Lowtax Network

Back To Top

Your Lowtax Account

Isle of Man Focus

Lowtax Editorial
12 June, 2014


Situated in the Irish Sea, the Isle of Man's diminutive geographical stature - the island is 50km long and 22km wide at its broadest - belies its position as one of the world's largest and most reputable international offshore financial centres, which is of particular importance to the economy of the United Kingdom.

 

The Isle of Man and its Economy

The Isle of Man is a Crown dependency of the UK, but is self-governing in all areas except defence and foreign policy. The Island's ancient parliament, Tynwald, is the oldest legislature in the world in continuous existence, dating back to Viking origins over one thousand years ago. Its Parliament has two branches: the House of Keys and the Legislative Council. The majority of Members sit as independents, and the virtual absence of party politics encourages a high degree of consensus. This has contributed to the remarkable stability of the Manx system and has allowed the government to put in place a legislative framework upon which a thriving financial services industry has been built, underpinned by benign taxation. Key sectors of the Manx economy are described in more detail below.

The island has its own courts, but the main body of the law is based on English common and civil law, and English precedents are often followed. Some UK legislation is adopted as such by the Isle of Man by agreement with the British Government. The ultimate court of appeal is the English Privy Council. 

The Manx economy is stable and has enjoyed growth every year for the last 30 years. In 2013, the Manx economy is estimated to have grown by between 3 and 4%, and similar levels of growth are projected for 2014.

The financial and economic crisis has, however, had an undeniable effect on international offshore financial centres like the Isle of Man, with bank deposits and assets under management in Manx investment funds having declined since 2008.

The Isle of Man's fortunes are to a large extent tied to those of the City of London. While this leaves the island's financial services sector somewhat vulnerable, it has also been a source of strength for the Manx economy.

According to a government-commissioned report written by Ernst and Young, the City benefited from USD38.9bn in net financing from Isle of Man sources during the second quarter of 2011. The report also found evidence of the strong contribution the island makes to the UK's regional development, in particular in the North West where the Isle of Man Aerospace Cluster plays an important role in the growth of the UK's aerospace industry.

The report found that the Isle of Man and the United Kingdom should maintain a symbiotic relationship in recognition of the Isle of Man economy's supportive role in balanced growth in the United Kingdom. "International Business Centres (IBCs) play a key role in contributing to investment, employment and growth in neighbouring countries in particular, and the global economy in general", it says, adding that the Isle of Man has "led the way amongst IBCs in establishing a modern regulatory system aligned to world best practice", with a conducive environment for strong economic productivity, through the island's internationally-recognized low-tax and robustly-regulated regime.

The Isle of Man also plays an important role in the raising of capital in the City, and has carved out a niche for itself as a favoured jurisdiction for companies floating on London's Alternative Investment Market (AIM). In 2012, the Isle of Man was home to 40 AIM-listed entities, ahead of the Cayman Islands (38), the British Virgin Islands (33) and Ireland (26), but behind Guernsey (67) and Jersey (35).

 

The Isle of Man's Relationship with the EU

The Isle of Man is not a member of the EU, and Protocol No 3 of the UK's Treaty of Accession to the EU excludes the island from most of the effects of the Treaty. There is, however, free movement of industrial and agricultural goods between the island and the UK; and between the island and EU and EEA countries, and the island applies the external common customs tariff of the EU.

The Isle of Man chose to become part of the EU's VAT regime, but is not part of the EU fiscal area in any other respects. The island's VAT scheme is largely similar to that of the UK; and for some types of business activity inside the EU it is an advantage to be within the scope of VAT.

The Isle of Man's constitutional position in relation to the EU cannot be changed without unanimous agreement of the member states, including of course the UK. The island sees its current relationship with the EU as beneficial, and does not seek to change it.

Thanks largely to its close constitutional relationship with the UK, the Isle of Man has, however, fallen foul of the EU's drive to stamp out "harmful" taxes in the area of corporate taxation (see below).

 

Banking

Although the number of banks established in the Isle of Man has fallen slightly over recent years, the calibre of banking operations has been showing marked improvement.

The majority of banks in the Isle of Man are engaged in providing private banking services to UK expatriates and to foreign nationals. The services offered often extend beyond deposit taking to establishing and administering trusts and managing the underlying companies and assets held by those trusts, including investment management. The growth in other areas of the Island's finance sector, including captive insurance, life assurance, collective investment schemes, investment management and ship management, means that these organisations have sums of money to invest and therefore require investment management services. Some banks also act as trustees to collective investment schemes.

Banking deposits did, however, fall in 2011, by 6.4 percent to GBP47bn by the end of the year, and the value of deposits has declined steadily from a peak of GBP58.1bn recorded on December 31, 2008. Since the latter half of 2013 deposit levels have levelled off, and on March 31, total deposits stood at GBP43.14bn.

Of a total of 28 banks present on the island at the end of March 2014, half were UK-based institutions, with the rest originating from Ireland, Spain, South Africa, Switzerland, France, Belgium, Cayman Islands and the USA. Two banks present on the Isle of Man are domestic banks.

Well over one third (39 percent) of the liabilities held by island banks were in the form of retail deposits at the end of March 2014, with just over another third (36 percent) held in corporate, trust and fiduciary deposits. Just over one quarter (27 percent) of deposits were from entities based in the United Kingdom, 2 percent from the Republic of Ireland, 5 percent from other EU countries, 7 percent from European non-EU countries, 3 percent from the Middle East, 3 percent from the Far East, and 5 percent from North America.

The banking sector is well capitalised, with all banks meeting or surpassing Minimum Risk Asset Ratios set by the regulator.

Banks are regulated by the Financial Services Commission under the Financial Services Act 2008. This new legislation, which came into force on August 1, 2008, consolidated several pieces of financial services legislation, including the Financial Supervision Act 1988 and the Banking Act 1998, into one Act and simplified the licensing regime. The underlying regulations remain largely unchanged however, although the term 'banking' has been reclassified as 'deposit taking.'

 

Investment Funds

The first mutual funds were established in the Island in the mid-1960s and were mainly used by British expatriates. New legislative initiatives in the early 1980s created opportunities for growth and gave rise to a rapid expansion of the Island's fund management industry.

The Isle of Man became the first offshore jurisdiction to be granted 'designated territory status' by the UK in 1986, thus enabling Isle of Man funds to apply for recognition in the UK. Fund management activities are currently included in the Isle of Man's zero percent corporation tax regime (see below). Mutual funds can take the form of companies (open or close-ended), trusts, limited partnerships or pure contractual arrangements.

As in other offshore jurisdictions, managers in the Isle of Man are more focused on administration than asset allocation. Where a manager chooses not to establish a real presence in the Island, it is a requirement that its business must be administered by a licensed third party fund administrator.

Isle of Man legislation provides for a number of different types of funds, as follows:

  • Authorised Schemes: These are the most highly regulated funds which can be sold directly to the public in the Isle of Man and, subject to recognition, in the following jurisdictions: the UK, Hong Kong, Australia, Jersey and Guernsey. Investors in an Authorised Scheme benefit from an investor compensation scheme.
  • Regulated Funds: These funds are aimed at retail investors or markets requiring a fiduciary depositary. There are no restrictions on the type on investor that these funds can be marketed to, and they are usually sold through independent financial advisors. Regulated Funds are subject to FSC pre-approval.
  • Qualifying Funds: These are non-retail funds aimed at qualifying investors investing less than USD100,000. A Qualifying Fund is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund's failure.
  • Specialist Funds: The Specialist Fund is a sub-category of the International scheme which is available only to specialist investors who are generally institutional investors and high net worth individuals. The minimum investment in a Specialist Fund is USD100,000. A Specialist Fund is not subject to approval in the Isle of Man and investors in such funds are not protected by any statutory compensation arrangements in the event of the fund's failure. 
  • Exempt Schemes: These are Isle of Man schemes that must have less than 50 investors and their relevant constitutional documents must expressly prohibit the making of an invitation to the public to subscribe in any part of the world. Exempt International Schemes are regarded as private arrangements and are not subject to regulation.
  • Recognised Schemes: These schemes are managed in or authorised under the law of another country or territory outside the Island but may not be promoted to the general public in the Island unless they have been granted recognition by the Financial Supervision Commission. Once granted recognition, a Recognised Scheme may be promoted to the general public in the Island.
  • Overseas Schemes: These are schemes established outside the Isle of Man that are not Recognised Schemes or Exempt-type Schemes.

Licensing of investment management, including that of collective investment funds, was introduced by the Investment Business Acts 1991 to 1993, with a definition of activities to be licensed contained in the Investment Business Order 1991. The regulatory regime for collective investment funds is now governed by the Collective Investment Schemes Act 2008 (CIS Act) which came into force on August 1, 2008, having been previously established by the Financial Supervision Act 1988. Subordinate legislation made under the Financial Supervision Act 1988 continues to have effect as if it was made under the relevant provisions of the CIS Act.

The net asset value (NAV) of funds under management or administration in Isle of Man funds totalled USD21.84bn at the end of March 2014, and even though this was slightly higher than the NAV level recorded a year earlier, it was still substantially down on the 2008 peak of GBP57.7bn.

The difficult trading environment since the fall of Lehman Brothers, which is widely credited with precipitating the financial crisis, was recognised by the FSC in its 2010/11 Annual Report. The FSC observed that certain alternative investment fund performances had been stymied by the credit squeeze and liquidity issues, leading to a reduction in assets under management and administration from the Isle of Man. The report went on to note however, that asset classes in more traditional assets, for example equities, have generally seen positive performance and net inflows. The asset value of Qualifying Funds and Legacy EIFs increased during the year and the number of Isle of Man Funds also increased.

 

Trusts

Trust management, particularly for wealthy UK individuals, has been a traditional business for the Isle of Man. Successive tightenings of UK anti-avoidance legislation have reduced the possibilities for UK citizens, but trust work continues to be significant. As a result, the Isle of Man has a well-developed legal and financial infrastructure for trust management. 

The law of trusts is based on the English law and is governed by the following acts: the Trustee Act 1961 as amended; the Variation of Trusts Act 1961; the Perpetuities and Accumulations Act 1961; the Trusts Act 1995; and the Purpose Trusts Act 1996. The Trusts Act 1995 establishes that both for Manx trusts and for foreign trusts migrating to the island, Manx law is conclusive and will overcome any forced heirship provisions emanating from civil law jurisdictions. The Isle of Man adopted the Hague Convention in the Recognition of Trusts Act 1988, albeit with some modifications.

Trust documents are in English, and there are no requirements for registration; there is no stamp duty. The normal perpetuity period of a Manx trust created prior to 2001 is 80 years. Trusts created after 2000 have a statutory perpetuity period of 150 years. There are no restrictions on the accumulation of income during the perpetuity period.

Trusts used for Investment Funds (Unit Trusts) are governed by the Prevention of Fraud (Investments) Act 1968, which contains prudential rules among others.

Until 2004, trustees were not licensed or supervised by the Financial Supervision Commission, unless the fiduciary carried on business in investment, banking or insurance, in which case licences are required under those headings. However, this changed with the introduction of new Fiduciary Services legislation.

The licensing of fiduciaries brought the Isle of Man into line with similar arrangements already established in other offshore jurisdictions such as Bermuda, Guernsey and Jersey and an external review of the proposals by London law firm Stikeman Elliot found the bill compares favourably with legislation in these places.

 

E-Commerce and E-Gaming

There is something of a competition between a number of offshore jurisdictions to offer the most advanced e-commerce environment to businesses seeking an offshore base for part or all of their operations. The Isle of Man is clearly one of the leading jurisdictions, being one of the few which have enacted e-commerce legislation and is already host to an active e-commerce community of providers and users.

In June 2001, the government's e-commerce division published a report which set out in detail the Island's approach to becoming one of the world's leading e-commerce centres and most advanced 'e-societies'. Entitled 'The E-Commerce and E-Society Strategy Report,' it obtained the approval of Tynwald and was actively promoted by the government.

The island's e-commerce strategy is supported by a first class telecommunications infrastructure, with all telephone exchanges having been upgraded with ADSL-enabling equipment, making the island potentially one of the most attractive high speed internet locations in Europe. Manx Telecom has also invested GBP25m in a Next Generation Network which converges mobile, broadband and fixed line services on to a resilient IP network. Isle of Man businesses and residents enjoy 100% broadband availability offering speeds of up to 40Mbps downstream and up to 2Mbps upstream.

The Isle of Man has also been used in recent years as a test-bed for new technologies and was at the forefront of the launch of both 3G and 3.5G services. Manx Telecom was the first European operator to launch a 3G mobile service and the first in the world to launch a 3.5G mobile service.

The Isle of Man has targeted betting and gaming among other offshore e-commerce sectors, with some success. Purpose-built legislation was introduced in 2001 and a number of licenses were issued to international gaming consortia. Problems with payment mechanisms in the light of US antipathy towards on-line gaming led to some closures in 2002, but by 2005 it appeared that the sector had become established on a long-term basis.

Following the announcement in August, 2005, of the granting of a gambling licence to Poker Stars, the second largest operator of its type in the world, the resulting publicity both in the business and trade media helped to raise considerably the Isle of Man's profile in the international e-gaming industry.

In July 2011, the Isle of Man launched a new Network Services Licence for business-to-business e-Gaming operators. The Network Services Licence is a new level of licence available under the existing Online Gambling Regulation Act 2001 (OGRA) and is designed to recognize the business-to-business relationships that many gaming operators now have. The licence aims to provide Isle of Man-based gaming operations the opportunity to make their platform available to business customers around the world. It is anticipated that this new business model will not only attract new and larger businesses into the Isle of Man but it will also increase opportunities for those businesses already based on the island to develop relationships with companies across the globe. 

In February 2012, the government welcomed the successful application of TWLV for a license to operate a new online bingo site from the island. The company said its decision to select the Isle of Man was because "the island offers large telecoms capacity, first-class data centres, skilled professionals, world-class regulation and a business friendly and supportive government".

Alex Downie, the Department of Economic Development's Political Member with responsibility for e-Gaming, added: "I am pleased that TWLV Gaming has announced the launch of their novel new website. In addition this showcases the island's success as a leading jurisdiction for gaming companies due to its excellent reputation in regulation and support. The Isle of Man offers an ideal environment for TWLV to develop its business."

The telecoms and broadcasting industries on the Isle of Man are regulated and licensed by the Isle of Man Communications Commission, which is a statutory board of the Department of Home Affairs.

Behind the Isle of Man's e-business sector lies a data hosting infrastructure served by five state of the art data-hosting centres owned and operated by Manx Telecom, WiManx, Domicilium, Continent 8 and Netcetera.

The Island also has a sophisticated internet hosting infrastructure with a choice of service providers whose range of services include hosting, managed services, internet security services, connectivity and consultancy. Web hosting business solutions are offered to businesses of all sizes.

Supporting this strong market sector is reliable power network which is the envy of the UK operators in terms of its customer minutes lost performance, with plenty of spare generating capacity, diverse fuel supplies and connection to third party electricity and gas grid systems.

The Isle of Man's e-business sector has grown rapidly in recent years, and now accounts for around 12 percent of the Manx economy. 

 

Shipping

The Isle of Man passed the Merchant Shipping (Registration) Act 1984 in order to encourage registration of ships on the island. There is a zero-tax regime for ship management companies based on the Isle of Man.

In 2006, the Manx government announced a change of the name of the Marine Administration to the 'Isle of Man Ship Registry', a change designed to communicate greater "clarity of message" by describing exactly what the organisation does: the registration of ships and yachts and the technical regulation of, and jurisdiction over, those vessels on the register. The revamp came into effect February 1, 2007.

Enhancements were made to the registration process in August 2009 which made it simpler and more cost effective to register a vessel in the Isle of Man. These changes included: the dropping of the pre-registry survey requirement; the welcoming of previously excluded ship types, such as passenger vessels; and an increase in the maximum age of ships on the Manx registry from 15 years to 20 years. In addition, the Registry extended the number of 'Accepted Countries', allowing ownership structures of vessels using companies registered in the following countries to remain unchanged when vessels transfer registration to the Isle of Man: Australia, the Bahamas, Canada, China, Hong Kong, India, Japan, Liberia, the Marshall Islands, New Zealand, Pakistan, Panama, Russia, Singapore, South Africa, United Arab Emirates, and the United States. 

However, in March 2009, the Isle of Man Ship Registry announced its intention to introduce an annual registration fee for the first time in its 25-year history. The fee has been set at GBP730 per merchant vessel which compares favourably with the cost of registration with competitor flags. Unlike other registries, the fee will not be dependent upon ship size or type. In addition the IoM Registry will grant "substantial discounts" for multi-vessel owners registering with the flag. The Registry has also announced reductions in other fees for services and certification as a result of the introduction of the annual fee.

Nevertheless, the Manx Shipping Registry has continued to thrive, and in 2013 the merchant fleet grew by 7.4% in gross tonnage terms – twice the rate of global merchant fleet growth – with the entire Manx fleet experiencing growth of 10.7%. Indeed, the Registry has reported that 2013 was one of their busiest on record, when an average of 10 new vessel registrations was completed every month.

A wide range of vessel types from specialised merchant ships to superyachts and fishing boats make up the Manx Registry, and most categories saw growth in 2013. Several significant milestones were reached last year: in November the number of vessels on the Manx register reached a record high, and gross registered tonnage exceeded 16m tonnes for the first time. The Manx Registry ended the year as the world's 14th largest fleet and one of the top five fastest growing flag states.

The Registry hit all its quality targets in respect of the fleet performance during the year, maintaining white list positions on the Paris and Tokyo memoranda of understanding for Port State Control, and its accreditation under the United States' Coast Guard's Qualship 21 program which recognizes "quality" states.

In addition, the International Chamber of Shipping's Flag State Performance Table for 2014 recognized the Isle of Man as continuing to have positive indicators in all categories, positioning it as one of 12 flag states, of a total of 111, to have achieved a "clean sheet."

For the Registry, 2012 saw the final steps taken to achieve compliance with the Maritime Labour Convention 2008 (MLC). The Registry has since concluded the necessary legislative amendments to the island's regime to have an appropriate regulatory framework in place for the Convention, which entered into force in August 2013.

Another significant development was announced in April 2013, when it was revealed that the Isle of Man Ship Registry could take vessels with ownership structures in Monaco or Switzerland thanks to legislative changes which were passed by Tynwald.

This is a strategic move in terms of superyachts which was introduced in response to requests by the yacht industry on the Isle of Man, which sees great potential for new business opportunities as a result of these changes.

The latest regulations extend the list of qualified owners already approved, to include citizens, bodies corporate incorporated in Monaco or Switzerland, or limited partnerships with their principal place of business in Monaco or Switzerland, as persons who are qualified to be the owners of Manx vessels.

The Department's Political Member with responsibility for the Ship Registry, Alex Downie said: "I am delighted to have been able to establish regulations to extend our ownership criteria to include the important financial centres of Monaco and Switzerland. The yacht management companies in the Island see great potential in this latest move and I hope to see more yachts financed in these countries flying the Manx Ensign in the future."

 

Film Production and Financing

The Isle of Man has a thriving film industry, which is subsidised by the government. The Isle of Man Film Commission (now called Isle of Man Film) was established in 1995 and has co-produced and co-financed nearly 100 feature films and televisions dramas, with these investment worth about GBP170m to date.

Attractive tax incentives are available for both companies and film-makers wishing to use the island as a location and production base and for film management companies or co-ordinating producers of offshore productions.

The Manx Treasury signed an agreement in October 2013 to transfer management of the Isle of Man's GBP25m film and television investment fund to Pinewood Film Advisors Ltd for an initial five-year period, and to purchase nearly five million ordinary shares in Pinewood Shepperton plc, for a deal worth GBP12.23m for a shareholding of 9.89 percent.

The Isle of Man has collaborated with Pinewood on two high-profile films, Belle and Dom Hemingway, with a number of other projects in the pipeline.

 

Company Law And Taxation

Recent company law reforms have responded to international pressure by effectively removing the distinction between 'offshore' and 'onshore' company vehicles. However, most companies still benefit from 0 percent income tax under the '0/10' tax legislation, which went into effect in 2006.

The Isle of Man's Companies Act 2006 came into force on November 1 that year, and the first New Manx Vehicles, or '2006 Act companies' as they are known, were incorporated on the same day. Each 2006 Act company is allocated a number followed by the suffix 'V' to distinguish the new-style companies from the more traditional companies which may still be incorporated under the Companies Acts 1931-2004.

The Companies Law 2006 provides for five types of company as follows:

  • Limited by Shares. The nominal capital of the company is not required to be stated for incorporation purposes, only that listed within section 5 of the Act is required.
  • Limited by Guarantee. Members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. Essentially used as a mutual company for charitable, quasi-charitable, non-profit or social purposes, this form of company can be utilised to great effect for tax planning purposes by means of pledged payment to the collateral of the company.
  • Limited by Shares and by Guarantee. This type of company is commonly known as a "Hybrid company", combining the features of both companies limited by shares and companies limited by guarantee. Members consist of those whose liability is limited to the amount unpaid on shares which they hold, and those whose liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. The flexibility provided by this form of company structure has led to its increasing use as a 'Foundation', a popular alternative to the discretionary trust and for proprietary purposes.
  • Unlimited with or without Shares. Such companies are not dissimilar to civil law partnerships and their use is now usually limited to complex situations where extreme flexibility of capital structuring is required or where corporate personality only is needed.

The Isle of Man is in the process of updating its companies legislation, and in February 2013, the Government launched a consultation on a draft Companies Bill 2013 to modernize the legislative framework for companies in the island. As noted in the consultation paper, the Companies Acts 1931-2004 have been amended piecemeal over the years resulting in legislation that "without doubt is difficult to navigate and not particularly user-friendly."

As part of this process of improving the readability of company law, the Foreign Companies Act, which replaced Part XI of the Companies Act 1931, received Royal Assent on March 18, 2014. This law clarifies what constitutes a place of business on the island, although it does not relax any disclosure requirements.

Income tax is levied under the Income Tax Acts 1970 to 2008. 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.

In 2006, the jurisdiction moved towards a zero tax rate for all businesses, except 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), which pay income tax at 10 percent. Prior to this change, companies in the insurance, fund management, space and satellite technology and shipping sectors enjoyed a zero rate of corporate tax (extended in 2005 to companies in the manufacturing, film, e-gaming, tourist accommodation, agriculture and fishing sectors).

The 0 percent tax regime, introduced on April 6, 2006, is intended to stimulate inward investment by businesses establishing on the Island, and provide a consistent treatment across all sectors of the economy as part of the Isle of Man's commitment to a diversified economy.

However, in 2013, the 10% rate was extended to retailers operating in the Isle of Man and who have an annual profit of over GBP500,000. as part of the Government's plans to consolidate the territory's finances.

In January 2013, Manx lawmakers backed proposals for a comprehensive review of the island's tax regime. To be undertaken over the period 2013-2016, the plans envisage a review of all aspects of the Manx tax regime, from the taxation of individuals, national insurance, the taxation of business, and international tax. The government has underscored however, that the review will not lead to the introduction of capital gains tax or an inheritance or death tax, and the island's zero-ten corporate tax regime will remain.

 

Personal Taxation

There is no general definition of 'residence' or 'ordinary residence' in Manx tax law; they are often interpreted as in English law. The concept of 'domicile' is not much used.

A person will qualify as a resident if they spend a total of six months on the island in any income tax year (April 6th to April 5th). An individual who visits for more than an average of three months each year for four or more consecutive years will also be deemed resident. There is an important short-term residence concession which allows a person who owns a property on the Island to spend not more than four months in any two consecutive years in the Island and not be liable to Manx income tax.

Persons ordinarily resident on the island remain resident for tax purposes during temporary absences.

In practice, a new resident is taxed from the date of his arrival, while a person who leaves is non-resident from the date of departure.

Resident individuals are liable to tax on their worldwide income; non-residents only on income arising in the island.

In the 2014/2015 tax year the standard rate of Manx income tax for individuals is 10 percent on the first GBP10,500 of taxable income (after a GBP9,500 tax allowance), rising to 20 percent on the balance (up from 18 percent in 2009/10).

Income is comprehensively defined and includes employment income and benefits (defined more or less as in the UK), income from property (less expenses and capital allowances) pensions, income from a trade or profession, and investment income. Pension contributions are mostly not taxed. Most types of interest, dividend and royalty payment originating on the island and paid to non-residents are exempt from tax.

The Isle of Man operates a deduction scheme for employment income under the Income Tax (Instalment Payments) Act 1974 as amended; this is quite similar to the UK PAYE system.

 

Tax Agreements

Until a few years ago, the Island had only one double taxation avoidance agreement, which was entered into with the United Kingdom in 1955. This treaty is very similar to the equivalent agreements between the UK and Jersey and Guernsey, but does not follow the OECD standard.

A tax information exchange agreement (TIEA) and an arrangement amending the 1955 agreement between the UK and the Isle of Man, signed in Douglas on September 29, 2008, entered into force on April 2, 2009. The provisions of the TIEA also took effect in the UK and the Isle of Man on April 2, 2009. The agreement amends the provisions of the double tax treaty by adding provisions on the taxation of income from pensions and a mutual agreement procedure. Under the revised agreement, many pensions paid from the United Kingdom to people living in the Isle of Man are taxed in the Isle of Man only. In addition taxpayers have new rights under the agreement to ask one government to intervene in order to resolve problems arising from the application of the agreement.

More generally, the Isle of Man is viewed as one of the most reputable IOFCs, and was the first to substantially implement the internationally-agreed standard on tax transparency. The jurisdiction was white-listed by the OECD in 2009, and now has a large and growing network of tax information exchange agreements in place comprising 11 double tax avoidance agreements and 31 TIEAs. Details of these agreements can be viewed on the Isle of Man Treasury's Income Tax Division website.

The Isle of Man's tax transparency standards were endorsed in a report by the OECD in June 2012, which noted that the jurisdiction was one of only 12 reviewed countries to have all elements of effective tax information exchange in place. This placed the Isle of Man alongside Australia, China, France, India, Ireland, Italy, Japan, Malta, Norway, Qatar and the Seychelles.

The Isle of Man already shares information automatically on personal savings income with the UK and other European Union countries, having been the first non-EU jurisdiction to make a public commitment to this under the EU Savings Directive in June 2009.

However, on October 9, 2012, the governments of Guernsey, Jersey and the Isle of Man simultaneously announced that they were seeking to negotiate partnership agreements with the United States to implement the Foreign Account Tax Compliance Act (FATCA). The Isle of Man duly signed an intergovernmental agreement with the US on the implementation of FATCA on December 13, 2013.

The Isle of Man was also the first British dependent territory to sign an agreement with the UK extending the automatic disclosure of tax information. The intergovernmental agreement was signed in London on October 10, 2013 and is modelled on the requirements of FATCA. On the current timetable for implementation of the new agreement, the two Governments have agreed to start exchanging additional information from 2016. The three Crown Dependencies jointly issued guidance notes on the intergovernmental agreements reached with the US and the UK in April 2014.

The Isle of Man also became the first Crown Dependency to join the Convention on Mutual Administrative Assistance in Tax Matters, a multilateral agreement initiated by the OECD and Council of Europe to tackle tax evasion and avoidance between its 75 signatories. The convention was extended to the island on November 21, 2013 during the Sixth Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Jakarta, Indonesia, and it came into force in the island on March 1, 2014.

Later that same month, UK Prime Minister David Cameron wrote to the Crown Dependencies and certain Offshore Territories to discuss measures to improve the availability of information regarding the beneficial ownership of companies. Cameron's letter stressed the importance of creating an accurate central registry on the beneficial ownership of companies, as well as a system to automatically exchange tax information. The letter followed the Action Plan published in June 2013 at the G8 Summit in Northern Ireland and the release of UK government recommendations on further tax transparency efforts in April 2014.

However, responding to the letter Manx Chief Minister Allan Bell said that the Isle of Man already has a robust regime in place to ensure the identification of the beneficial ownership of companies and the availability of this information to the authorities. "We have already made an international commitment to review the regime, and now that the UK Government has clarified its proposed way forward on beneficial ownership, it is logical to include that model as one of the options in our review," he commented. "The outcome of the exercise has to be appropriate for the Isle of Man, of course, which is why we will be engaging in full consultation with the business community before reaching any conclusions."

Even OECD Secretary General Angel Gurria praised the Isle of Man and the other Crown Dependencies on the progress they had made in the area of tax transparency by early 2014, noting that the problem now was more with the "big islands" rather than the "small ones".

"This level of recognition, together with the comments made by Angel Gurria, reflects the island's positive leadership on tax transparency and information exchange," said Chief Minister Bell. "Tax evasion is a global problem and the Isle of Man has demonstrated its willingness to be part of the global solution. We support the creation of a single international standard and the further promotion of a level playing field in terms of tax information exchange".

 

 

 




 

« Go Back to Articles

Features Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »