Isle of Man: International Tax and Business Guide 1999 - The Tax System - 11.Corporate Income Taxes

Last Updated: 2 September 1999


Corporate entities are liable to income tax. There is no separate corporation tax on the income of companies in the Isle of Man, although companies managed and controlled outside the Island that do not carry on a trade in the Island and that have made a non-resident declaration are subject to the flat rate non-resident duty of £750 per year already described.



Partnerships are not themselves liable to Manx income tax, but each partner is liable for his share of the partnership income, which forms part of his total income for Manx income tax purposes.

The assessable profit of each partner is determined by computing the trading profits or losses of the partnership each year in accordance with normal income tax rules. These profits or losses are then divided among the partners according to their profit-sharing ratios. Strictly, partnership income should be divided among the partners according to their profit-sharing ratio in the year of assessment for which the income is assessable. In practice, however, where one or more of the partners is being assessed on a preceding-year basis (see "Accounting Periods and Tax Years"), the partnership income is usually divided among the partners according to their profit-sharing ratios in that preceding year. Where there is a change in the partners, a continuing partner will remain assessable on the normal preceding-year basis. A partner entering or leaving the partnership will be subject to the commencement or cessation rules described later, unless he has been or is to continue exercising his profession in a self-employed capacity (whether alone or in another partnership).

If all the partners in a Manx partnership are resident outside the Isle of Man and its income is derived from sources outside the Island, no Manx income tax will be payable by the partners.


A company resident in the Isle of Man is liable to the resident income tax on its world-wide income. A company is regarded as resident in the Island if its central management and control are exercised there. In practice, this means that policy decisions relating to the company's business must be taken at the highest level in the Island. In many cases this means that the board of directors meets there, although this may not be the deciding factor if, in reality, decisions are taken elsewhere. The place of the company's incorporation is not normally relevant.


Companies are assessed to income tax only on their income; capital gains are not taxable. Income for this purpose is gross income less allowable expenses.

Trading Income

This is generally computed in accordance with the ordinary principles of commercial accounting but is subject to adjustments, such as the disallowance of non-deductible expenses and the replacement of depreciation charged for accounting purposes by tax depreciation allowances, known as capital allowances.

Dividends from Manx Companies

Dividends received from other Manx resident companies are fully taxable in the hands of the recipient company. This is because dividends paid by a resident company are allowable deductions against its taxable income.

Dividends from Foreign Companies

Dividends from foreign companies, gross of foreign withholding taxes, are subject to income tax. Foreign income taxes, either withheld from or charged directly on the dividend, are normally relieved by credit against Manx income tax. No double taxation relief is available, however, for foreign underlying taxes.

Interest and Royalties

Interest and royalties from Manx or foreign sources are subject to Manx income tax. Foreign income taxes withheld from, or charged on, such income received from outside the Island are normally available for credit against Manx income tax.


Rents receivable are subject to Manx income tax. Normal expenses of maintenance, repairs, insurance, and management charges are deductible.

Inventory Valuation Rules

Inventories and work-in-progress are usually valued at the lower of cost and net realisable value. Cost may be actual, average, or FIFO; LIFO and base stock valuations are not normally permitted. Appropriate overheads are frequently included in costs and, provided that the basis adopted is applied consistently, the extent to which this is done is left to the company's discretion. The valuation bases appropriate for financial statement purposes are usually, but not necessarily, accepted by the Assessor. Indexation to reflect inflation is not permitted.


General Principles

The general rule is that only expenses incurred wholly and exclusively in earning the income in question are deductible for Manx income tax purposes. In addition, resident companies may deduct dividends paid. No deduction is allowed for capital payments, except where capital allowances are available.


No deduction is allowed for depreciation, amortisation, or losses on disposals of fixed assets as charged by a company in its financial statements. Instead, wear and tear on most fixed assets is deductible in the form of capital allowances, which is the term used for tax depreciation.

Capital allowances to which a company is entitled under the tax rules may be claimed irrespective of the amount charged for depreciation in the financial accounts.

Generally, the total tax allowances given on any asset may not exceed its cost. Cost is reduced by any grant that the taxpayer may receive from the Island's Government as a contribution towards the cost of an asset eligible for capital allowances. For certain types of expenditure, particularly in the tourist trade, tax allowances in excess of cost are given and Government grants are not taken into account. Capital allowances are reduced proportionately if any asset is used for non-trade purposes. Annual writing-down allowances, but not initial or first-year allowances, are similarly reduced if the trade is not carried on for a full year. In some cases capital allowances are very generous, the whole of the cost of the asset being allowed in the year of acquisition (for example, tourist premises, industrial buildings, agricultural buildings, most plant, machinery, and equipment). In other cases no allowances are given at all (for example, expenditure on land, office buildings, or goodwill, although there is a special concession available until April 1997 granting first year allowances of 100% on the development cost of office and commercial buildings in a designated area of Douglas). The main types of capital allowances are as follows.

Industrial Buildings. Broadly, this expression means buildings or structures used for such purposes as manufacturing, transportation, mining, or power production. A warehouse used to store raw materials for manufacturing purposes in the course of a trade is included, and so is a warehouse that is used by a manufacturer to store his finished products. Specifically excluded are offices, showrooms, hotels, retail shops, and similar premises. Where part of a building qualifies as industrial but the rest does not, the allowance is given proportionately, except that it is given in full if the cost of the non-qualifying part is 25% or less of the total cost.

An initial allowance of 100% is currently available in the period in which the expenditure on the construction or improvement of an industrial building is incurred, excluding the purchase of the land on which it is built but including site preparation costs. The whole or part of the initial allowance may be disclaimed if the taxpayer does not wish to take the full amount in the period in which it is due. That part of the construction cost not dealt with by an initial allowance is relieved by a straight-line writing-down allowance of 4% per year, commencing in the year in which the building is brought into use . The allowances are available to the company incurring the capital expenditure concerned, both if it occupies the building for its own trade purposes and if it leases the building to another trader.

Expenditure incurred on purchasing an industrial building used by a previous owner does not qualify for an initial allowance. If such a building is less than 25 years old (or, if constructed before 6 November 1962, less than 50 years old), that part of the cost to the new owner equivalent to the original cost of construction as reduced by industrial buildings allowances is relieved by straight-line writing-down allowances over the remainder of the unexpired term of 25 (or 50) years. No writing-down allowances are given if the building is more than 25 (or 50) years old.

When an industrial building that has been in use for less than 25 (or 50) years is sold or otherwise disposed of, if the proceeds (or the original cost, if less) exceed the written-down value for tax purposes, the excess (that is, up to the original cost) is taxed through a balancing charge as a trading profit of the period in which the disposal takes place. If the proceeds of sale exceed the original cost, the excess is not taxed. Conversely, a balancing allowance is given if the proceeds of disposal are less than the written-down value for tax purposes. The tax charge or allowance made on the sale of an industrial building is subject to adjustment where the property was not in use for industrial purposes throughout the whole period during which it was owned.

Hotels. Capital expenditure incurred on the construction or improvement of hotels and other buildings used as lodgings for tourists qualifies for allowances as if the expenditure had been incurred on industrial buildings, the initial allowance is 100% Machinery and Equipment. This category (often referred to in the Isle of Man as plant and machinery) includes all moveable and immovable assets kept for permanent employment in the trade; for example; machinery, manufacturing equipment, fixtures and fittings, vehicles, aircraft, and ships. Intangible assets are excluded.

Machinery and Equipment. [Other than Private Automobiles and New Ships.] An initial allowance, in the case of machinery and equipment called a first-year allowance, at present of 100% of cost, is given in the accounting period or periods in which the expenditure to provide the asset is incurred. Exceptionally, an asset acquired on an instalment basis is treated as if its full capital cost is incurred on the day it is first used.

No first-year allowance may be obtained when second-hand (used) assets are acquired from an associated company or connected person (although an annual writing down allowance is then available), or in the period in which trade ceases.

No first-year allowance is granted to the owner of machinery and equipment bought for leasing to a person resident in the Island if, at any time in the first four years of use, it is not used for a qualifying purpose. Qualifying purpose includes use of the asset by a lessee in a trade where, had he bought the asset himself, he could have obtained a first-year allowance; use by the lessor for short and varied hire; and hire of the asset by a non-trading lessee for not more than two years out of the four (provided that the usual hire period does not exceed 365 days). Companies that lease plant and machinery to users outside the Isle of Man qualify for a 100% first-year allowance. This can result in substantial losses arising by way of excess capital allowances, and regulations have therefore been introduced which restrict the use of such losses.

The whole or part of the first-year allowance entitlement may be disclaimed, and any portion of the expenditure not relieved by a first-year allowance is available for a writing-down allowance in subsequent periods.

Writing-down allowances are given on any residue of expenditure disallowed brought forward from previous periods, and are thus calculated on a declining-balance basis. They are reduced proportionately for accounting periods of less than 12 months, and are not given in the period in which trade ceases. The rate is usually 25% per year for all assets.

When an asset is disposed of, the proceeds (for example, actual sales consideration or market value if higher, or insurance claim proceeds) are deducted from the residue of expenditure disallowed, thus restricting the amount on which a writing-down allowance may be claimed in the period of disposal. In cases where disposal proceeds exceed total written-down values brought forward from past periods, the excess proceeds received are taxed by way of a balancing charge in the period in which the disposal occurs.

Automobiles. Private automobiles do not receive first-year allowances. A writing-down allowance of 25% per year is available (up to a maximum of £3,000 per year for each car) in the year of purchase and thereafter.

Ships. A system of free depreciation exists for expenditure on new ships (and on second-hand ships from 1 April 1985), which means that the taxpayer may take the first-year allowance, wholly or partly, in any period or periods he may choose. The balancing charge for capital allowances purposes which may arise on the sale of a ship can be deferred by roll-over into the cost of a new ship.

Mines. Oil Wells, and Other Wasting Mineral Deposits. Allowances are available for capital expenditure incurred in searching for, discovering, testing, gaining access to, or purchasing mineral deposits, whether such deposits are situated in the Isle of Man or abroad. Allowances are given in proportion to output for the period compared with expected total output, for expenditure incurred on the construction of works, except that allowances on purchases of deposits, land, and rights within the Island are based on royalty values.

Scientific Research. When capital expenditure is incurred for trading purposes on scientific research, the whole of the expenditure in the period concerned is deductible (except for that on land and houses, from 1 April 1985) . Scientific research for this purpose includes any activity for the extension of knowledge in the fields of natural or applied science. Revenue expenditure on research and development for the purposes of the trade is deductible as incurred.

Patent Rights. Allowances are given for capital expenditure incurred in the acquisition of patent rights, whether for trade purposes or not. Where the rights are acquired for use in a trade, the allowance is given as a deduction from the profits from that trade; but in other cases, the allowance is given as a deduction from the income from the patent rights.

For rights acquired before 1 April 1986, a straight-line writing-down allowance is given over 17 years beginning with the acquisition of the rights, or over any shorter period for which they are acquired.

For rights acquired on or after 1 April 1986, allowances are given by way of an annual writing-down allowance of 25% on a declining-balance basis.

Disposal consequences will then be the same as for machinery and equipment.

Agricultural Buildings. The owner or tenant of agricultural or forestry land is entitled to a 100% initial allowance for capital expenditure on buildings, fences, or similar items used for the trade. The whole or part of the initial allowance entitlement may be disclaimed. The proportion of the cost not relieved by initial allowance is written off at 10% per year on a straight-line basis, commencing in the year following the year of expenditure. On a sale of the land or transfer of the tenancy, the purchaser is usually entitled to any remaining writing-down allowances, and no balancing allowances or charges are made to the seller.


Manx income tax is not a deductible expense. Other taxes, such as local property taxes (rates), license fees, and irrecoverable VAT, necessarily incurred in the course of earning profits, are usually deductible.

Foreign direct income taxes are usually relieved by credit against Manx income tax as described under "Unilateral Relief" in the section on "Double Taxation and Tax Treaties."

Formation and Start-up Costs

Expenses incurred in organising a company and raising its capital, including associated legal expenses, are generally not deductible. However, revenue expenses incurred prior to the date on which trading commences are allowable and are treated as being incurred on the first day of trading. Capital expenditure incurred before a trade commences may be treated for capital allowance purposes as incurred on the first day of trading.

The date when trading commences depends on the facts of each particular case but as a general rule is taken as the date when the business holds itself open to begin trading; for example, when a retail shop first opens its doors to the public or when a manufacturing company receives its first delivery of raw materials.


Interest paid wholly and exclusively for the purposes of a trade is deductible. Additionally, any interest payable on a mortgage or loan is also allowed as a deduction provided that the mortgagor or lender is liable to Manx income tax on that interest.


A dividend paid by a Manx resident company is deductible from taxable profits in the year of assessment in which it is paid.

Rents and Royalties

Commercial rents and royalties are deductible as trade expenses if they are incurred wholly and exclusively in earning the income of the trade.

Bad and Doubtful Debts

Bad debts arising from the company's trade are deductible in the period in which their recovery is considered improbable, and any subsequent recoveries are taxed in the period of receipt. Provisions for doubtful debts are deductible only to the extent of expected losses on trade debts individually valued. General provisions are not deductible.

Tax-Free Reserves

Transfers to tax-free reserves are not permitted in the Isle of Man. The nearest approaches to the tax-free reserve concept are the accelerated tax depreciation allowances.


Expenditure on repairs and renewals is generally deductible when incurred, but provisions made to equalise repair charges over several years are not. Provisions for repairs to be incurred at some future time are also not deductible.

Directors' Remuneration

The remuneration of directors is deductible in full to the extent that it is incurred wholly and exclusively for the purposes of earning the company's income.

Profit-Sharing Schemes

Profit-sharing payments in the form of cash bonuses to employees or directors are deductible in the year in which they are charged in the financial statements.

Pension Contributions

Annual contributions to approved pension schemes are deductible. Exceptional contributions (such as to create a fund to pay pensions for past service) are also deductible, although the deductions may have to be spread over a number of years.

Entertainment Expenses

Expenditure on entertainment is deductible to the extent that it is incurred wholly and exclusively in earning the income in question.

Gifts and Donations

Gifts are deductible only if they can be justified as incurred wholly and exclusively for the purposes of earning the income of the company. Donations to charities up to a maximum of £4,500 are tax deductible.

Transactions with Related Parties

If, in the opinion of the Assessor, one of the main purposes of any transaction is the avoidance or reduction of any person's liability to Manx income tax, the Assessor is empowered to make whatever tax assessments he considers appropriate to counteract the avoidance or reduction of tax. This power does not, however, apply to bona fide commercial transactions not designed to avoid liability to income tax.


Manx income tax is charged at a single rate of 20%. Since, however, dividends are deductible expenses, this rate is effectively charged only on a company's undistributed profits, and on the profits of branches. Withholding tax on dividends is described later in the "Withholding Taxes" section.

The information given is not exhaustive and is based on conditions existing at 5 May 1999. Readers are advised to consult with professionals, such as independent accountants, legal counsel, and investment bankers, before taking any formal action. Deloitte & Touche would be pleased to discuss specific problems.

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

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

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions