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.

• Competitive 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 required to be filed one year after the end of the accounting period end date.
• Payment of income tax – is due one year after the end of the accounting period end date.
• 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. 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.

Following the introduction of the standard 0% tax rate, additional rules may affect those companies with Manx-resident shareholders.

The Attribution Regime for Individuals was introduced for companies with accounting periods commencing on or after 6 April 2008.

The ARI applies to all resident individuals with an interest in a relevant company.

Resident individuals with an interest in a relevant company will be charged to income tax on their share of the attributed profits from that company. This means individuals are taxed directly as if they had received the income attributable to their share of the annual profits of a relevant company. This is known as attributed income.

Full details of the application of the Attribution Regime for Individuals 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 Division 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 most competitive. For 2010-11 an individual who is resident in the Island will not pay any income tax on the first £9,300 of taxable income, whereas a Married Couple's Allowance is £18,600. 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 20%. 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 £19,800 before paying tax at the higher rate of 20%, whilst for married couples this figure is £39,600.

In addition to these generous personal allowances and competitive 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. 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, competitive 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 £115,000. 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 £115,000 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 being 17.5%. The current turnover registration requirement is £68,000 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 competitive 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.