Tax Bite – Isle of Man residents can receive tax free dividends from UK companies

This is relevant for relevant for shareholders of UK companies who are resident in Isle of Man or thinking of moving there.

A UK incorporated company will always be UK resident for UK tax purposes. However it can also be made Isle of Man resident if it is registered in the Isle of Man as a foreign company and centrally managed and controlled there. This is because there is no tiebreaker clause in the UK – Isle of Man tax treaty.

UK will have full taxing rights in respect of any permanent establishment which exists in the UK – based on the tax treaty.

The corporation tax rate in the Isle of Man is generally 0% but Isle of Man residents are taxable at 20% on dividends. Therefore a UK company which is owned by an Isle of Man resident and has a permanent establishment in the UK will generally suffer UK corporation tax at a minimum rate of 20% and then the shareholders will be subject to further Isle of Man tax at 20% on dividend receipts.

The above position can be improved if the UK company is also registered as an Isle of Man foreign company and centrally managed and controlled in the Isle of Man. This will enable credit to be claimed against the Isle of Man tax liability for any corporation tax paid in the UK, thus reducing the Isle of Man tax liability from 20% to 0%.

 

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