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  • Service: Tax, Global Mobility Services
  • Type: Regulatory update, Survey report
  • Date: 7/8/2014

Isle of Man - Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation


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. 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 2012/13 single persons are entitled to a personal allowance of GBP9,300 and married couples, who elect for joint assessment, are entitled to a combined allowance of GBP18,600.


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.


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Tax rates

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


Residents


Income tax table for 2012/13


Taxable income bracket

Total tax on income below bracket Tax rate on income in bracket
From GBP To GBP GBP Percent
0 9,300 0 0
9,301 19,800 1,050 10
19,801 Over 0 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 GBP10,500 of taxable income

10%
Higher rate

Above GBP10,500 of taxable income

20%

Spouses each receive a personal allowance of GBP9,300 and the GBP10,500 band, which is fully transferable between them under joint assessment. A Manx resident’s personal tax liability is capped at GBP120,000 (or GBP240,000 for jointly assessed married couples) for 2012/13.


Non-residents


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


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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:


  • he/she is physically present in the Isle of Man for more than six months in the tax year
  • he/she is present in the Isle of Man for an average of more than 90 days in each tax year over four 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 for more than 10 days after their assignment is over and they repatriate.


No.


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


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


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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 six 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 he/she has spent on the Isle of Man on return and provided he/she does not fall foul of the aforementioned six month or 90 day rules, he/she 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.


Filing requirements


Will an assignee have a filing requirement in the host country after they leave the country 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 six months of the date of departure.


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Economic employer approach1

Do the taxation authorities in the Isle of Man adopt the economic employer approach to interpreting Article 15 of the 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?


Information is not available.


De minimus number of days2


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


Information is not available.


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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.


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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 his/her 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 GBP10,000 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 GBP400 in total in a year are tax exempt; otherwise the whole value is taxable.


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Expatriate concessions

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


The Isle of Man government has announced a key employee initiative, which 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 three years of residence.


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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.


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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 Exercise
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


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


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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.


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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 GBP7,500 per individual (GBP15,000 per jointly assessed married couple). Given by way of a tax credit and restricted to 10% 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% of the eligible deduction.
  • Contributions to personal pension plans, up to the lower of GBP300,000 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 GBP300,000).
  • 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% of the eligible deduction.
  • Educational deeds of covenant subject to certain conditions and which were entered into on or before 5 April 2011.

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Tax reimbursement methods

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


There is no general approach.


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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).


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).


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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 and Malta. , and a number of limited tax treaties with a number of other jurisdictions.


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.


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General tax credits

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


None.


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Sample tax calculation

This calculation assumes a married taxpayer resident in the Isle of Man with two children whose three-year assignment begins 1 January 2011 and ends 31 December 2013. The taxpayer’s base salary is USD100,000 and the calculation covers three years.


2011
USD
2012
USD
2013
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 2010/11
GBP
2011/12
GBP
2012/13
GBP
2013/14
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 4,650 18,600 18,600 13,950
Total taxable income 32,405 80,795 82,345 72,415

Calculation of tax liability


2010/11
GBP
2011/12
GBP
2012/13
GBP
2013/14
GBP
Taxable income as above 32,405 80,795 82,345 72,415
Manx tax thereon 4,381 14,059 14,369 12,383
Less:
Domestic tax rebates (dependent spouse rebate) 0 0 0 0
Foreign tax credits 0 0 0 0
Total Manx tax 4,381 14,059 14,369 12,383
Total Manx tax translated to USD 7,066 22,676 23,176 19,973

Further assumptions


  • The tax calculations have been computed for the years ended 5 April 2011, 5 April 2012, 5 April 2013 and 5 April 2014.
  • The tax allowances, rates and bands are the same in 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 2010/11 and 2013/14 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 GBP10,000.



1Certain 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 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 employer but the employee's salary and costs are recharged to the host entity, then the host country 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.


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




© 2014 KPMG LLC, an Isle of Man Limited Liability Company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

 

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 Isle of Man

Taxation of international executives