International agreements and double taxation relief

International Agreements

The Isle of Man has a number of taxation agreements with various countries. Full details in respect of all taxation agreements can be found on our International Agreements page.

Double Taxation Relief

Individuals that are resident in the Isle of Man are subject to income tax on their worldwide income, therefore, an Isle of Man resident individual should declare their worldwide income on their annual income tax return.

Where an Isle of Man resident individual receives overseas source income that has been subject to tax in the source country, double taxation relief may be available. However, the manner in which relief may be allowed will depend on whether the Isle of Man has a double taxation agreement in place with that country or not.

Double Taxation Relief if No Double Taxation Agreement Exists

Where an Isle of Man resident individual receives overseas source income that has been subject to tax in the source country and no double taxation agreement exists between the Isle of Man and that country, double taxation relief will be provided subject to the following:

  • All reasonable steps have been taken to minimise the amount of overseas tax suffered.
  • Evidence of the overseas tax suffered is provided.

Double Taxation Relief if Double Taxation Agreement Exists

Where an Isle of Man resident individual receives overseas source income that has been subject to tax in the source country and a double taxation agreement exists between the Isle of Man and that country, whether double taxation relief is available or not will depend of the provisions detailed within the specific double taxation agreement.

Full details in respect of double taxation agreements that the Isle of Man has signed can be found on our Double Taxation Agreements page.

Calculation of Double Taxation Relief

Double taxation relief will be restricted to the lower of the overseas tax suffered or the Isle of Man income tax due in respect of the overseas source of income.

The method used to calculate this is detailed within section 57 of the Income Tax Act 1970 and examples of this calculation can be found within Guidance Note 5.

Double Taxation Agreement with the UK

The most recent UK – Isle of Man Double Taxation Agreement came into force for income tax purposes with effect from 6 April 2019. This agreement is extensive and contains 29 articles in total. Further information regarding the articles that most commonly impact Isle of Man resident individuals are detailed below.

Article 4: Resident

An individual can be tax resident in both the UK and Isle of Man under the laws of each country and this article determines where an individual should be treated as being resident for the purposes of applying the articles contained within the UK – Isle of Man Double Taxation Agreement. However, this will not change the fact that an individual is resident in both the UK and Isle of Man under the laws of each country and should continue to submit resident tax returns to both.

Under this article, an individual is determined to be treaty resident as follows:

  1. In the country where they have a permanent home.
  2. If they have a permanent home in both countries, the country where their centre of vital interests are.
  3. If their centre of vital interests cannot be determined, the country where they have a habitual abode.
  4. If they have a habitual abode in both, residence will be determined by mutual agreement between the UK and Isle of Man authorities.

Articles 10, 11 & 17: Dividends, Interest & Pensions

In most cases dividends (excluding property income dividends), interest and pensions are taxable only in the country where the individual is resident. Therefore, an Isle of Man resident individual will be taxable only in the Isle of Man on these types of UK income.

Where an Isle of Man resident is in receipt of UK property income dividends, this may be taxed in the UK first but only up to a maximum of 15%.

Article 7: Business Profits

Under this article, profits of an enterprise which carries on a trading activity are taxable only in the country where they are resident unless they are carrying on business in the other country through a permanent establishment. Where this is the case, the profits that are attributable to that permanent establishment may be taxed in the other country first.

What constitutes a permanent establishment is defined within Article 5 of the UK – Isle of Man Double Taxation Agreement.

As such, business profits of an Isle of Man resident individual or company will be taxable only in the Isle of Man. However, if that person or company is carrying on some/all of their business through a permanent establishment in the UK, the profits attributable to that permanent establishment in the UK may be taxed in the UK first and double taxation relief may be allowed in the Isle of Man if relevant.

Article 14: Income from Employment

Employment income is taxable only in the country where the employee is resident unless the employment is exercised in the other country. Where the employment is exercised in the other country, the employment income attributable to any duties performed in the other territory may be taxed in the other country first if:

  • The employee is present in the other country for 183 days or more in any 12 month period starting or ending in the tax year concerned; or
  • The remuneration is paid by an employer who is resident in the other territory; or
  • The remuneration is borne by a permanent establishment the employer has in the other territory.

Therefore, employment income received by an Isle of Man resident individual will be taxable only in the Isle of Man. However, if the employment is exercised in the UK, the employment income attributable to the duties performed in the UK may be taxed in the UK first if any of the 3 conditions stated above are relevant.

Article 6: Income from Immovable Property

The income from immovable property article covers rental and property development income.

Under this article, income from these sources may be taxed in the source country first. Therefore, UK source rental income received by an Isle of Man resident individual may be taxed in the UK first and double taxation relief will then be allowed in the Isle of Man.

Reclaiming UK Tax & No Tax Codes

Individuals should contact HM Revenue & Customs directly in respect of reclaiming any UK tax that may have been overpaid or getting no tax codes put in place against any UK income subject to UK tax via the pay as you earn system.

Please note that this guidance has no binding force and does not affect your right of appeal on points concerning your liability to tax.

If you would like to discuss your tax affairs in more detail, please contact the Division on 01624 685400.