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 Working
Party was not expected to report its findings to Ecofin
until June 2011.
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.
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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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.
The general principles of individual taxation on the island
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 3 months on average in each
of 4 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.
The Isle of Man has no exchange controls.
There were no special privileges for the employees of non-resident
or offshore entities on the Isle of Man.
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