Below we set out how the use of an Isle of Man company could save up to £3,000 per year by taking advantage of the UK – IoM double tax treaty.
From 1 April 2023 the headline rate of UK corporation tax increased from 19% to 25%. For UK resident companies with profits below £50,000, a lower rate of 19% is generally applicable, with a sliding scale for profits between £50,000 and £250,000.
Generally speaking offshore companies cannot benefit from these lower rates of tax and therefore an overseas company earning £50,000 of UK profit (for example because it has a UK property rental business) will now pay £3,000 more tax than an equivalent UK company.
However, this is not the whole story, because tax treaties can ‘trump’ the normal rules.
UK-Isle of Man Tax treaty
Article 24 of this treaty broadly sets out that an Isle of Man company should not suffer a worse tax position than would be the case for a UK company in the same position. In practice this means that Isle of Man companies can benefit from lower UK corporation tax rates in appropriate circumstances, and old HMRC guidance supports this position.
Andco’s view
This is an important reminder about the value of registering a company in a jurisdiction with a good treaty network. Although we consider corporation tax rates above, the principle can be applied to any scenario where the general rules seek to prejudice an offshore company in some way. This may be more relevant now that the UK has left the EU and is no longer restrained by ‘overseas friendly’ EU tax rules.
Some offshore jurisdictions (such as the Bahamas, British Virgin Islands and Cayman Islands) do not have these same treaty advantages and so companies in these jurisdictions will be made to suffer extra tax on UK profits.
We would encourage clients who own UK property through other offshore jurisdictions to review their tax liability on any UK profits.
Please contact us for further information on how we can help facilitate a re-domiciliation of foreign companies to the Isle of Man, which could save up to £3,000 per annum in corporation tax.