Taxation of Companies
Parameters for Determining Income Subject to Income Tax
Companies resident in the Isle of Man are subject to income tax on their worldwide income. Companies
incorporated outside the Isle of Man but with a place of business there will be taxed on their Manx source
income. Companies are, in general, taxed at 0%. However, due to changes in the Man taxation laws affecting
Isle of Man resident companies and their Manx shareholders, taxation will be applied differently in the
following circumstances:
Distributable Profits Charge
The taxation regime of the Distributable Profits Charge (DPC) affects Isle of Man Companies with Isle
of Man resident shareholders. In the mainstream, from 6th April 2006 (2006/07 tax year), Companies which
do not distribute the minimum requirements to the Isle of Man resident shareholders will be liable to pay
a Distributable Profits Charge on behalf of the shareholders. Once a distribution has been made from
profits subject to DPC a credit will be attached which is creditable in the Isle of Man resident
shareholders personal assessment.
Types of Companies
Companies falling under DPC will be classified as Trading Companies, Investment Companies or Mixed
(where a proportion of income is earned by investments and trading).
Investment Companies
These companies are required to distribute 100% of the distributable profits to their Isle of Man
resident shareholders. If a company does not distribute its distributable profits then the company will
incur a Distributable Profits Charge of 55% x 18% of the distributable profits available.
Trading Companies
These companies are required to distribute 18% of the distributable profits to their Isle of Man
resident shareholders. If a company does not distribute its distributable profits then similarly the
company will incur a Distributable Profits Charge of 55% x 18% of the distributable profits available.
Mixed Companies
Companies may have a mixture of investment income and trading income and in such cases the company
will have to ascertain the proportion of each type of income and follow the rules for investment and
trading companies for each type of income earned.
Attribution Regime for Individuals
The Attribution Regime for Individuals (ARI) will apply to Isle of Man resident individuals who have
a shareholding in an Isle of Man resident company. In certain circumstances the taxable/distributable profit
of the company will be attributed and assessed to tax on the shareholders.
For simplification, under ARI a company will either be defined as a trading company or a non trading
company as with DPC, however in order for a company to be deemed as a trading company the income from
trading activity must comprise at least 50% of the gross turnover. ARI will be introduced
for companies with accounting periods commencing on or after 6th April 2008. Previous accounting periods are
subject to DPC rules.
Trading Companies
In order for the company to avoid having its profits attributed to its Isle of Man resident shareholders
it must distribute at least 55% of its distributable profit. The company must make this minimum distribution
no later than 12 months after the end of its relevant accounting period. If the minimum distribution is not
made then 100% of the company’s distributable profit will be attributed to the shareholders 12 months
after the end of the relevant accounting period.
If the distributable profit of a company is attributed to the shareholders then any subsequent
distribution from the relevant accounting period will not be charged to income tax on the shareholder.
Non – Trading Companies
The distributable profits of the company will be attributed to the shareholders in all cases 12 months
after the end of the relevant accounting period.
Any distributions made from the relevant accounting period will not be charged to income tax on the
shareholder.
Rates of Income Tax
The income of companies is subject to income tax. The profit of companies other than banks and building
societies (the profits of licensed banks from their banking a business is taxed at 10%) is 0%. There are
also special rules in relation to income derived from land and property in the Isle of Man which is taxed
at 10%. The rates of resident income tax, non-resident income tax and amount of allowances are proposed to
Tynwald by the Treasury Minister on Budget Day in February each year and for the tax year 2008/2009 were as
follows:
- Basic (personal) rate 10%.
- Higher (personal) rate 18%.
- Corporate (standard) rate 0%.
Income Subject to Income Tax
The Tax Base
Taxable income is, broadly, profits from Island situated property and the profits of a trade, business
or vocation less allowable expenses. Such expenses will include expenditure incurred wholly and exclusively
for the purpose of the trade, interest payments to Isle of Man lenders and capital allowances for buildings,
plant and machinery.
Income received by companies that is derived from land and property in the Isle of Man (including rental,
mineral extraction and property development) are taxed at a rate of 10%. Where the dividend or interest
payment is made from outside the Isle of Man and subject to withholding tax in the country of payment, it is
possible that unilateral relief may be claimed against Isle of Man income tax to prevent a double charge to
tax on the same income; the amount of relief will be such that the total (Isle of Man and overseas) tax
suffered on the overseas income will be no more that if the income had been wholly Manx source.
Capital Gains
Capital gains arising in a business are not themselves subject to income tax but may (if the gain is in
respect of an item on which capital allowances have previously been claimed but where the sale price
exceeds the unallowed portion) give rise to a balancing charge.
Depreciation
Assets are depreciated in accordance with their estimated useful life.
Taxation of Shareholders
No withholding tax is required to be deducted from any dividend or interest paid to non-residents.
Film and Television Industry Incentives
The earnings of certain individuals involved in film production in the Isle of Man may also receive
favourable treatment.