Direct Tax

Direct taxation: income tax is the only direct tax and applies to the income of individuals and company profits.

The Isle of Man operates a policy of low taxes with a standard rate of tax on individuals of 10%, a higher rate of 18% and generous personal allowances while companies are subject to a zero rate, 10% or 18% depending on circumstances.

There is no capital gains tax, wealth tax, stamp duty, death duty or inheritance tax.

Indirect Tax

The Isle of Man enjoys a unique and longstanding relationship with the UK (and consequently with the EU) by virtue of the negotiated inter-government Customs and Excise Agreement. This provides for the unhindered movement of goods and facilitates trade with our EU partners and beyond. Whilst it is true to say that the terms of this Agreement link the Isle of Man to the UK with regard to Customs, Excise and VAT methodologies, it does not bind the Island to adopt all indirect taxation initiatives emanating from the UK or beyond.

Significantly the Isle of Man has chosen not to introduce taxes such as insurance premium tax, landfill tax, aggregates levy etc, nor is it currently seeking to extend the scope of its indirect taxation.

Several areas of flexibility exist to benefit both Isle of Man VAT registered businesses and/or Island residents. For example, i) the Island’s approach to VAT on international services, and ii) the 5% VAT rate on the provision of hotel and holiday accommodation. However, for a business to profit from the full range of benefits the Island has to offer, it needs to be VAT registered in the Isle of Man.

Whilst the unique position of the Island provides an ability to settle disputes locally, business customers retain the right of access to the services of the fully independent UK VAT Tribunals (which sits in the Island to hear appeals) and, if necessary, can call on EU VAT Directives and decisions of the UK and EU courts systems.

National Insurance

he Isle of Man has a reciprocal arrangement with the UK whereby it adopts, with one or two exceptions, the same level of National Insurance Contributions as the UK. This ensures full reciprocity to be maintained and removes any problems where a person moves between the two jurisdictions over contributory benefits, such as the National Insurance Retirement Pension.For the purposes of this exercise, the two main contributions which need to be taken into account are the Class 1 contributions for an employed person and the employer’s contributions. Unlike the UK, the Isle of Man has not adopted the Class 1A and Class 1B secondary contributions on payments such as benefits in kind.

Contributions are based upon the income tax year and are deducted from an employee’s pay by the employer and paid over each month to the Income Tax Division together with the employer’s contribution.

The level and the amount of the contribution are dependent upon a number of factors. First for the employee there is a primary earnings threshold and then an upper earnings limit. Earnings between those two limits are subject to contributions at a specified rate. For an employer there is no upper earnings limit.

For both an employee and an employer the rate of contribution will depend upon whether the employee is contracted out of the State’s additional pension scheme.

EU Savings Directive

The European Savings Tax Directive is an agreement between the Member States of the European Union (EU) to automatically exchange information with each other about customers who earn savings income in one EU Member State but reside in another. Three EU Member States (Austria, Belgium and Luxembourg) have opted to apply alternative arrangements, the retention or withholding tax option.

Tax is deducted at source from income earned by EU resident individuals on savings held in other EU countries. The Isle of Man decided to apply the withholding tax option which means that tax is automatically deducted at source from interest earned on savings at a current rate of 20% rising to 35% in July 2011.

Only EU residents will be included in the Directive but alternatively clients may choose to opt for disclosure of their interest payments and not have the withholding tax applied.

Personal Allowances

PERSONAL ALLOWANCES 2009/2010

INCOME TAX RATES

STANDARD RATE TAX THRESHOLDS

PREVIOUS YEARS RATES AND ALLOWANCES

Tax Rates for Companies

Rates

Thresholds