Isle of Man: Country and Foreign Investment
Overview of Tax System
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 at a maximum rate of 20% on individuals, and until 2006 on corporations (companies). In its budget for 2002/03 the government reduced lower rates of income tax to 10%.
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). The island forms part of the EU VAT area, and applies the same rate as the UK.
In February, 2005, Treasury Minister Allan Bell delivered his 2005 Budget, announcing a zero rate of income tax for six 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). 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.
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 April 5, 2006.
In February 2010, the Isle of Man Income Tax Department launched a consultation on the future of business taxation on the island following scrutiny of its 0/10% regime from the European Union Code of Conduct For Business Taxation Group.
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.
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 Working Party was not expected to report its findings to Ecofin until June 2011.
To avoid further criticism of its' 0/10% regime, the Manx Government announced in February 2011, that it was withdrawing the attribution regime for individuals (ARI) under which distributions of trading profits to residents shareholders of resident companies are taxed as capital distributions, thus making them liable to personal taxation.
On its' website, the IOM government posted the following announcement: ....'The ARI is designed to deter local shareholders from avoiding Manx personal tax by rolling up income in companies subject to the 0% tax rate. This piece of legislation has been under review since late 2008 by the Code Group, in order to determine whether it could be considered a harmful measure.
After monitoring the Code Group’s work in 2010, and being mindful of the views of ECOFIN when it met on 7 December 2010, the Isle of Man Government indicated that it would wait for the report requested by ECOFIN from the Council High Level Working Party for tax issues (HLWP) on its review of the scope of the Code of Conduct before determining its position.
A recommendation being made today by the HLWP to ECOFIN is that the attribution provisions are effectively designed to provide an alternative means of taxing domestic business profits and are therefore within the scope of the Code and must be included in an evaluation under the Code of Conduct for business taxation.
In view of the likelihood that the Code Group will move quickly to declare the ARI a harmful measure, the Isle of Man has decided that the ARI should be repealed.'