Isle of Man: Offshore Legal and Tax Regimes
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'.
The OECD 'list' resurfaced again after the April 2009 G20 summit in London, but the Isle of Man this time found itself on the 'white list' rather than the 'black list.'
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.
The Isle of Man’s decision to amend its business tax regime was first announced on October 20, 2009, by the Isle of Man Chief Minister, Tony Brown, in a statement to the island's parliament, the Tynwald, in response to changes to the Customs & Excise Agreement revenue sharing arrangements between the Isle of Man and the United Kingdom (UK) and other international developments.
As part of his statement, the Chief Minister said:
“We have been watching the way international sentiments and standards have been moving in response to the global economic crisis, and especially the speed with which such matters have been changing and the potential effect they may have on our economy."
“[Revisiting our business tax regime] will allow us to develop and position the island and its future tax regime, so the island can continue to remain competitive and at the same time be accepted by the international community as responsible and co-operative.”
“The government will also be actively looking to identify what new opportunities can be taken to secure further business within the Island with a view to continuing to diversify our economy and increasing our income.” In December 2010, the Manx government's review of the 0/10% regime was effectively put on ice until a High Level Working Party established by the European Union to review the Code of Conduct for Business Taxation had reported back to the European Council of Finance Ministers (Ecofin).
The Isle of Man Income Tax Department launched a consultation in March 2010 on the future of business taxation on the island following scrutiny of its 0/10% regime from the European Union (EU) Code of Conduct For Business Taxation Group. It was announced in the February, 2011 budget speech that the 0/10% regime would remain in place and the attribution regime for individuals (ARI) be removed from April 2012.
Treasury Minister, Anne Craine MHK, said in her speech: "the Isle of Man Government considers that with the removal of the ARI, our business taxation system does not have features which can be considered to be harmful under the provisions of the Code of Conduct, and we have today communicated that view to the Chair of the Code Group." She added: "We remain committed to our policy of being a good neighbour, which encompasses being responsive to the views of the European Union. At the same time, the Isle of Man is fiscally independent, and participates in the Code of Conduct process on a voluntary basis."
The Isle of Man Treasury announced in March 2013 that the 10% tax rate will also apply to retailers with an annual profit above GBP500,000.