future we should grow at 50 aircraft a year.” The building of a new corporate aviation terminal this year at the island’s Ronaldsway Airport will help cement the Isle of Man’s place in the business aviation world.