The principal objective is to combine an overall tax share of GDP in line with the European average along with a fair and competitive tax regime as it inter-relates with the international economy. Undoubtedly a further motivation is to address some of the wider issues raised by the OECD forum on tax competition and it is anticipated that some of the tax reforms will go a considerable way to meeting the concerns raised by the forum.
The principal tax proposals are as follows;
- Reduction in the corporate tax rate from 20% to 10% for trading companies over a three to five year period.
- Reduction in the top rate of personal income tax from 20% to 15%.
- Reduction in the standard rate of income tax from 14% to 10%.
- Exempt insurance companies and ship management companies will be brought within the domestic tax system, albeit at a zero rate. The change is likely to remove from tax all insurance and ship management business in the Isle of Man regardless of whether it is locally owned.
- Introduction of a simplified approach to capital allowances whilst retaining a 100% first year allowance relief where appropriate.
- Introduction of a simplified approach for the taxation of individuals by having all income assessed on a current year basis.
- Special treatment to be introduced for short term contract executives for up to three years so that they will only be subject to tax on their Manx source income rather that the current world wide income basis.
- Personal allowances will be available to non-residents as well as residents.
- A new tax credit system for distributions will ensure that tax neutrality is preserved for the investor, whether resident or non-resident.
- Incentives for all business start ups and venture capital initiatives will be introduced.
As part of the overall strategy many areas of the tax system will be reviewed with the aim of simplification. For example an accounting period basis of taxation will be adopted for companies and individuals will have all their income taxed on a current year basis. In addition the Treasury is looking to renegotiate the Double Tax Arrangement with the UK and consideration is being given to approaching other countries to implement a DTA.
The Isle of Man Treasury is clearly intent on designing a tax system favourable to potential start up businesses and is targeting high value added operations. E-commerce start ups are an obvious target and further details are likely to emerge in July when Tynwald debates this subject.
Through the banking initiative yet to be announced, the Isle of Man will also target profitable private banks with few employees. Whether more bank back office operations which currently exist in the Isle of Man are to be encouraged or not, remains to be seen.
On indirect taxes, a firm commitment to retaining the Customs and Excise Agreement with the UK has been made. The income stream arising from the indirect taxes (mainly VAT) will underpin the ability for flexibility in direct taxes. As indirect taxes are relatively more burdensome on the lower paid, the Isle of Man Government will continue to work for ways to mitigate this effect either through the benefits or income tax system.
The effects of these measures will be to make the Isle of Man an even more attractive location to carry on business in the future. Its tax rates for both individuals and companies will be very competitive. There appears now to be a policy of concentrating new business initiatives on to high value added, low staff number businesses. Perhaps we will see more front offices and few back offices in the future. Perhaps also this will give the initiative to the Isle of Man becoming a major centre for e-commerce activity.
For further details please contact Nicholas Williamson at the Douglas Office on 01624 641209 or e-mail Nick.Williamson@deloitte.co.uk
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