Isle of Man opens tax strategy up for debate

The Isle of Man government has launched a public consultation relating to the Island’s taxation, ahead of the preparation of a new tax strategy before the end of this year.

Taxation of businesses in the Isle of Man currently takes two basic forms: corporate income is received tax free, unless it derives from banking business or from Manx land and property, where a 10% tax rate applies.  

The Government has confirmed that it is committed to retaining a tax-neutral form of business structure in the Isle of Man, which it sees as a key aspect of its competitiveness as an international finance centre, but it recognises that having a 0% rate for most businesses leads to some negative comment internationally.  Furthermore, the 0% tax rate applies in the Isle of Man to a wider category of businesses than in other offshore financial centres; in Jersey, for example, all regulated financial services companies are taxed at 10%, not just banks and in Guernsey, regulated utilities are taxed at 20%.

The Treasury is therefore inviting comments on a number of issues, including whether the coverage of the 10% tax rate be widened, and if so to which business sectors; whether capital allowances should be retained, and, if so, how the system could be simplified or used to incentivise business investment.

The review is not limited to matters of business taxation, but also covers personal taxation and international taxation issues.  In the last 10 years or so the Isle of Man government has pursued a policy of trying to keep the Isle of Man at the forefront of small financial services centres in implementing tax co-operation policies.  The consultation paper poses the question of whether the Isle should seek to continue with this stance and whether it should attempt to put a series of Double Taxation Agreements in place.

It is no surprise that the Manx government is considering its options going forward - such is part of the bread and butter of business for an international finance centre.  However, it is brave in posing many fairly radical questions so openly, as uncertainty regarding future taxation is always problematic for international finance centres, whose clients prize stability and consistency very highly.