Isle of Man implements OECD Pillar Two

The primary purpose of the Order is to implement the OECD's Pillar Two global minimum tax rules within the Isle of Man. These measures are aimed at ensuring large multinational enterprises (MNEs) pay a minimum level of tax on their income.

It introduces a Domestic Top-up Tax (DTUT) which is intended to be a Qualified Domestic Minimum Top-up Tax (QDMTT) and  a Multinational Top-up Tax (MTUT) which is intended to be a Qualified Income Inclusion Rule. 

The Order also incorporates the GloBE rules, commentary and administrative guidance by reference, meaning that these documents are incorporated into Isle of Man Legislation. 

The order does not implement the Undertaxed Profits Rule (UTPR). 

The DTUT and MTUT are new tax regimes that sit on top of the existing Isle of Man income tax system. 

Entities within the scope of DTUT will still be required to submit their standard income tax returns. 

Entities based in the Isle of Man are within scope if they are part of a multinational group that has a consolidated revenue of €750 million or more in at least two of the preceding four years. 

This includes Domestic Constituent Entities, Domestic Joint Ventures, and Domestic Joint Venture Subsidiaries (which includes companies, branches, LLCs, partnerships etc) and in certain situations, trusts. 

Investment Entities and Insurance Investment Entities are excluded from DTUT but still subject to MTUT if the conditions are met. 

There is a de minimis safe harbour exclusion for DTUT, if, the combined GloBE revenue of all the Isle of Man entities within the group is below €10m and the combined GloBE income or loss of all those entities is below €1m. Groups benefiting from the de-minimis thresholds will be exempt from paying the DTUT in the Isle of Man. However, they are still subject to registration and filing obligations even if no liability arises due to the de minimis threshold.

Other safe harbour exclusions may apply based on the jurisdiction effective tax rates and profit before tax as calculated for Country by Country Report purposes.

The DTUT (Domestic Top-up Tax) is a tax levied on the profits of domestic entities within the Isle of Man that are part of a qualifying multinational group. It aims to bring the effective tax rate of these entities up to a minimum of 15%. 

The MTUT (Multinational Top-up Tax), also known as an IIR, brings undertaxed profits from other jurisdictions within the scope of the Isle of Man Pillar Two rules, if the Isle of Man is the jurisdiction of the ultimate parent entity of an in-scope multinational group or the Isle of Man is the first jurisdiction in the ownership chain of a company that has implemented Pillar Two rules.  

All Isle of Man in-scope groups must register with the Income Tax Division within a specified timeframe. The ITD launched the online registration system in April 2025.

The Domestic Filing Entity (DFE) must be registered within 12 months of the commencement of the first relevant Fiscal Year (1 Jan 2025 onwards) or 6 months of becoming a member of a relevant group, whichever is the later and before any liquidation, dissolution or ceasing to be located on the Isle of Man. 

The DFE is also required to submit an annual filing, separate to its normal income tax return. For MNE groups with an Isle of Man Ultimate Parent Entity or MTUT obligations, further filings will be required.

Even if a group is within the de minimis threshold for DTUT liability, it must register and file the required returns. Failure to comply will result in penalties.

What is a Domestic Filing Entity, and what are its responsibilities? 

Every in-scope group must appoint a Domestic Filing Entity (DFE), which will be a domestic entity in the Isle of Man, or an overseas entity if they are expected to no longer have any entities located on the Isle of Man. 

The DFE is responsible for registering all Isle of Man entities of the group with the Income Tax Division, submitting DTUT and MTUT returns on behalf of those entities, and notifying the assessor where the group's GloBE Information Return is filed in another jurisdiction. 

The DTUT is calculated following the GloBE Rules, but with certain modifications outlined in the Order. Most notably, some of the allocation rules under the GloBE rules are replaced by specific allocation provisions outlined in the Order, specifically concerning how the top-up tax liability is allocated between entities in the same group within the Isle of Man.

Further to this, adjustments must be made for taxes paid by constituent entity owners in other jurisdictions, and a special "election" can be made on how DTUT is allocated to Domestic Constituent Entities to achieve a more level playing field.

The rules apply to “Fiscal Years” which are the accounting period to which the Ultimate Parent Entity of the MNE Group prepares its Consolidated Financial Statements.  The Isle of Man has implemented its rules for fiscal years commencing on or after 1 January 2025. 

Other jurisdictions have brought in Pillar Two rules for earlier periods. 
This could result in Isle of Man low taxed profits being taxed in a different jurisdiction for fiscal years prior to 1 January 2025.

The Domestic Filing Entity (DFE) must notify the Assessor about the cessation or winding-up of the entity and provide an estimate of Domestic Top-up Tax (DTUT) liabilities for all relevant periods. This can be done by completing form P4.

The entity ceasing operations is required to make a payment on account of the estimated DTUT liabilities no later than 30 days from the date of the charge notice issued by the Assessor.

The DFE remains liable for any additional DTUT that ultimately becomes payable in respect of the ceasing entity’s profits and will be entitled to receive any refund if there has been an overpayment.