Taxation
Individuals and companies resident in the Isle of Man for income tax purposes enjoy complete independence from the United Kingdom on matters of direct taxation. The Island's taxation system is quite separate from that of its neighbour. There are no inheritance, capital gains or wealth taxes. Personal income tax has a 10% standard rate and 20% higher rate. There is a tax cap on total income payable of £115,000 per person. The tax cap has encouraged a steady flow of wealthy individuals and families to settle in the Island and property prices at the higher end of the market are very buoyant.
Individuals
There are generous personal allowances with relief for deductions such as interest paid (including mortage interest). Allowances are adjusted annually in the Manx Budget. Residence on the Island is determined on standard taxation principles.
Regular visits to the Island may well create a residence situation. There is, however, an important short term residence concession which makes it possible for a person who owns a property on the Island to spend not more than four months in any two consecutive years in the Island and not be liable to Manx income tax. Individuals who are resident are required to file an annual return of their worldwide income. Married couples may elect for separate assessment if they so wish. Renumeration from employments and Manx source pensions is assessable on the basis of the income of the current year; income from self-employment and investments is normally assessed on the basis of the income of the preceding year.
A Double Taxation Agreement exists between the United Kingdom and the Isle of Man. This was entered into in 1955 and provides for the granting of relief from double taxation on certain incomes passing between the two countries. Specific exclusions from the Agreement include company dividends, debenture interest and relevant activities on the Continental Shelf. In addition to the Agreement, an individual who is a resident of the Island is entitled to make a claim to the Inland Revenue to have a full UK personal allowance set-off against taxed and other income received from that country. Where income has suffered an overseas withholding tax, there is the provision to claim double taxation relief. The amount of the relief is based on the lower of the overseas tax suffered or the Manx tax charged on the income.
The United Kingdom and Isle of Man governments have agreed to amend the provisions of the 1955 Double Taxation Agreement by adding provisions on the taxation of income from pensions and a mutual agreement procedure. This will mean that many pensions paid from the United Kingdom to people living in the Isle of Man will be taxed in the Isle of Man only. In addition, taxpayers will have new rights to ask one government to intervene to resolve problems arising from the application of the agreement. An agreement to facilitate the exchange of information relating to taxes between the Isle of Man and the United Kingdom has also been agreed.
The Island has only one other Double Taxation Agreement with another country, being a limited arrangement (in relation to the international operation of ships) concluded with the USA in 1989. For further details, see the shipping section.
There are two forms of local withholding tax. The first is a version of pay-as-you-earn known as Income Tax Instalments Payment (ITIP) and is applied against earnings received from employments. The second is the requirement to deduct 18% from the payment of income to a non-resident person. This second requirement is waived in the case of bank interest, building society interest and dividends from certain listed companies which may instead be paid gross.
The European Savings Tax Directive operates in the Isle of Man, with the Island applying the retention/withholding tax option, although this arrangement will be terminated in 2011. The Directive applies to EU resident individuals on income earned on savings held in other EU countries. However, customers of financial institutions can opt for disclosure rather than have the withholding/retention tax applied. (For further details, go to Banking in the Finance Sector section).
Companies
The Island has moved to a standard zero rate of corporate tax, although a higher rate, 10%, is applied to certain defined regulated businesses, principally banking activity. The Budget in 2005 announced the early introduction of the zero rate in respect of e-gaming, tourist accommodation, film and television production, agricultural activities, fishing and manufacturing. These in addition to activities already subject to zero rate: insurance, shipping, fund management and aircraft operation. The 2006 budget announced that from April 2006, zero rate tax would apply to all resident and non-resident, non-regulated trading businesses in line with the Modified Taxation Strategy.
The Companies Act 2006 marked the biggest change in Isle of Man company law for over 75 years. The Act introduced the new Manx Corporate Vehicle ('NMV'). This modern, flexible, cost-effective vehicle for business incorporation was developed to cater for a fast-moving and sophisticated global marketplace.
The 2006 Act complements existing company law. This includes:-
The Companies Act 1931 - 2004
The Limited Liability Companies Act 1996 - 1999
A modern Companies Registry enables speedy and efficient access to company records to local an international users.
A benign tax environment exists for corporate entities, thus enhancing the Island's reputation as a centre of excellence for company administration and services.
Trusts
The trustees of a Manx trust in which the settlor and beneficiaries are Manx resident are liable to Manx income tax at 20% on income which is not distributed to the beneficiaries. However, where the settlor and the beneficiaries are non-residents, the trustees will have no liability provided that the income, other than 'approved' interest and dividends, arises outside the Island. This is because the Assessor is prepared to concessionally 'look through' the trust to the beneficiaries, thus acknowledging that non-resident persons cannot be liable to Manx income tax on income arising or accruing outside the Isle of Man. The concession applies regardless of whether or not the income is accumulated or distributed. For the discerning entrepreneur, the Island has a wide range of financial packages available within the corporate and trust field.
Indirect Taxes
Customs and Excise duties, value added tax and import and export controls on certain goods apply in the Isle of Man, but there are no customs barriers between the UK and the Island.
The Isle of Man has the statutory authority to levy its own rates of duty and tax, but an agreement exists between the Governments of the UK and Isle of Man whereby the Isle of Man keeps its indirect taxation closely aligned with that in the UK.
However, a degree of flexibility exists in relation to non-exportable services, for example, hotel accommodation is subject to the favourable rate of just 5% VAT.
Likewise, the Island does not levy Insurance Premium nor Landfill Tax. The Isle of Man also has a special relationship with the European Union under Protocol 3 of the Act of Accession of the UK and the Customs and Excise Agreement with the UK and is required to apply the Common Customs Tariff and equivalent measures to those operated in the UK under the Common Agricultural Policy. This entitles goods of Manx origin to free circulation status within the European Union through the Single Market procedures. The Isle of Man has its own Customs and Excise administration, which is completely independent of the UK Customs and Excise service, and collects the duties and taxes arising in the island and applies the same import and export controls as those in the UK.
References:
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For further details, go to Banking in the Finance Sector section |