Isle of Man: Zero Rate of Corporate Income Tax in the Isle of Man

Last Updated: 31 July 2006
Article by Nick Verardi

The Isle of Man is now in its 21st year of unbroken economic growth and has been able to maintain its coveted AAA credit rating from both Standard and Poor’s and Moody’s credit rating agencies since the year 2000 which strengthens the Isle of Man’s reputation as a well regulated jurisdiction for international business.

In response to recent OECD and EU initiatives, the 2006 Isle of Man budget saw the implementation of the Isle of Man tax strategy which has been the subject of much planning, fine tuning and consultation over the past 5 years. The result is an innovative and proactive corporate income tax strategy which will strengthen the Island’s competitive position internationally.

With effect from 6th April 2006, the general rate of corporate income tax in the Isle of Man is 0%.

A higher 10% rate of corporate income tax will apply to the following sources of income only:

  • income arising from banking business carried on by banks licensed under the Isle of Man Banking Act 1998. Income arising from sources which do not constitute banking business will be chargeable at the general 0% rate; and
  • income derived from land and property in the Isle of Man. This will include both rental income and profits derived from dealing in or developing land in the Isle of Man.

The result of taxing these income sources at a rate of 10% means that some companies may have profits split between the two rates of tax.

The Isle of Man Treasury Minister has also confirmed that the Isle of Man Government has no intention of introducing capital gains tax in the Isle of Man and there will continue to be no stamp duty or taxes on wealth.

Repeal of Income Tax Exempt Company Status and Other "Exempt" Regimes

Up until now it has been possible for Isle of Man companies to apply to the Isle of Man Assessor of Income Tax for income tax exempt status if certain criteria are satisfied, for example, if the company does not derive income receipts from persons in the Isle of Man, no person in the Isle of Man has an interest in the ownership of the company and the company does not engage in any one or more prescribed trades or businesses. Upon payment of an annual fee such companies are exempt from Isle of Man income tax. In addition, any dividends, interest, shares of profits or directors remuneration paid by such companies to persons not resident in the Isle of Man are not subject to Isle of Man withholding tax.

To address the international concerns regarding all offshore "exempt" regimes, Isle of Man income tax exempt companies and companies with non-resident tax status will now be migrated into the new domestic tax system. This migration will be effected over a transitional period as follows:

  • Companies which held Isle of Man income tax exempt status or non-resident tax status prior to 6th April 2006 can retain their income tax exempt status or non-resident tax status until 5th April 2007;
  • No new companies with income tax exempt status can be formed on or after 6th April 2006;
  • Income tax exempt status and non-resident tax status will not be available for any companies after 5th April 2007;
  • From 6th April 2007 all Isle of Man incorporated companies will be treated as Isle of Man resident for tax purposes and subject to the zero rate regime described above.

Audit Exempt Status

Regulations made pursuant to the Isle of Man Companies Acts 1931-2004 enable private companies which satisfy certain criteria to elect to be exempt from the requirements set out in the Companies Acts 1931-2004 which relate to the audit of accounts.

In order to qualify for election for audit exemption, a company must be a private company and must satisfy one of the following criteria:

  • it is a company which has income tax exempt status or non-resident tax status; or

it is an "audit exempt company".

Until recently, a company qualified as an "audit exempt company" in any financial year if:

  • its turnover in that year did not exceed £1,000,000; or
  • throughout that year all its members were directors and it existed wholly for the purpose of holding shares, securities, other investments or land;

and it was not regulated.

In light of the implementation of the new Isle of Man tax strategy, the introduction of the zero rate of corporate income tax and the forthcoming repeal of special income tax exempt regimes, the Isle of Man has amended and widened the audit exemption thresholds. As a result a company will now fall within the definition of an "audit exempt company" in any financial year if at least two of the following three conditions are met:

  • its turnover in that year does not exceed £5.6 million;
  • its balance sheet total does not exceed £2.8 million at any time during that year; or
  • it employs no more than 50 persons at any time during that year; and it is not regulated.

A private company will also continue to fall within the definition of an "audit exempt company" in any financial year if all its members are directors and it exists wholly for the purpose of holding shares, securities, other investments or land and is not regulated.

Isle of Man Withholding Tax

As mentioned above, any interest paid by Isle of Man income tax exempt companies to persons not resident in the Isle of Man is not subject to Isle of Man withholding tax.

Notwithstanding the removal of the income tax exempt status regime, the position will remain unchanged in respect of interest paid by Isle of Man companies to companies not resident in the Isle of Man. The Isle of Man Income Tax Division has announced that with effect from 6th April 2006 the Isle of Man will not charge withholding taxes on interest payments made by Isle of Man companies to non-resident companies and it is proposed that with effect from 6th April 2007 the Isle of Man will not charge withholding taxes on dividend payments made by Isle of Man companies to non-resident companies or individuals.

The Distributable Profits Charge—Relevant to Companies with Isle of Man Resident Owners

The new Distributable Profits Charge (the DPC) will be introduced with effect from 6th April 2006 for all companies for the year of assessment 2006/2007 onwards to coincide with the introduction of the new zero rate of corporate tax. The rationale behind the DPC is to discourage companies from rolling up profits in the 0% tax regime. The DPC is payable by the company only in respect of profits that are attributable (but not distributed) to owners of the company resident in the Isle of Man. Accordingly, the DPC will not be payable where all owners of the company are resident outside the Isle of Man or in respect of the proportion of any distributable profit that is attributed to nonresident owners. The DPC will also not apply to certain listed companies.

The Corporate Charge

The 2006 Budget has also introduced the ‘corporate charge’. This is a new concept and has been set at £250 and will be payable annually by each corporate taxpayer (except those that have been specifically exempted and those that currently pay a fee e.g. if a company decides to apply for income tax exempt status for the 2006/2007 tax year it will not be required to pay the corporate charge). It is envisaged that the corporate charge will be creditable against any liability to income tax that a company may have if, for example, it derives any income from banking business or from land and property in the Isle of Man. The rationale behind the corporate charge is to offset the loss of fee revenue to the Isle of Man Government from the elimination of the income tax exempt status regime and other exempt regimes whereby exempt companies paid £475 each year, and companies with non-resident tax status paid £1,000 each year, to the Isle of Man Government.

Tax Cap for Individuals

Another new concept introduced by the 2006 Budget is the cap of £100,000 on an individual’s income tax liability, commencing on 6th April 2006. This cap will be available, on application to the Assessor, for all individual taxpayers, both current residents and new residents.

A consultation exercise has now been commenced by the Isle of Man Income Tax Division with a view to introducing a cap on corporate tax liabilities—primarily aimed at banks— which could form part of the Island’s future taxation strategy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.