IOM To Attract Business With Tax Cuts and E-commerce Incentives

Lisa Ugur, Tax-news.com, London

22 June 2000

This week the Isle of Man announced a package of radical financial reforms focusing on the three crucial areas of taxation, e-commerce and banking, in an effort to create an attractive and competitive business environment, whilst at the same time preserving the island's recognised standards of supervision and transparency.

The taxation reforms were announced on Tuesday to Tynwald, the Isle of Man Parliament, and the emphasis is on tax cuts, or more precisely, cutting corporation and personal taxes, in order to to stave off competition from the UK. Since 1975 the UK has seen its corporation tax rate fall from 52% to 30%, whilst the Isle of Man's has remained at 20%. Michael Gates, head of the international services division of the Isle of Man Treasury, said 'Suddenly we are looking quite expensive.'

So enter the proposed changes to taxation. If they are adopted, corporation tax will be slashed from 20% to 10% for trading companies over a three to five year period, with a deadline of 2005. Exempt insurance companies and ship management companies will be brought within the domestic tax system, but at a zero rate.

As far as individual taxation is concerned, there would be a reduction in the top rate of income tax from 20% to 15%, whilst the standard rate would fall from 14% to 10%. Special treatment would be afforded to short term contract executives for up to three years so that they will only be taxed on their Manx sourced income.

Further measures would be personal allowances available for non-residents as well as residents and a new tax credit system for distributions (to ensure that tax neutrality is preserved for the investor, whether resident or non-resident).

Thus one aspect of the modernised tax system will focus on consideration of an updated Double Taxation Agreement with the UK which can apply equally to any other jurisdiction wishing to enter into constructive discussions. The Government is already in talks with the UK Inland Revenue on the question of a modernized double taxation agreement to support the new business strategy.

Richard Corkill, Minister for the Treasury, said 'It is many years since we last overhauled our tax and economic strategy. Our present strategy has enabled us to enjoy unprecedented economic success.We are sending a clear message on our overall strategy, so as to set the scene for the next five years and prevent any uncertainty on international tax issues. Our strategy for companies is one of low rates of tax linked into the introduction of the new corporate tax system, with incentives for new investment and a simplification of the overall tax system. Similarly, our strategy for individuals is to have a simple, low tax system which lends itself to the service efficiencies to be gained from the use of new technology.'

Whilst the Isle of Man is keen to encourage new business and build on its already strong economy, it is also keen to keep to international standards set by the G7 countries and the OECD. The proposed tax reforms should have the desired effect of keeping the OECD sweet. Mr Corkhill said 'The Isle of Man will be pro-active in both encouraging international business in the new global economy and contributing to the establishment of new international standards by the G7 and the OECD.'

Not simply content with tax cuts, the Isle of Man has also vowed to push on in the e-commerce race with a vengeance, with an e-commerce strategy due to be announced to Tynwald in July, aimed at attracting entrepreneurs and internet companies. It is expected that these companies will be granted the same kind of preferential status as the zero-rate status which, if all goes well, the insurance and shipping industries will enjoy. It is important for the Isle of Man to sell itself as an e-commerce hub. After all, most offshore financial centres are doing the same and no-one wants to miss out, right from the Caribbean to, most recently (and perhaps bizarrely), Sealand, the old military fort in the North Sea off the UK's Suffolk coast.

Finally, the island is to reform its banking practices, and these will be the last to be announced in August.

Mr Corkhill is clearly confident about the island's package of tax cuts and economic incentives. He concludes that 'e-commerce and globalisation are changing the world economy out of all recognition. Companies expect jurisdictions to be competitive and international authorities expect them to compete fairly. We believe that our reform programme strikes the right balance between these twin requirements. We will now open a dialogue on our programme with Tynwald, with business and with our international partners.'

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