date | theme

07. August 2020 | Tax haven check: Which country offers which tax advantages?

19. August 2020 | Dubai LLC: tax-free without exit tax for GmbH shareholders

02. October 2020 | Avoid inheritance tax and gift tax abroad

23. October 2020 | Liechtenstein – Saving Taxes at ESt & KSt and IP Boxes & Foundations

20. January 2021 | Family Foundation in Liechtenstein: no income tax in Germany

11. February 2021 | Establishing a foundation in Liechtenstein: Requirements & Procedure

17. February 2021 | Foundation in Liechtenstein: 6 advantages over a German foundation

04. March 2021 | Isle of Man: legal status as crown property and tax law (this contribution)

Unlike, for example, the Channel Islands or Gibraltar, few are aware that the Isle of Man is a tax haven. The Isle of Man, like the Channel Islands, is a crown property of the British crown. Based on this, the Isle of Man resorts to the possibility of shaping its own tax law. Thus, neither a capital gains tax nor a gift tax or inheritance tax are established. Even in the case of corporation tax, in most cases, 0% is to be expected. Unsurprisingly, this has led to a critical attitude on the part of the EU in the past, with Britain intervening protectively. After the withdrawal of the United Kingdom from the EU, this protection is therefore removed, so that the Isle of Man now strives to anticipate any consequences on its own initiative.

Selling Bitcoins Abroad Tax Free | Financial Flow

1st Special Legal-Political Status of the Isle of Man

Although the Isle of Man in the Irish Sea is a British island, it is by no means part of the United Kingdom. Rather, it is, like the Channel Islands, a crown property. It is thus directly subordinate to the British crown. For this reason, there is a special relationship with Great Britain. On the one hand, the Isle of Man has the right to enact its own laws, which we will also discuss with regard to tax legislation in the course of this article. On the other hand, this relationship of supremacy also leads to Britain taking responsibility for other aspects, such as foreign policy or defence. So the Isle of Man has only limited sovereignty.

Politically, the Isle of Man also has some peculiarities. Because on the Isle of Man meets the oldest, consistently constituent parliament in the world, the Tynwald. In addition, the Isle of Man stands as a pioneer in the introduction of women's suffrage in the annals.

So you might think that this should be a compensation for the mostly male-dominated, notorious motorad race that takes place annually on the Isle of Man. But the legendary Isle of Man TT, which takes place on closed streets, was only created in 1907 and is therefore younger than the women's suffrage there.

2nd Isle of Man Relations with the EU

Due to the suzerainty of Great Britain over the Isle of Man, many of the EU rules also applied on the island in the Irish Sea for a long time until Brexit. Although the Isle of Man itself was never a member of the EU, it was thus able to benefit from many advantages, for example the European Single Market. Nevertheless, the special position of the Isle of Man led to a special consideration of its tax regime by the European Union, which viewed the small tax haven on its doorstep with scepticism. Until her departure from the EU, Britain was able to keep the objections of the other member states and the potential consequences based on them always in check with her veto. Otherwise, the Isle of Man would certainly have had to count on being classified as a tax haven on the EU blacklist. Now, after Brexit, there are efforts to avoid this on their own.

There is a tax liability on the Isle of Man if you are resident there for at least 183 days a year. Alternatively, there is also a tax liability if you spend an average of 90 days a year on the island over a period of three consecutive years. In this case, the tax liability begins with the following fourth year. However, if there is an intention from the beginning to exceed the limit of 90 days of stay per year, then the tax liability applies right from the beginning.

Entities, such as corporations, trusts or foundations, are considered resident on the Isle of Man and thus taxable if they have their statutory seat on site. In addition, this also applies if a corporation has its statutory seat abroad, but its place of management is on the Isle of Man. It must also be noted that branches or similar sub-units of a corporation operating abroad may be taxable on the Isle of Man. On the other hand, corporations registered on the Isle of Man are considered to be taxable abroad if the management takes place abroad and the corporation is also taxable there and it falls under taxation jurisdiction abroad under a double taxation agreement with the Isle of Man.

Incidentally, on the Isle of Man an assessment year differs from the calendar year, namely from 6 April of each year.

3.2.Income tax on the Isle of Man

On the Isle of Man, the regular tax rate is 10% and the increased tax rate, which is thus comparable to the top German tax rate, is 20%. First, the personal tax allowance of GBP 14,250 for individual taxpayers or GBP 28,500 for collective taxpayers is deducted from income. Then 10% of income tax will be a maximum of £6,500 for individual investments or £13,000 for collective investments. In addition, amounts (over GBP 20.750 or GBP 41.500 respectively) are taxed at 20%.

However, the Isle of Man offers an attractive income tax regime for taxable individuals with high incomes. Thus, the law provides that instead of taxation according to the previously described standard procedure, you can also pay a lump sum as income tax on request. However, it is also stipulated that this regulation should apply for a period of five consecutive years. As of 2020, the lump sum tax amount is GBP 200,000 for individuals or GBP 400,000 for married people.

3.3. Taxation of Companies on the Isle of Man

First of all, there is no equivalent to the German trade tax on the Isle of Man. Furthermore, corporations generally do not pay taxes. Because the regular tax rate on the Isle of Man, which is subject to corporations there, is 0%. Only certain sectors are subject to a corporate tax of 10%, which is also comparatively low. These industries that actually pay corporate tax on the Isle of Man include the financial sector and wholesale. Taxation only takes place from a profit of GBP 500,000. In addition, there is a corporate tax of 20 % on corporate profits related to property values or their development.

3.4. Sales tax on the Isle of Man

On the Isle of Man there is a sales taxation that follows that in the UK. Three different control rates are provided for this purpose. On the one hand, there is a general tax rate of 20% on goods and services. A sales tax reduced to 5% applies to certain sales. This includes home improvement services and hotel accommodation. On the other hand, there is no sales tax on food and baby clothing, for example.

3.5. Property transfer tax on the Isle of Man

A property transfer tax is unknown on the Isle of Man. At most, there is a fee for the registration of the new owners in the Land Register, which corresponds to the German Land Registry. Fees vary depending on the type of property and its use. For example, the acquisition of a property for own residential purposes is privileged, but the acquisition of a secondary property is subject to a significantly higher fee.

3.6. Social security contributions on the Isle of Man

Employees and employees are obliged to pay national insurance contributions on their wages. This is staggered and sets only from an annual earnings of GBP 7,176. An additional amount of up to GBP 35,620 leads to a social security contribution at a rate of 11 %. Anything in excess of GBP 42.796 is subject to a 1 % levy.

In addition, the employer also bears a share of the social security contribution. It, too, starts at GBP 7,176 but then amounts to 12.8%.

4th Isle of Man meets international standards for taxation

As we have already mentioned, in the past, under the care of the former EU member UK, the Isle of Man has used some freedom in tax legislation to serve as a tax refuge. But since the UK’s exit from the EU created new facts, the island is increasingly trying to implement international standards for taxation. With more than 100 other countries and legal entities, double taxation agreements exist in various areas. In addition, agreements on the exchange of data on taxable persons have entered into force. Both TIEA and the FATCA agreement with the USA should be mentioned here. Furthermore, the Isle of Man met the EU's demand for a substance approach to the taxation of companies registered there. In this way, the Isle of Man has achieved that it is now internationally considered a jurisdiction that upholds the standards of the EU and the OECD.