IOM Tax Solutions
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Personal Allowances for Non-resident Individuals
The personal allowance was withdrawn from 6 April 2010. An individual receiving Manx income but who is not resident in the Isle of Man will be entitled to a personal allowance . This allowance will be deducted from an individuals total income from all Manx sources when calculating their taxable income for a year of assessment. Individuals who become resident or who cease residence in a year of assessment will have their resident and non-resident personal allowances apportioned appropriately.
Married couples who are resident in the Island have the option of joint or independent taxation; that option does not apply to married couples who are non-resident. If a non-resident married couple receive income jointly from a source in the Isle of Man, each is liable to tax on their share of the income and each is entitled to the non-resident personal allowance. Non-residents receiving Manx source income, e.g. rent or pension payments, will be required to complete an income tax return form, which will be issued on 6 April each year and will cover the tax year ending on the previous 5 April. Details of all IOM source income received must be included on the return, and the return form must be submitted to the Income Tax Division by the following 6 October or a £100 penalty will be applied.
Limit on Income Tax Chargeable
Non-resident income tax is due only on Manx source income. Some types of income are subject to deduction of tax at source, whereas others are paid gross, without deduction of tax at source. For example: Manx rents are subject to withholding tax at 18%, whilst bank interest from approved institutions in the Isle of Man is paid gross without deduction of tax. Note that the rate of tax applied to Non residents increases to 20% with effect from 6 April 2010.
Tax charged on the Manx income of a non-resident individual is subject to a limit defined as the sum of (in both cases ignoring the personal allowance):
the tax that would be due on Manx income reduced by any excluded income, and
tax deducted at source from any excluded income.
A list of excluded income sources is shown below. The effect of applying this limit will be that a non-resident individual will pay no more income tax on excluded income sources than that deducted at source before the income is received. Taking dividends as an example, in 2006/2007 the amount of tax withheld by the paying company will correspond with the rate of tax charged on the companys profit.
Excluded income sources are as follows:-
Dividends paid by a company incorporated under the Companies Acts 1931 to 2004 or registered under Part XI of the Companies Act 1931.
Deposit interest- paid by a banking institution within the meaning of the Banking Act 1998.
Interest or dividends paid by a building society- authorised under section 2 or 4A of the Building Societies Act 1986.
Interest or dividends paid by the Isle of Man Government in respect of bonds issued under the Isle of Man Loans Act 1974.
Interest or dividends paid by a local authority in respect of securities issued under section 50 of the Local Government Act 1985.
Income from social security benefits that are chargeable to income tax under section 48.
National insurance retirement pension paid by the Department of Health and Social Security.
Other interest payments paid by a company incorporated under the Companies Acts 1931 to 2004 or registered under Part XI of the Companies Act 1931.
Other Remuneration paid by a company incorporated under the Isle of Man Companies Acts or registered under part XI of the Companies Act 1931, to a company director for services performed outside the Isle of Man, or in order to carry out statutory functions or attend board meetings within the Island shall be excluded for the purpose of section 11A (2) of the Act.
Income included in a Treasury order that is approved by Tynwald.
European Union Savings Directive (EUSD)
On 1 July 2005 the Island introduced measures equivalent to those adopted by European Union Member States dealing with the Taxation of Savings Income. To support the adoption of equivalent measures the Assessor has issued a separate Practice Note, PN118/05, giving guidance on the application of the measures in the Isle of Man. Whilst the income subject to the Savings Directive is Manx income, the way in which it is taxed in the Isle of Man does not affect the application of the Directive. Retention tax may be deducted from interest even where the recipient has no liability to income tax in the Isle of Man.
Payments to Non-residents
If an individual or company is making payments (e.g rent or interest payments) to an individual or company which is resident outside the Isle of Man, then the payer is required to deduct non-resident tax from the payment. For payments of rent made to a company, the tax applied is 10%, for payments to all other persons, the rate is 18%. When the Division first becomes aware that a person is making payments to a non-resident, they will be issued with the following:
· N15 Notice to Deduct Tax. This is an instruction to deduct tax from all future payments.
· N13 Certificate of Non-Resident Tax Deducted. This is for the payer to record the gross payment, i.e. rent, the amount of tax deducted and the total amount paid. This is sent to the recipient along with the balance of funds, as evidence of tax deducted.
· N35 Remittance Card. This is sent to the tax office, along with the tax payment, within 14 days of payment being made.
· N37 - Annual return. This is to be completed at the tax year end detailing all payments made in the year.
Treated as a non-resident individual providing that:
· the period spent in the Isle of Man is not expected to exceed six months in total
· Visits have not exceeded three months in each of the last four tax years
· No form of permanent home is available for your use
· you agree to ask your employer to submit a form T20 as soon as your period(s) of employment extends beyond six months. If your period of employment does extend beyond six months, you will then be classed as a resident individual and will pay Manx income tax accordingly.
Tax on Earnings
Please note that the Non resident allowance has been withdrawn at 6 April 2010. As a non-resident you will have a personal allowance so you can earn up to this amount without paying income tax; the balance of your earnings will be subject to tax at the rate of 20%.
Non-resident workers who are married are not entitled to opt for joint taxation with their spouse. If a non-resident married couple are both employed in the Isle of Man, then both parties are entitled to a non-resident personal allowance and will be liable to pay tax on the balance of their earnings. Your employer should keep a record of all wages paid and all benefits received during your time in employment. These details will then be declared when they submit their tax return at the end of the tax year. Non-resident individuals will also be required to complete a non-resident return form when leaving the island.