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Isle of Man - Income Tax

Isle of Man - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

The return should be filed by 6 October following the end of the tax year.

What is the tax year-end?

The tax year runs from 6 April to the following 5 April. Returns are issued to taxpayers by the local authorities on 6 April following the end of the tax year.

What are the compliance requirements for tax returns in the Isle of Man?

Residents

Income tax is payable on 6 January in the year following the year of assessment, or 30 days after the issue of an assessment, if later. A payment on account for the following tax year is also due on 6 January representing 105 percent of the previous year's liability not dealt with by deduction at source. Penalties can be imposed for failure to file a tax return by the due date and other tax misdemeanors. Interest is charged on late payment of tax.

Isle of Man residents are entitled to a tax-free personal allowance. For 2019/20 single persons are entitled to a personal allowance of GBP14,000 and married couples, who elect for joint assessment, are entitled to a combined allowance of GBP28,000.

An individual (or couple) becoming or ceasing to be resident in the Isle of Man is entitled to claim the same allowances as any other Manx resident. However, the allowance will be apportioned according to the date residency commenced/ ceased.

Non-residents

Income tax is payable in line with that of resident individuals. A non-resident individual’s taxable income is charged to income tax only at the higher rate. However, for certain types of income arising from the Isle of Man, a non-resident will have their liability capped at the amount of income tax, if any, deducted at source. A non-resident is not entitled to a personal allowance. Non-resident married couples are not entitled to opt for joint taxation.

Tax rates

What are the current income tax rates for residents and non-residents in the Isle of Man?

Residents

Income tax table for 2018/19

Taxable income bracket

Total tax on income below

bracket

Tax rate on income in bracket

From GBP

To GBP

GBP

Percent

0

14,000

0

0

14,001

20,500

0

10

20,501

Over

650

20


All income is assessed in the tax year in which it arises.

There are two rates of income tax for resident individuals in the Isle of Man as follows:

Rate

Tax

Tax rate

Standard rate

Up to GBP6,500 of taxable income

10%

Higher rate

Above GBP6,500 of taxable income

20%


Spouses each receive a personal allowance of GBP14,000 and the GBP6,500 band, which is fully transferable between them under joint assessment. A Manx resident may enter into an irrevocable 5 year election to have their annual tax liability capped. For elections commencing from the 2019/20 tax year, the maximum liability for an individual will be GBP175,000 and GBP350,000 for a married couple. These figures will be increased with effect from 6 April 2020 to £200,000 and £400,000 respectively.

Non-residents

There is only one rate of income tax for non-resident individuals in the Isle of Man of 20 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of the Isle of Man?

There is no general definition of residence. Individuals with a view or intention to establish residence will be treated as tax resident on the date of their arrival on the Isle of Man.

However, there are some rules that determine tax residence by physical presence in the Isle of Man. These rules usually apply where a person claims to be non-resident, despite regularly being in the Isle of Man.
Generally an individual will be regarded as resident and taxable in the Isle of Man if at least one of the following criteria is met:

  • they are physically present in the Isle of Man for more than 6 months in the tax year
  • they are present in the Isle of Man for an average of more than 90 days in each tax year over 4 consecutive years

On entering the Isle of Man, the individual should complete Form R25 (Registration for Manx Income Tax) and submit it to the Income Tax Division.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country/jurisdiction before their assignment begins?

The assignee is likely to commence residence in the Isle of Man on the date of their arrival and as such be liable to Manx tax with effect from this date.

Termination of residence

Are there any tax compliance requirements when leaving the Isle of Man?

An individual will be required to complete a tax return for the period ending on the date of their departure from the Isle of Man. The return must be filed within 6 months of the date of departure. A Cessation of Residence Form should also be submitted to the Income Tax Division.

What if the assignee comes back for a trip after residency has terminated?

The assignee should consider the number of days they have spent on the Isle of Man on return and provided they do not fall foul of the aforementioned 6 month or 90 day rules, they will be treated as remaining non-resident in the Isle of Man.

Communication between immigration and taxation authorities

Do the immigration authorities in the Isle of Man provide information to the local taxation authorities regarding when a person enters or leaves the Isle of Man?

Yes.

Filling requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?
 

An individual will be required to complete a tax return for the period ending on the date of their departure from the Isle of Man. The return must be filed within 6 months of the date of departure.

Economic employer approach

Do the taxation authorities in the Isle of Man adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in the Isle of Man considering the adoption of this interpretation of economic employer in the future?

Where a double tax agreement is in place, the Income Tax Division will adopt the OECD economic employer approach.

The Isle of Man has a limited number of double tax agreements.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

No

Types of taxable compensation

What categories are subject to income tax in general situations?
 

All income and benefits derived from an office or employment are generally taxable. Advice should be sought in connection with any form of share awards, share options, and so on.

Intra-group statutory directors
 

Will a non-resident of the Isle of Man who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in the Isle of Man) trigger a personal tax liability in the Isle of Man, even though no separate director's fee/remuneration is paid for their duties as a board member?

The non-resident director’s Isle of Man tax liability in relation to remuneration from director duties will depend on whether:

  • they are remunerated by an Isle of Man resident company
  • the duties they are performing; and
  • where they perform their director’s duties.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in the Isle of Man?

Where the non-resident director’s fees are paid by an Isle of Man resident company they will not be subject to Manx income tax deductions provided that the director’s duties are performed wholly outside the Isle of Man or the fees are solely in respect of the carrying out of statutory functions performed within the Isle of Man. Otherwise, all payments will be subject to Manx income tax.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in the Isle of Man (i.e. as a general management fee where the duties rendered as a board member is included)?

No.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

Non-residents are subject to Manx income tax at a flat rate of 20 percent.

Tax-exempt income

Are there any areas of income that are exempt from taxation in the Isle of Man? If so, please provide a general definition of these areas.

The following are generally exempt from tax:

  • certain accommodations, services, and/or supplies
  • the first GBP30,000 of a genuine termination payment
  • personal computers and other equipment
  • relocation expenses
  • other benefits

Accommodation, services, and/or supplies

Accommodation, services, and/or supplies used by an employee solely for their duties are tax exempt.

The first GBP30,000 of a genuine termination payment

The first GBP30,000 of a genuine termination payment in respect of a loss of office or employment is tax exempt.

Personal computers and other equipment

Personal computers and associated equipment to a cash value of GBP1,000 are tax exempt.

Relocation expenses

Relocation expenses provided that they do not exceed GBP20,000 in total and arose as a direct result of a person moving to the Isle of Man to take up employment are tax exempt.

Other benefits

Any other benefits provided that they do not exceed GBP600 in total in a year are tax exempt; otherwise the whole value is taxable.

Expatriate concessions

Are there any concessions made for expatriates in the Isle of Man?
 

The key employee initiative enables approved key employees moving to Isle of Man to facilitate the process of starting up a new business or the diversification or expansion of an existing one, to be taxed only on their Manx-source income for the first 3 years of residence.

Salary earned from working abroad

Is salary earned from working abroad taxed in the Isle of Man? If so, how?

Yes, residents are taxed on worldwide income. Residents are obliged to disclose their worldwide income on their Manx Tax Returns.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in the Isle of Man? If so, how?

Resident individuals are taxable on worldwide income including investment income. Capital gains are not subject to tax in the Isle of Man.

Dividends, interest, and rental income

See earlier.

Gains from stock option exercises

Residency status Taxable at:
  Grant Vest Excercise
Resident Y N N
Non-resident Y N N
Other (if applicable) N/A N/A N/A


Note 1: Stock options are taxable, if at all, on grant. However, in certain circumstances it is possible to defer any tax charge until exercise.

Note 2: A non-resident individual is only taxable on grant if employment duties are carried out in the Isle of Man.

Foreign exchange gains and losses

Capital gains are not subject to tax in the Isle of Man.

Principal residence gains and losses

Capital gains are not subject to tax in the Isle of Man.

Capital losses

Capital gains are not subject to tax in the Isle of Man.

Personal use items

Capital gains are not subject to tax in the Isle of Man.

Gifts

Gifts, whether creating a capital gains or otherwise, are not subject to tax in the Isle of Man.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in the Isle of Man? If so, please discuss?

Not applicable.

Are there capital gains tax exceptions in the Isle of Man? If so, please discuss?

Pre-CGT assets

Not applicable

Deemed disposal and acquisition

Not applicable

General deductions from income

What are the general deductions from income allowed in the Isle of Man?

  • Trade losses: an individual carrying on a trade or profession and who incurs a trading loss may set that trading loss against other taxable income arising in the same year of assessment.
  • A deduction is allowed for expenses incurred wholly, exclusively and necessarily for the purposes of employment, such as business travel expenses and professional subscriptions.
  • Loan interest paid to an Isle of Man lender up to a maximum of GBP5,000 per individual (GBP10,000 per jointly assessed married couple). Given by way of a tax credit and restricted to 10 percent of the eligible deduction.
  • Certain charitable donations up to a maximum of GBP7,000 per individual (GBP14,000 per jointly assessed married couple). Given by way of a tax credit and restricted to 10 percent of the eligible deduction.
  • Contributions to personal pension plans, up to the lower of GBP50,000 and relevant earnings.
    • For low or non-earners, the Income Tax Division allows payment of contributions into approved pension schemes up to GBP3,600 per annum.
  • Contributions to approved occupational pension schemes up to 100 percent of relevant earnings in the year (restricted to GBP50,000).
  • Private medical insurance premiums paid for a resident who is aged 60 years or more when payment was made, up to a maximum of GBP1,800 per year. Given by way of a tax credit and restricted to 10 percent of the eligible deduction.
  • Educational deeds of covenant subject to certain conditions and which were entered into on or before 5 April 2011.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in the Isle of Man?

There is no general approach.

Calculation of estimates/ prepayments/withholding

How are estimates/prepayments/withholding of tax handled in the Isle of Man? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

All remuneration in the Isle of Man is subject to the Income Tax Installment Payments (ITIP) system. Remuneration includes wages, salaries, fees, Manx pensions, bonuses, expenses with no dispensation in place, and even termination payments (subject to a GBP30,000 exemption in certain circumstances).

ITIP is operated by and is the responsibility of the relevant employer. It is calculated with reference to an individual’s notice of coding or if a notice of coding is unavailable, an emergency code may be used. The employee’s tax code should reflect their personal circumstances.

When are estimates/prepayments/withholding of tax due in the Isle of Man? For example: monthly, annually, both, and so on.

The employer will deduct ITIP from the employee’s salary, and so on, where applicable, on each pay day (whether this is weekly, monthly, or annually).

Relief for foreign taxes

Is there any Relief for Foreign Taxes in the Isle of Man? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

The Isle of Man has “full” double taxation treaties with the United Kingdom, Estonia, Bahrain, Guernsey, Jersey, Luxembourg, Qatar, the Seychelles, Singapore and Malta.

Assignees from Denmark, Poland, the Faroe Islands, Finland, Greenland, Slovenia, Iceland, Norway and Sweden may benefit from agreements for the avoidance of double taxation on individuals.

Where income is not covered under the terms of the double taxation treaty, double taxation relief (a form of unilateral relief) is available which gives rise to tax relief equal to the lower of the Manx tax suffered or foreign tax suffered on the same source of income.

General tax credits

What are the general tax credits that may be claimed in the Isle of Man? Please list below.

None.

Sample tax calculation

This calculation assumes a married taxpayer resident in the Isle of Man with two children whose 3-year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is US dollars 100,000 (USD) and the calculation covers 3 years.

 

2018

USD

2019

USD

2020

USD

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

20,000

0

20,000

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000


Exchange rate used for calculation: USD1.00 = GBP0.62.

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. Interest income is not remitted to the Isle of Man.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year ended

2016/17

GBP

2017/18

GBP

2018/19

GBP

2019/20

GBP

Months in the Isle of Man during year

3

12

12

9

Earned income subject to income tax

 

 

 

 

Salary

15,500

62,000

62,000

46,500

Bonus

3,100

12,400

12,400

9,300

Cost-of-living allowance

1,550

6,200

6,200

4,650

Net housing allowance

1,860

7,440

7,440

5,580

Company car

1,250

5,000

5,000

3,750

Moving expense reimbursement

12,400

0

0

12,400

Home leave

0

775

2,325

0

Education allowance

465

1,860

1,860

1,395

Total earned income

36,125

95,675

97,225

83,575

Other income

930

3,720

3,720

2,790

Total income

37,055

99,395

100,945

86,365

Deductions

5,250

25,000

26,500

21,000

Total taxable income

31,805

74,395

74,445

65,365


Calculation of tax liability

 

2016/17

GBP

2017/18

GBP

2018/19

GBP

2019/20

GBP

Taxable income as above

31,805

74,395

74,445

65,365

Manx tax thereon

4,661

13,579

13,589

11,773

 

 

 

 

 

Less:

 

 

 

 

Domestic tax rebates (dependent spouse rebate)

0

0

0

0

Foreign tax credits

0

0

0

0

Total Manx tax

4,661

13,579

13,589

11,773

Total Manx tax translated to USD

7,518

21,902

21,918

18,989

Further assumptions

  • The tax calculations have been computed for the years ended 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020 .
  • The tax allowances, rates and bands are correct for all of the tax years concerned.
  • The company car has a cylinder capacity of between 1801cc and 2500cc.
  • The taxpayer’s spouse has no income and they elect for joint assessment.
  • The moving expense reimbursement of GBP12,400 has been treated as taxable in the years 2016/17 and 2019/20 on the basis that it is received in those years and not borne directly by the employer. It should be noted, however, that if borne directly by the employer certain relocation expenses are automatically exempt up to GBP20,000.

Footnote

1. Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country/jurisdiction employer but the employee's salary and costs are recharged to the host entity, then the host country/jurisdiction tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country/jurisdiction.

2. For example, an employee can be physically present in the country/jurisdiction for up to 60 days before the tax authorities will apply the economic employer approach.

Disclaimer

All information contained in this publication is summarized by KPMG LLC, the Isle of Man member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on Isle of Man tax legislation, guidance published by the Isle of Man Income Tax Division and applicable case law as at the date of publication hereof.

© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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