In the Isle of Man there
is no general capital gains tax, turnover
tax or capital transfer tax, and there are
no stamp duties. Apart from VAT, the only
significant tax is income tax which is levied
on 'persons', ie individuals or corporations
(companies). The Assessor of Income Tax is
the head of the Income Tax Division of the
Manx Treasury and carries out the functions
of tax assessment and collection. The Manx
tax year runs from April 6th to April 5th
(as in the UK).
In
February, 2004, Treasury Minister, Allan Bell
revealed that the government intended to extend
a zero rate of corporate tax to businesses
involved in the space and satellite industries.
The jurisdiction planned to move towards a
zero tax rate for all businesses by 2006.
In
February, 2005, Treasury Minister Allan Bell
delivered his 2005 Budget, announcing a zero
rate of income tax for six more sectors of
the Island's economy - manufacturing, film,
e-gaming, tourist accommodation, agriculture
and fishing.
Mr
Bell confirmed that the Island - which already
had the zero rate for insurance, fund management,
space and satellite technology and shipping
- would introduce it as a standard for business
in April 2006, with a 10% rate of tax for
'financial institutions'. This includes companies
holding banking licences and those receiving
income from land and property in the Isle
of Man (which includes rental income, extraction
of minerals and property development).
The
Isle of Man's 2006 budget in February, 2006,
included a package of measures to further
stimulate the inflow of investment and business
to the Island, including the introduction
of zero corporate tax as of 5th April 2006.
Resident
companies will pay an annual charge from April
6th 2006, which is set at £250. For
2007/08 the Corporate charge remains at £250
per company but is to be collected as part
of an increased Company Annual Return fee,
set by the Financial Supervision Commission,
reducing bureaucracy for companies.
The
new 0% tax regime is intended to stimulate
inward investment by businesses establishing
on the Island, and will also provide a consistent
treatment across all sectors of the economy
as part of the Isle of Man’s commitment to
a diversified economy.
In
August, 2006, the Treasury released the results
of a consultation on capping the new 10% corporate
tax liabilities for financial institutions;
the response, not surprisingly, was favourable.
The
aim of the consultation was to seek views
about the proposal to cap corporate tax liabilities
at a level above the current highest payer,
therefore ensuring that current revenue receipts
are not reduced. Seven responses were received:
two from individuals, two from professional
firms and three from professional bodies.
No one was opposed to the idea; some responses
were cautiously supportive and several were
very enthusiastic.
- “This
is a fantastic idea – it will be incredibly
beneficial for the Isle of Man.”
- “..this
could be a good thing for the IOM...”
- “..an
interesting idea and worthy of further consideration.”
One response did suggest that this should
only be an interim measure which should not
detract from the aspiration to make all of
industry subject to a zero rate of tax. They
also suggested that a ‘floor’ as well as a
‘ceiling’ would be appropriate and would attract
smaller start ups, which would in turn bring
more highly qualified staff with them.
A cap of at least GBP6 million, just above
the current highest tax paid by a company,
had been suggested in the consultation document.
Two responses requested that a cap should
be revenue neutral and recognised that this
would not affect established Island companies;
however, it may attract new banking business.
Two responses mentioned the possibility of
allowing subsidiaries or associated companies
to pool their tax liabilities for the purposes
of the cap. One suggested that such an approach
should not use the existing group relief provisions
within the income tax legislation.
The IOM's current definition of a group is
found in Schedule 2 of the Income Tax Act
1980, and its key principle is that: “two
companies shall be deemed to be members of
a group of companies if one is the 75% subsidiary
of the other or both are 75% subsidiaries
of a third company”.
As the Isle of Man now has a standard 0% rate
of corporate income tax, the corporate tax
cap concept would be a further move towards
applying the standard rate to all companies.
A cap, being based on a level of income which,
once exceeded, will then see the remaining
income charged at the 0% rate, would further
demonstrate Treasury’s stated intention to
move to an overall zero rate of corporate
income tax when revenues permit.
The Treasury says it will now give further
consideration to the timing and level of a
cap based on the consultation results.
The
remainder of this page deals with the corporate
income tax regime as it existed until April,
2006.
Isle of Man Scope of Corporation
Tax
Income tax is levied under the Income Tax
Acts 1970 to 1995. Resident companies (referred
to as 'associations' in Manx law) pay income
tax on their worldwide income. Resident companies
are those controlled and managed in the Isle
of Man. Non-resident companies are liable
for income tax on income derived from the
Isle of Man. Branches of foreign companies
are treated for tax purposes as if they were
Manx companies, once registered, depending
on whether they are resident or non-resident.
The
Manx Government sometimes gives temporary
exemption from income tax on part or all of
their profits to industrial undertakings (up
to 5 years) and to managed banks (branches
of foreign banks managed by local banks).
See
Offshore Tax Regimes
for details of the duty and taxes payable
by non-resident and exempt companies, and
International Companies.
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Isle of Man Corporation Tax
Rates
Until 2006, the standard rate of Manx income
tax for companies (associations) was 15% for
trading companies and 18% for non-trading
companies. For trading companies, the first
£500,000 of taxable income was taxed
at 10% from the 2002/03 tax year.
The
Isle of Man's budget for 2002/03 also included
a provision that exempt insurance companies
and ship management companies would be brought
within the domestic tax system, but at a zero
rate.
This
move formed part of a package of proposed
radical tax reforms announced in late 2000;
other elements of the proposals included:
-
A simplified approach to capital allowances
whilst retaining 100% relief when necessary;
and
-
A new tax credit system for distributions
will ensure that tax neutrality is preserved
for the investor, whether resident or non-resident.
In
the Island's 2003/2004 budget, the threshold
at which the standard rate of 15% becomes
payable was increased from £500,000
to £100,000,000 (one hundred million),
effectively resulting in all taxable trading
income being charged at the 10% rate. The
higher rate remained at 18% for all other
companies.
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Isle of Man Calculation of
Taxable Base
For companies, income tax is normally assessed
for income arising in the previous fiscal
year.
Allowable
expenditure needs to be incurred 'wholly and
exclusively' for the business; however, mixed
private/company expenses can often be apportioned.
The
system of capital allowances follows that
of the UK. However there are 100% first year
allowances for industrial buildings and structures,
and for agricultural land and buildings. There
are special rules for tourist development,
leasing companies and shipping.
Loss
relief, group relief and consortium relief
are available, and broadly speaking follow
the UK rules. The companies involved all need
to be resident on the Isle of Man.
Payments
of dividend, bonus, interest or profit shares
to shareholders or associates are deductible
from pre-tax income (and are untaxed in the
hands of residents - but see Withholding Taxes
below concerning non-residents).
75%
of fees received in return for managing an
authorised collective investment scheme are
deductible (a public, resident investment
company can deduct all its management expenses).
Foreign
investment income is normally treated as 'franked';
but the rules are complex, particularly for
the UK (and see the Double
Taxation section).
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Isle of Man Taxation
of Trusts
In the normal trust situation, ie with settlor,
life tenants and beneficiaries all being non-resident,
full exemption from Isle of Man taxation is
given to foreign income and local bank interest,
by concession.
A
Manx resident who receives income from a trust,
whether Manx or foreign, will be taxed on
it; however, if income is accumulated in a
Manx trust with Manx beneficiaries, the trustee(s)
will be assessed on the income.
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Isle of Man Filing Requirements
and Payment of Tax
Companies (associations) in the Isle of Man
must make a return on Form R1(c) by 30th June,
for the preceding year's income. The Assessor
of Income Tax calls for returns, assesses
income tax, issues notices of assessment to
income tax and generally combines the functions
exercised in the UK by Inspectors and Collectors
of Taxes and the Commissioners of Inland Revenue.
The income tax year runs from April 6 to the
following April 5, as in the UK. Income tax
is payable to the Assessor on or before 1
January for the year ending on the following
5 April. Interest is chargeable on unpaid
tax from 1 January in the year to which the
assessment relates.
Isle
of Man Withholding Tax
Until 2006, companies had to deduct withholding
tax (at 18%) from payments made to non-residents
in respect of dividends, interest, profit
shares and directors' remuneration. However,
the Government offered a number of concessions
which exempted various classes of payment
from this requirement, including payments
from a number of specified financial institutions
including banks, authorised investment companies
and some insurance companies.
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