The Tax Environment for e business in the Isle of Man

A business friendly taxation regime is designed to promote success and enables companies and their employees and the wider island community to flourish together.

The Isle of Man operates its own tax system entirely separately from the United Kingdom. Its' parliament Tynwald is responsible for enacting all of its tax law.

Corporate Taxation

Company taxation in the Isle of Man is simple to understand and provides significant benefits to companies doing business in the Island.

• Low rates of income tax – most companies pay income tax at a standard rate of 0% on all income; companies that receive income from banking business or from land and property situated in the Island pay tax at a 10% rate on profits from those sources and the standard 0% rate on their remaining income.
• Annual tax returns – are filed no later than 6 October following the end of the tax year.
• Payment of income tax – is due on or before 1 January in the tax year to which the payment relates, or within 30 days of the date of an assessment, should the assessment be issued after 1 January.
• Computation of profits – all companies liable to income tax can deduct expenses that have been wholly and exclusively incurred in generating their income. Capital allowances are also available; in most cases on a 100% first year basis and in other cases on a 25% writing down basis in each year. Losses can be offset against subsequent trading profits or, if the company is a member of a group, can be offset against profits arising elsewhere within the group. Consideration is currently being given as to whether the loss and group relief provisions should be restricted where income is chargeable in a company or group at both the 0% and 10% rates.

Following the introduction of the standard 0% tax rate, additional rules may affect those companies with Manx-resident shareholders. A Distributable Profits Charge may in certain circumstances be paid, on behalf of its shareholders resident in the Island, by a company which has not distributed the required amount of its profits. If all of the shareholders of a company are resident outside the Island, then the company will not have to account for the new charge; distribution of profits is not required to establish this position.

Full details of the application of the Distributable Profits Charge and the taxation of distributions paid to persons resident in the Isle of Man can be obtained from the Assessor of Income Tax.

The Income Tax website contains further information on Company Taxation.

Capital Taxation

There is no capital taxation at all in the Isle of Man. Therefore resident individuals and companies pay no wealth taxes, inheritance, gift or capital gains taxes.

Personal Taxation

The Isle of Man personal tax regime creates an attractive fiscal environment in which to live. Anyone entitled to live in the UK or EU can relocate to the Isle of Man and there are no fiscal entry requirements before tax residence can be achieved.

Personal allowances in the Isle of Man are among the highest in Europe, whilst tax rates are among the lowest. For 2008-09 an individual who is resident in the Island will not pay any income tax on the first £9,200 of taxable income, whereas a Married Couple's Allowance is £18,400. Tax will be due at a rate of 10% on the first £10,500 (Single) or £21,000 (Married) of taxable income above the allowance; with the balance of income being charged at the higher rate of 18%. If a married couple are jointly taxed their allowances and lower rate threshold are combined and fully transferable between husband and wife. Single persons may have incomes of £19,700 before paying tax at the higher rate of 18%, whilst for married couples this figure is £39,400.

In addition to these generous personal allowances and low rates of taxation, resident individuals are able to claim a deduction from taxable income when they make qualifying mortgage or loan interest payments, set up educational or charitable deeds of covenant or personal pension arrangements or private medical insurance. Relief from double taxation is also available where foreign tax has been paid, subject to a valid claim being made.

The Tax Cap – high personal allowances, low rates of tax and generous deductions may sound appealing on their own, but the Isle of Man in 2006 introduced a cap on individual tax liabilities.

A resident individual can be certain that his or her final tax liability for a year will not exceed £100,000. Tax will be computed in the normal way, allowances will be granted, deductions and reliefs allowed and rates applied, but if the resulting liability exceeds £100,000 then the cap will be applied. The amount of the cap is doubled for a married couple should they choose to be jointly assessed.

It will be necessary for a person to make an application to the Assessor for the cap to apply in his or her case, and details of the process can be found on the Income Tax Division website.

VAT

The Isle of Man operates a system of Value Added Taxes (VAT) similar in all material aspects to the United Kingdom. The standard rate is 17.5% with a lower rate of 5% and a zero rate. The current turnover registration requirement is £60,000 p.a.

VAT is chargeable on all taxable supplies made by a trader in the Isle of Man and United Kingdom. Taxable supplies made to persons outside the European Union, however, can be zero rated in certain circumstances. Supplies made to persons in their business capacity within the EU can also be zero rated.

For business-to-business e business activity the Isle of Man is a very attractive jurisdiction for the locating of an organisation's intra-EU trade. Combined with the low tax possibilities, the availability of a VAT registration can make the establishment of an e business operation on the Isle of Man fiscally highly beneficial from the point of view of reduced administrative end costs.

The Customs and Excise website contains further information.