Isle of Man Double Tax Treaties
DeltaQuest can assist you whether you are an individual or corporate entity in setting up a Isle of Man trust or Isle of Man foundation to achieve complete and comprehensive asset protection. For more information about Isle of Man double tax treaties, please read the information below. Alternatively, to establish a Isle of Man Trust or foundation please complete our Application Form, or if you require further information please Contact Us.
The Island has only one formal income tax treaty, which is with the United Kingdom. There are however, certain other arrangements of interest, which are also summarized below.
The double taxation arrangement between the Isle of Man and the United Kingdom was entered into in 1955. This is set out in the Double Taxation Relief (Taxes on Income) (United Kingdom) Order 1955 which states that the arrangement was made for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. In 1991 the Double Taxation Relief (Territorial Sea) (Consequential Provisions) Order 1991 was made which amended the definition of “United Kingdom” to include references to the Continental Shelf and established new arrangements in relation to income derived from certain services provided in respect of offshore installations. The term “United Kingdom” means Great Britain and Northern Ireland including any area outside the territorial sea of the United Kingdom which in accordance with international law is designated as an area within which the rights of the United Kingdom with respect to the sea bed and the sub-soil and their natural resources may be exercised.
Section 55 of the Manx Income Tax Act 1970 provides that double taxation relief is granted by deduction from the total liability to Manx income tax and limits the availability of double taxation relief to persons resident in the Isle of Man. A Manx resident person cannot be granted credits in respect of double taxation relief in excess of the person’s total liability to Manx income tax. The scope of the double taxation arrangement is defined in Paragraph 1 of the Schedule to the 1955 Order. In the United Kingdom the taxes which are the subject of the arrangement are income tax (including surtax), profits tax and excess profits levy and, in the Isle of Man, income tax (including surtax).
Dividends and debenture interest are specifically excluded from the arrangement.
The 1955 Order excludes certain industrial or commercial profits from the possibility of double taxation in the United Kingdom and the Island by providing that such profits of an enterprise will not be subject to tax in the other jurisdiction unless the enterprise is engaged in trade or business in the other jurisdiction through a permanent establishment therein. If it is so engaged, tax may be imposed on those profits by the other jurisdiction to the extent that such profits are attributable to that permanent establishment. An ‘enterprise’ means an industrial or commercial enterprise or undertaking carried on by a resident of the United Kingdom or the Isle of Man. ‘Permanent establishment’ is defined to mean a branch, management or other fixed place of business but does not include an agency unless the agent has and habitually exercises a general authority to negotiate and conclude contracts on behalf of such enterprise or has a stock of merchandise from which he regularly fills orders on its behalf.
The profits which an Island or United Kingdom resident derives from operating ships or aircraft are exempt from tax in the other territory pursuant to the Order. Exemption from income tax is also generally conferred on remuneration paid by the government of one of the territories to any individual for services rendered to that government in the other territory if the individual is not ordinarily resident in that other territory or (where the remuneration is not a pension) is ordinarily resident in that other territory solely for the purpose of rendering those services. In addition, income from personal services performed within one of the territories by an individual residing in the other territory for a customer residing in that other territory is exempt from income tax in the territory in which the services are performed if the individual is present in that territory for no more than 183 days during the year and the profits or remuneration are subject to tax in the other territory.
The International Business Act 1994 introduced a new type of company, the international company, which, although eligible for tax exemption, is assessed at a rate that may be agreed with the Assessor of Income Tax. The double taxation arrangement with the United Kingdom has recently been amended to make it clear that this new class of company is excluded from the arrangement.
The Isle of Man has a limited double taxation arrangement with the United States of America which is set out in an exchange of notes in August 1989 between the Secretary of State, Department of State, Washington DC and the Ambassador of the United Kingdom and Northern Ireland in Washington DC. Under the arrangement the United Kingdom Government exempts from tax gross income derived from the international operation of ships by Isle of Man residents and corporations organized in the Isle of Man in return for equivalent exemptions granted by the Isle of Man to United States residents and corporations organized in the United States. In the case of a corporation the exemption only applies if: (i) its stock is primarily and regularly traded on an established securities market in the U.S., the Isle of Man, or other country which grants an equivalent exemption to U.S. corporations; or (ii) more than fifty percent of the value of the corporation’s stock is owned, directly or indirectly, by individuals who are residents of the U.S., the Isle of Man or of a country which grants an equivalent exemption to U.S. corporations and whose stock is primarily and regularly traded on an established securities market in that country, another country which grants an equivalent exemption to U.S. corporations, or the United States.
In addition to the double taxation arrangement described above, the Isle of Man also has a customs and excise agreement with the United Kingdom entered into in 1979. It is through this agreement that the programme of the European Union for the harmonization of indirect taxes applies to the Island.
The customs union between the United Kingdom and the Isle of Man is recognized by the European Community and allows Manx traders access for imports and exports to and from Member States of the European Community.
In recent times there have been calls, notably from the Island’s finance sector and tourism industry, for the abrogation of the agreement although these have been resisted by the Manx manufacturing industry which fears the affects resulting from the introduction of customs barriers between the Island and the United Kingdom.
Under the 1979 agreement the Manx Government agreed to keep its law in respect of customs and excise duties and value added tax in line with that of the United Kingdom, to impose identical rates of duty and tax as the United Kingdom government (with certain minor exceptions) and to establish a customs and excise service responsible for the administration, control, collection and enforcement of customs and excise duties, VAT and car tax.
The standard rate of VAT in the Isle of Man is 17.5 per cent and businesses are requested to register for VAT if their turnover exceeds a £54,000 threshold but it is possible to register voluntarily to claim VAT refunds. There are various categories of goods, which are zero-rated, and these have no VAT levied on the final goods or on the inputs used in its creation. In addition, exempt goods have no VAT levied on the final good sold but businesses are unable to reclaim VAT paid on inputs. The Collector of Customs and Excise is also responsible for the collection of excise duties levied upon alcoholic drinks, tobacco and petrol. Recently, the agreement with the United Kingdom government has been varied to allow a lesser rate of value added tax (5%) to be levied in respect of the provision of hotel accommodation, gas and electricity supply and the renovation and repair of private dwellings.
Print This Page
