Isle of Man
Relief is given in calculating the taxable profit of a company if the expense is incurred in the normal course of the business and is incurred wholly and exclusively for business purposes. However, certain expenses that are deducted in the computation of profits are not allowable for tax purposes. These include depreciation, unpaid but accrued pension and bonus payments, certain lease payments, and customer entertainment costs.
Depreciation charged in accounts in not allowable for tax purposes. Instead, relief for depreciation is given using 'capital allowances' based on a reducing-balance method. Plant and machinery, tourist premises, industrial buildings, commercial buildings within a designated area, fish processing buildings, and agricultural buildings and works have an initial allowance of 100%. There are restrictions on allowances for expensive motorcars.
Isle of Man government grants are not taken into account in determining the amount of expenditure on which allowances may be given.
Tax depreciation is not required to conform to book depreciation.
Upon disposal, allowances will be reclaimed on the sale proceeds, restricted to cost.
No relief is given against trading profits for the purchase of goodwill.
Start-up expenses incurred in the three years prior to the commencement of trading, which would have been deductible as a trading expense if incurred after the commencement of trading, are treated as a loss arising in the year trading commenced, and relief for these losses can be claimed, subject to the normal loss-relief rules.
Interest paid to lenders subject to Isle of Man tax is allowable in full. Interest paid to lenders not subject to Isle of Man taxation is allowable if it is incurred in the normal course of the business and is wholly and exclusively for business purposes. Only interest charged at a reasonable commercial rate will be allowed as a deduction.
Relief against trading profits is only available in respect of specific bad debts. General provisions are not allowable.
Broadly, trading companies are able to claim a deduction for donations made to charities, subject to a maximum of IMP 15,000 or 1% of their taxable income, whichever is greater.
Fines and penalties
No relief is available for any payments made in respect of fines or penalties, whether related to income tax compliance or otherwise.
Business rates, as detailed under Local income taxes in the Taxes on corporate income section, are deductible when calculating net taxable profit.
Net operating losses
Losses can be carried forward indefinitely against future profits from the same trade.
Trading losses incurred may be carried back against preceding year profits. There are additional rules that apply in the opening years of trade. Terminal losses in the last year of trade can be carried back against profits for the previous three years.
Payments to foreign affiliates
There is no formal transfer pricing regime in the Isle of Man, and payments made to foreign affiliates, such as royalties, management charges, and service fees, are deductible under normal principles. If, however, the Assessor of Income Tax is of the opinion that the main purpose, or one of the main purposes, of any transaction is the avoidance or reduction of tax liability, assessments may be made to counteract that avoidance or reduction.
For details of WHTs, please see the Withholding taxes section.