Thinking Beyond Borders
All information contained in this document 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.
An individual’s liability to income tax in the Isle of Man is determined by their residence status for taxation purposes and the source of income derived by the individual. Income tax is levied at progressive rates on an individual’s taxable income for the year, which is calculated by subtracting allowable deductions from the total assessable income.
Extended business travellers (a phrase which is not formally recognised in Isle of Man legislation) are likely to be taxed on employment income relating to their Isle of Man workdays.
The Isle of Man tax year runs from 6 April in each year to 5 April the following year. An individual’s residence is not statutorily defined but is generally determined by reference to physical presence. Hence a resident individual would be someone who is:
A person’s domicile is, broadly, the individual’s permanent homeland. The majority of foreign nationals employed by foreign employers who are extended business travellers or working on secondment to the Isle of Man should not be regarded as domiciled in the Isle of Man.
A non-Isle of Man resident is taxable in the Isle of Man only on Manx-sourced income.
Employment income is generally treated as Isle of Man-sourced compensation when the employee performs the services while physically located in the Isle of Man. Salary, for example, may be apportioned between Isle of Man and non-Isle of Man duties based on workdays.
Technically there is no threshold/minimum number of days that exempts the employee from the requirements to file tax returns and pay tax in the Isle of Man.
To the extent that the individual qualifies for relief in terms of the employment income article of an applicable double tax treaty, there should be no Isle of Man tax liability. The treaty exemption will not apply if an Isle of Man entity is viewed as the individual’s economic employer.
All earnings, whether in cash or in the form of a benefit-in-kind, provided by an employer to an employee are taxable unless specifically exempted. Typically, travel expenses to and from the Isle of Man (and accommodation on the Isle of Man) would not be taxable for an extended business traveller – provided the length of their stay does not, in itself, trigger residence or their stay does not exceed a continuous period of 183 days.
For the year ending 5 April 2018 a personal allowance of 12,500 (GBP) is available for residents. Earnings are taxed at 10 percent on the first 6,500 (GBP) of taxable income and 20 percent on the remainder. A Manx resident individual may enter into an irrevocable five year election to have their annual tax liability capped. For elections commencing in the 2017/18 tax year, the maximum liability is £125,000, and £250,000 for a married couple. A non-Manx resident individual is not entitled to a personal allowance and all Manx source income is taxed at 20%.
Employers and employees who are liable for social security in the Isle of Man pay it with no upper limit (although for the 2017/18 tax year the rate for employees is only 1% in respect of annual income exceeding £40,768). It is likely, however, that most extended business travellers would not be liable to pay Manx social security. This could be for a number of reasons, including:
Annual personal tax returns are due by 6 October following the tax year-end. If an individual leaves the Isle of Man part way through an income tax year, a return covering the period to the date of departure must be submitted within six months of leaving.
Employment income is subject to tax and social security withholding under the Income Tax Instalment Payments (“ITIP”) system. If an individual is taxable on employment income, the obligation to withhold rests with either the employer or, if the employer is not operating withholding, with the ‘host’ employer. Setting up a new payroll is not a complex undertaking but it is recommended that employers seek advice as soon as they intend to send an employee to the Isle of Man on secondment.
There is the potential that a permanent establishment could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
The Isle of Man imposes value added tax (VAT), which is a tax on consumer expenditures. Businesses (where they are VAT registered and fully taxable) do not bear the final costs of VAT. They are able to charge VAT on the supplies that they make (output VAT) and recover VAT on purchases that they have made (input VAT).
There are currently three rates of VAT: standard rate (20 percent, which is charged on the provision of most goods and services), zero rate (0 percent, which is charged on food, books, and children’s clothing), and reduced rate (5 percent, which is charged, for example, on fuel). Attributable input VAT is recoverable on these supplies by businesses.
Anyone who is not classed as an “Isle of Man worker” requires a work permit to take up employment in the Island. This applies to United Kingdom nationals (i.e. British Citizens) in the same way as other European Economic Area (“EEA”) or Swiss nationals. There are exemptions for a small number of occupations, and for certain temporary employments.
Employers should check that employees are permitted to take on the type of employment that is being offered.
Workers from outside the EEA are dealt with under separate arrangements to those for workers from the EEA and Switzerland. Persons who are not EEA nationals are subject to control under the Immigration Acts (of the UK Parliament) as extended to the Isle of Man, and will in most cases also require permission to work under the Points Based System (“PBS”).
From July 2010, the former immigration options were replaced by a new PBS. This system, which was already in operation in the UK, seeks to control immigration by requiring all applicants in a number of employment categories to have the correct number of points before entry clearance or leave to remain can be granted. The PBS consists of 5 separate tiers and applicants must achieve a minimum level of points in order to qualify - points are awarded for age, professional and academic qualifications and previous earnings.
Spouses and civil partners of persons who have an immigration employment document will also need to apply for a permit to work in the island - it should be noted that there is no automatic entitlement to a spouse or civil partner permit in these cases.
In addition to the Isle of Man’s domestic legislation that provides relief from international double taxation, the Isle of Man has entered into double taxation treaties with certain other countries/territories to prevent double taxation, and allow cooperation between the Isle of Man and overseas tax authorities in enforcing their respective tax laws.
The Isle of Man has no transfer pricing regime.
The Isle of Man has data privacy laws. Organisations have a legal duty to keep data private and secure.
The Isle of Man does not restrict the flow of sterling or foreign currency into or out of the country/territory. Certain reporting obligations, however, are imposed to control tax evasion and money laundering. Organizations covered by the legislation have a number of obligations, including the requirement to establish the identity of individuals. A bank account cannot be opened in the Isle of Man without proof of identity.
Non-deductible costs for assignees include mortgage interest, alimony, tax return preparation fees, and relocation expenses (unless they are ‘qualifying’, then reimbursed deductible expenses are limited to GBP20,000).