MARSHALL ISLANDS: DIRECT CORPORATE TAXATION

On this Page:

- MARSHALL ISLANDS GROSS REVENUE TAX
- MARSHALL ISLANDS WAGES AND SALARIES TAX
- MARSHALL ISLANDS SOCIAL SECURITY TAXES
- MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION

The Marshall Islands statutorily exempts all non-resident (i.e. offshore) companies from taxes. Any company formed through one of International Registries, Inc.’s worldwide offices is a non-resident Marshall Islands company. Thus, all foreign-owned companies and partnerships are exempt if they do not do business in the Marshall Islands.

This page of the site deals with taxation as it applies to domestic businesses only and has no effect on Marshall Islands non-resident (“offshore") companies.

The Government applies the same rules to foreign and local owners of domestic businesses and requires foreign investors to make an application, using a prescribed form, to the Social Security Administration to register their business and obtain a Tax Identification Number. The register is used to monitor the payment of taxes.

Local governments apply sales taxes, at rates between 2% and 4%.

To help meet its private sector objectives, the Government offers investments in selected sectors exemptions from paying taxes and duties. The exemptions are equally available to both non-citizen and citizen investors and can be applied for by submitting a letter to the Minister of Finance. Investors intending to establish in the following export-oriented sectors can be exempted from paying gross revenue tax for a five-year period:

• Off-shore or deep sea fishing;
• Manufacturing for export, or for both export and local use;
• Agriculture;
• Hotel and resort facilities.

In order to qualify for an exemption, the investor must make an investment of at least USD1.0 million, or provide employment and wages in excess of USD150,000 per annum to citizen workers.

The government also offers investments in seabed hard mineral mining in the country’s exclusive economic zone an exemption from paying all taxes, duties and other charges except taxes on wages and salaries, individual income tax and social security contributions. In order to qualify for the exemption investors must pay the Government a royalty, production charge or combination of production charge and a share of net proceeds accruing from the mining activity.

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Marshall Islands Wages And Salaries Tax

With respect to their employees, resident businesses are required to withhold and pay to the National Government a tax imposed on the employee's wages and salaries.

The wages and salaries tax is 8 % per annum on the first $10,400.00 of taxable income earned by the employee, and 12% thereafter.

Employees whose gross annual wages and salaries are $5,200.00 or less are allowed an exemption of $1,040.00 per year (or $20.00 per week).

The tax is payable every four weeks.

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Marshall Islands Social Security Taxes

With respect to employees, resident businesses are also required to make quarterly social security contributions on "covered earnings", defined as the compensation paid to employees up to $5,000 per quarter.

From the employee’s wages, the employer is to withhold and pay to the Social Security Administration 7% of covered earnings.

From the employer's revenues, the employer is to contribute to the Social Security Administration for the benefit of the employee another 7% of covered earnings.

Businesses are required to make quarterly health insurance contributions on covered earnings. From the employee's wages, the employer is to withhold and pay to the Social Security Administration 3.5 % of covered earnings.

From the employer's revenues, the employer is to pay to the Social Security Administration for the benefit of the employee another 3.5 % of covered earnings.

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Marshall Islands The Compact of Free Association

Incentives under the Compact of Free Association with the United States include duty exemptions.

As a general rule, all articles wholly grown, made or produced in the Republic of the Marshall Islands have duty-free access into the United States except for the following categories of products:

• Watches, clocks and timing apparatus provided for in Chapter 9.1 of the Harmonized Tariff Schedule of the United States;
• Buttons (whether finished or not finished) provided for in item 9606.21.40 of the above named Tariff Schedule;
• Textile and apparel articles which are subject to textile agreements;
• Footwear, handbags, luggage, flat good, work gloves, and leather wearing apparel which were not eligible for the Generalized System of Preferences in the Trade Act of 1974, and; Tuna canned in oil.

Articles exported from the RMI qualify for this duty-free treatment if the sum of the cost or value of the materials produced in the RMI, and the direct costs of processing operations performed in the RMI are not less than 35% of the appraised value of the merchandise at the time of its importation into the United States. As much as 15% of the value of the product may be contributed to this 35% added-value requirement when materials produced in the customs territory of the United States are used.

The cost of processing operations in the RMI can include the following:

• All actual labor costs involved in the growth, production, manufacture, or assembly of the specific merchandise, including fringe benefits, on-the-job training, and the cost of engineering, supervisory, quality control, and similar personnel;
• Dyes, molds, tooling, and depreciation. Oil machinery and equipment which are allocable to the specific merchandise;
• Research, development, design, engineering, and blueprint costs insofar as they are a allocable to the specific merchandise, and;
• Costs of inspecting and testing the specific merchandise.

Products produced in the RMI are also not presently subject to any quota restrictions into the US market. This is particularly relevant in the area of textile production. Textile imports into the US are generally subject to highly restrictive quotas based on the country of origin.

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