Isle of Man: Offshore Taxation Regime
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Isle of Man Information: Business, Taxation and Offshore
On this Page:
- Isle of Man Tax Treatment of
Offshore Operations
- Isle of Man Taxation of Foreign
Employees of Offshore Operations
- Isle of Man Exchange Control
- Isle of Man Offshore Activities
- Isle of Man Employment
and Residence
The term 'offshore' is not used in Isle of Man legislation
or in describing company forms. Prior to 2006, non-residence
was the key criterion for obtaining offshore tax treatment
other than for the International Company and Exempt Company,
which were regarded as being resident. Until 2006, the main
forms useful for offshore operations in the Isle of Man were
the Exempt Company, the International Company, the International
Limited Partnership, the Limited Liability Company (LLC) and
the Trust. Normally, non-resident tax treatment is given to
foreign income, while income arising in the Isle of Man is
taxed more highly.
In December 2000 the OECD announced the Isle of Man's commitment
to eliminate harmful tax practices by 31 December 2005 which
secured the jurisdiction's deletion from the OECD list of
countries deemed to possess "harmful" tax practices.
The OECD said it welcomed the commitment, which includes undertakings
in favour of transparency, non-discrimination and effective
co-operation. No timetable was established for these moves,
and the announcement was made before US resistance to the
OECD forced the organisation to back off some of its proposals
including those for 'non-discrimination' and upwards harmonisation
of tax rates. Later, the Isle of Man made clear that changes
would only take place if they were mirrored in other, comparable
jurisdictions - the famous 'level playing field'.
The OECD 'list' resurfaced again after the April 2009 G20
summit in London, but the Isle of Man this time found itself
on the 'white list' rather than the 'black list.'
With the introduction of its '0/10' taxation regime in 2006,
under which corporation tax is abolished except for a 10%
levy on financial institutions, the Non-Resident Company,
the Exempt Company and the International Company forms were
abolished.
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.
As part of his statement, the Chief Minister said:
“We have been watching the way international sentiments
and standards have been moving in response to the global economic
crisis, and especially the speed with which such matters have
been changing and the potential effect they may have on our
economy."
“[Revisiting our business tax regime] will allow us
to develop and position the island and its future tax regime,
so the island can continue to remain competitive and at the
same time be accepted by the international community as responsible
and co-operative.”
“The government will also be actively looking to identify
what new opportunities can be taken to secure further business
within the Island with a view to continuing to diversify our
economy and increasing our income.” 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 Isle of Man Income Tax Department launched a consultation
in March 2010 on the future of business taxation on the island
following scrutiny of its 0/10% regime from the European Union
(EU) Code of Conduct For Business Taxation Group. It was announced
in the February, 2011 budget speech that the 0/10% regime
would remain in place and the attribution regime for individuals
(ARI) be removed from April 2012.
Treasury Minister, Anne Craine MHK, said in her speech: "the
Isle of Man Government considers that with the removal of
the ARI, our business taxation system does not have features
which can be considered to be harmful under the provisions
of the Code of Conduct, and we have today communicated that
view to the Chair of the Code Group." She added: "We
remain committed to our policy of being a good neighbour,
which encompasses being responsive to the views of the European
Union. At the same time, the Isle of Man is fiscally independent,
and participates in the Code of Conduct process on a voluntary
basis."
Isle of Man Tax Treatment of Offshore Operations
See Domestic Corporate
Taxes for the general principles of Isle of Man corporate
taxation, which also apply to offshore entities except as
indicated below.
As from 2006, taxation (at 10%) applies only to 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).
Non-resident partners in a Manx partnership, limited partnership
or Limited Liability Company are liable for tax only on Manx-derived
income (with the usual concessions regarding bank interest),
and then as individuals (see Personal
Taxes).
Effective 1st April 2006, all IOM captive insurance companies
became liable for tax; however the tax rate is zero per cent.
Trusts with non-resident beneficiaries are exempt from Isle
of Man income tax on income arising outside the island and
(by concession) on IOM bank interest.
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Isle of Man Taxation of Foreign Employees of Offshore Operations
There are no special rules applying to the foreign or Manx
employees of offshore operations. The various exemptions from
income tax described above do not apply to employees: any
business employing and paying people on the Isle of Man will
have to operate the ITIP system of deductions from pay (based
on and similar to the UK PAYE system). It is not legal to
employ non-Manx people on the island without a work permit.
See Domestic Personal Taxes for
the general principles of individual taxation on the island,
which also apply to the resident employees of non-resident
entities. Most types of compensation and benefit paid to employees
are taxable; there are no special privileges or exemptions
for expatriate workers.
There is no statutory definition of residence. The Isle of
Man often follows the UK in this respect. Normally, an individual
is resident if he spends more than six months on the Island
in any one year, or more than three months on average in each
of four consecutive years.
Non-residents are liable to pay Manx income tax only in respect
of income arising on the island or from Manx sources. By concession,
Isle of Man bank interest is not taxed in the hands of non-residents.
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Isle of Man Exchange Control
The Isle of Man has no exchange controls.
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Isle of Man Employment and Residence
There were no special privileges for the employees of non-resident
or offshore entities on the Isle of Man. See Personal Taxation
- Residence and Liability
for Taxation and Labour Regulation
- Work Permits for further information.
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