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- ISLE
OF MAN TAX TREATMENT OF OFFSHORE OPERATIONS
- ISLE OF MAN TAXATION
OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
- ISLE OF MAN EXCHANGE
CONTROL
- ISLE OF MAN OFFSHORE
ACTIVITIES
- ISLE OF MAN
EMPLOYMENT AND RESIDENCE
The
term 'offshore' is not used in Isle of Man legislation
or in describing company forms. Prior to 2006,
non-residence was the key criterion for obtaining
offshore tax treatment other than for the International
Company and Exempt Company, which were regarded
as being resident. Until 2006, the main forms
useful for offshore operations in the Isle of
Man were the Exempt Company, the International
Company, the International Limited Partnership,
the Limited Liability Company (LLC) and the
Trust. Normally, non-resident tax treatment
is given to foreign income, while income arising
in the Isle of Man is taxed more highly.
In
December 2000 the OECD announced the Isle of
Man's commitment to eliminate harmful tax practices
by 31 December 2005 which secured the jurisdiction's
deletion from the OECD list of countries deemed
to possess "harmful" tax practices.
The OECD said it welcomed the commitment, which
includes undertakings in favour of transparency,
non-discrimination and effective co-operation.
No timetable was established for these moves,
and the announcement was made before US resistance
to the OECD forced the organisation to back
off some of its proposals including those for
'non-discrimination' and upwards harmonisation
of tax rates. Later, the Isle of Man made clear
that changes would only take place if they were
mirrored in other, comparable jurisdictions
- the famous 'level playing field'.
With
the introduction of its '0/10' taxation regime
in 2006, under which corporation tax is abolished
except for a 10% levy on financial institutions,
the Non-Resident Company, the Exempt Company
and the International Company forms were abolished.
Isle of Man Tax Treatment
of Offshore Operations
See Domestic
Corporate Taxes for the general principles
of Isle of Man corporate taxation, which also
apply to offshore entities except as indicated
below.
As
from 2006, taxation (at 10%) applies only to 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
following text applies to the situation prior
to 2006, although existing non-resident, exempt
and international companies were permitted to
retain their existing status until the end of
2006.
Offshore Manx companies were taxed as follows:
- Non-resident
limited liability companies
(and foreign branches with non-resident status)
were liable to an annual duty of GBP830, payable
to the Registrar of Companies along with the
annual return. They were exempt from income
tax on foreign-derived income, but paid Isle
of Man higher-rate income tax (18%) on any local
income.
- Exempt
Companies
paid a fee of GBP475 along with their annual
application for exemption (more if it is late).
They were not permitted local income, except
(untaxed) bank interest (by concession).
- International
Companies (which,
like Exempt Companies, were not permitted local
trading income) negotiated a rate of tax up
to 35% on their foreign income (minimum tax
to be paid = GBP1,260). The intention was to
help companies, particularly investment companies,
conform to minimum tax requirements imposed
by other jurisdictions.
Non-resident
partners in a Manx partnership, limited partnership
or Limited Liability Company are liable for
tax only on Manx-derived income (with the usual
concessions regarding bank interest), and then
as individuals (see Personal
Taxes).
Effective
1st April 2006, all IOM captive insurance companies
became liable for tax; however the tax rate
is zero per cent.
Previously,
(captive) insurance companies could apply to
be exempt from IOM income tax under the Income
Tax (Exempt Insurance Companies) Act 1981. As
with exempt companies in general, application
for exempt status had to be made annually, with
a total fee for insurance companies of GBP2,500.
Normally exemption only applied to underwriting
of risk arising outside the island. Applications
were made to the Chief Financial Officer.
Trusts
with non-resident beneficiaries are exempt from
Isle of Man income tax on income arising outside
the island and (by concession) on IOM bank interest.
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Isle of Man Taxation of
Foreign Employees of Offshore Operations
There are no special rules applying to the foreign
or Manx employees of offshore operations. The
various exemptions from income tax described above
do not apply to employees: any business employing
and paying people on the Isle of Man will have
to operate the ITIP system of deductions from
pay (based on and similar to the UK PAYE system).
It is not legal to employ non-Manx people on the
island without a work permit. See Domestic
Personal Taxes for the general principles
of individual taxation on the island, which also
apply to the resident employees of non-resident
entities. Most types of compensation and benefit
paid to employees are taxable; there are no special
privileges or exemptions for expatriate workers.
There
is no statutory definition of residence. The Isle
of Man often follows the UK in this respect. Normally,
an individual is resident if he spends more than
six months on the Island in any one year, or more
than 3 months on average in each of 4 consecutive
years.
Non-residents
are liable to pay Manx income tax only in respect
of income arising on the island or from Manx sources.
By concession, Isle of Man bank interest is not
taxed in the hands of non-residents.
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Isle of Man Exchange Control
The Isle of Man has no exchange controls.
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Isle of Man Offshore Activities
For exempt companies, International Companies
and International Limited Partnerships, activities
on the island were limited to administration of
external business, or dealing with other exempt
organisations. Non-resident companies could have
activity on the island, but not such as to constitute
management and control; in their case, and in
most other cases, there could be trading activity
on the island, but it was taxed. As long as the
operation was not judged to be resident (when
all income was taxed) income was simply split
according to its source and taxed or not accordingly.
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Isle of Man Employment and
Residence
There were no special privileges for the employees
of non-resident or offshore entities on the Isle
of Man. See Personal Taxation - Residence
and Liability for Taxation and Labour
Regulation - Work Permits for further information.
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