Corporate tax in Isle of Man

Summary

Resident Corporation Income Tax Rate (%) 0 (a)
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 0 (a)
Withholding Tax (%)
Dividends 0
Interest 0 (b)
Royalties 0
Net Operating Losses
Carryback 1 (c)
Carryforward Unlimited (c)

(a) The standard 0% rate of corporate income tax applies to all profits derived by companies except for the following:

  •  Certain banking business in the Isle of Man and certain retail business in the Isle of Man, which are subject to tax at a rate of 10%
  •  Profits arising from land and property in the Isle of Man, which are subject to tax at a rate of 20%

b) Information is exchanged automatically in all cases.

c) Loss relief is available in certain circumstances (see Section C).

Taxes on corporate income and gains

Corporate income tax. Companies resident in the Isle of Man are subject to income tax on their worldwide income, but relief from double taxation may be available. A nonresident company with a branch carrying on a trade in the Isle of Man is subject to tax on the income of the branch. A company is resident in the Isle of Man if it is incorporated in the Isle of Man or if the central man­agement and control of the company is exercised there.

Rates of corporation tax. The standard rate of corporate income tax is 0%. This rate applies to all profits derived by trading and investment companies, except for the following:

  • Certain banking business in the Isle of Man and certain retail business in the Isle of Man, which are subject to tax at a rate of 10%
  • Profits arising from land and property in the Isle of Man, which are subject to tax at a rate of 20%

Trading companies may also elect to be taxed at the 10% rate.

Special types of companies. Special types of companies in the Isle of Man are described briefly below.

Funds industry. The Isle of Man has a full suite of fund options, with the Specialist Funds being a popular vehicle for alternative investment. Management fees, including administration services’ fees, to Specialist Funds, are exempt for value-added tax (VAT) purposes if the services are provided from the IOM. Specialist Funds can include close-ended investment trust companies. The exemption can also cover UK-listed investment entities, includ­ing investment trust companies, venture capital trusts, and certain overseas funds.

The Isle of Man also offers exempt schemes that are not subject to regulation. Exempt schemes may have up to 49 members (pro­vided the scheme is not available to the public; that is, it is a pri­vate engagement). Virtually all types of assets can be held in these schemes.

Overseas funds may be administered in the Isle of Man without being subject to Isle of Man regulations if they are incorporated in a jurisdiction with an appropriate regulatory framework.

Limited liability companies. The Limited Liability Companies Act 1996 allows for the formation of limited liability companies (LLCs). The liability of the members of an LLC is limited to the members’ contributions to capital.

For Manx tax purposes, an LLC is treated like a partnership. Con­sequently, an LLC’s profits are allocated among its members for tax purposes.

New Manx Vehicles. The New Manx Vehicle (NMV) is a corpo­rate vehicle that is subject to simplified filing requirements and that is designed to be flexible and inexpensive to administer. It is taxed in the same manner as normal Isle of Man companies.

Manx foundations. Under the Foundations Act 2011, foundations can be created in the Isle of Man. Manx foundations are regarded as corporate taxpayers for purposes of Manx corporate income tax and are taxed in the same manner as normal Isle of Man com­panies. Manx foundations are of particular interest to persons who are from civil law jurisdictions.

Capital gains. The Isle of Man does not impose a tax on capital gains.

Administration. Tax returns must be filed within 12 months and 1 day after the accounting year-end, and any tax payable is due at the same time. In certain circumstances, companies wholly sub­ject to the 0% rate file shortened tax returns.

Filing penalties apply for the late submission of company returns. The first penalty is GBP250. A further penalty of GBP500 is imposed if the return is not filed within 18 months and 1 day after the end of the accounting period. If the return remains outstanding 24 months after the end of the accounting period, the company and its officers may be subject to criminal proceedings.

Withholding taxes. In general, no withholding tax is imposed on dividends, interest and royalties paid by Isle of Man resident com­panies. The Assessor of Income Tax may require a person who makes a payment or credit of taxable income to a person resident outside the Isle of Man to deduct income tax from such payment or credit at a rate specified by the Assessor. For example, a 10% withholding tax is imposed on Isle of Man rent paid by Isle of Man resident companies to nonresident companies, and a 20% with­holding tax is imposed on rent paid to nonresident individuals.

Foreign tax relief. Foreign tax on income of a resident company may be credited against Manx income tax on the same profits. For­eign tax relief cannot exceed the income tax assessed by the Isle of Man on those profits.

Determination of trading income

General. The tax assessment is based on financial accounts pre­pared using generally accepted accounting principles, subject to certain adjustments and provisions.

Expenses must be incurred wholly and exclusively for the purpose of the trade and in acquiring income. Dividends are not de ductible in calculating taxable profit.

Inventories. Inventory is normally valued at the lower of cost or net realizable value. Cost must be determined on a first-in, first-out (FIFO) basis; the last-in, first-out (LIFO) basis is not acceptable.

Capital allowances (tax depreciation)

Plant and machinery. A first-year allowance of up to 100% may be claimed. Annual writing-down allowances of 25% may also be claimed.

Motor vehicles. Expenditures on motor vehicles qualify for an annual allowance of 25% of the declining balance. The maximum annual allowance is GBP3,000.

Industrial buildings, agricultural buildings and tourist premises. A 100% initial allowance may be claimed on capital investment to acquire, extend or alter a qualifying industrial building, agri­cultural building or tourist facility. This allowance is granted on expenditures in excess of any government grants received.

Disposals. On the ultimate disposal of assets on which capital allowances have been claimed, an adjustment is made by add-back or further allowance to reflect the net cost to the company of the asset.

Relief for trading losses. Trading losses may be used to offset other income of the year in which the loss was incurred or income of the preceding year if the same trade was carried on, or losses may be carried forward, without time limit, to offset future income from the same trade. Special rules apply to the carryback of losses on commencement or cessation of the trade.

Companies may also surrender losses to 75%-group companies. A recipient company can use surrendered losses only against pro­fits earned in the same year of assessment.

Under the loss relief rules described above, relief is allowable only against profits chargeable at the same rate of tax. Losses arising from activities subject to tax at the rate of 0% may not be relieved against profits taxed at 10%.

Other significant taxes

The Isle of Man and the United Kingdom are considered one area for VAT, customs and excise purposes. VAT, customs and excise rates are levied in the Isle of Man at the same rates as in the United Kingdom. The Customs and Excise Division in the Isle of Man operates independently from the United Kingdom, but under similar legislation.

Under Protocol 3 of the UK’s Treaty of Accession to the Euro­pean Union (EU), the Isle of Man enjoys the benefits of being within Europe for financial services, customs and VAT purposes, but outside the United Kingdom and the EU with respect to direct taxation and legal and regulatory matters. This makes it possible to operate businesses from the Isle of Man that are subject to a corporate income tax rate of 0%, but are VAT-registered. It allows UK inward investors to arrange for VAT registration in the Isle of Man without the risk of a taxable presence in the United King­dom. The Isle of Man has its own Electronic Processing Unit (EPU), whereby internation al traders or their agents can elec­tronically declare imports or ex ports into or out of the Isle of Man or the United Kingdom. This results in a system-generated cus­toms clearance. On payment of duties and taxes due, goods can then enter into free circulation and be traded with any other EU member state. Businesses can land their goods in the Isle of Man or the United Kingdom and make customs declarations through the Isle of Man for both jurisdictions. Systems and procedures in both the Isle of Man and the United Kingdom are the same and rules, procedures and decisions from the Isle of Man apply through­out the EU.

The Isle of Man has the same system for National Insurance contributions as the United Kingdom, but the contributions are calculated at lower rates.

Miscellaneous matters

Anti-avoidance provisions. The Assessor of Income Tax has the authority to make an assessment or an additional assessment in situations in which the Assessor considers Manx tax to have been avoided. Appeals are made to the Income Tax Commissioners. No assessment is made if the person involved provides evidence to the Assessor that the purpose of avoiding or reducing income tax liability was not the primary purpose or one of the primary pur­poses for which the transaction was carried out.

Foreign-exchange controls. The Isle of Man does not impose any foreign-exchange controls.

Transfer pricing. Isle of Man law does not include transfer-pricing rules. However, domestic anti-avoidance provisions need to be considered.

Debt-to-equity rules. The Isle of Man does not impose debt-to-equity requirements.

Tax treaties

The Isle of Man has entered into double tax treaties with Bahrain, Estonia, Guernsey, Jersey, Luxembourg, Malta, Qatar, Seychelles, Singapore, and the United Kingdom. It has also signed a double tax treaty with Belgium, but this treaty is not yet in force.

In addition, the Isle of Man has entered into agreements with the following countries to eliminate the double taxation of profits with respect to enterprises operating ships or aircraft in interna­tional traffic.

Denmark                         Germany                           Norway

Faroe Islands                   Greenland                         Poland

Finland                            Iceland                              Sweden

France                             Netherlands                       United States

The Isle of Man has signed tax information exchange agreements (TIEAs) with the following countries.

Argentina                        Germany                     New Zealand

Australia                          Greenland                   Norway

Botswana*                      Iceland                        Poland

Canada                            India                           Portugal

Cayman Islands*             Indonesia                    Slovenia

China                               Ireland                        Swaziland*

Czech Republic               Italy                            Sweden

Denmark                         Japan                          Switzerland

Faroe Islands                   Lesotho                       Turkey*

Finland                            Mexico                       United Kingdom

France                             Netherlands                United States

* TIEAs with these countries are awaiting ratification.