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

Depreciation charged in the accounts is not deductible for Isle of Man tax purposes. Instead, relief is available through the capital allowances regime. Qualifying expenditure on plant and machinery, tourist premises, industrial buildings and structures, agricultural buildings and certain other qualifying assets may qualify for a 100% first-year allowance. Where applicable, further relief may be available through annual writing-down allowances. Specific restrictions apply to motor vehicles, particularly higher-value cars.

Upon disposal, allowances will be reclaimed on the sale proceeds, restricted to cost.

Goodwill

No relief is given against trading profits for the purchase of goodwill.

Start-up expenses

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 expenses

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.

Bad debt

Relief against trading profits is only available in respect of specific bad debts. General provisions are not allowable.

Charitable contributions

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.

Taxes

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.