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IOM publishes ‘economic substance’ legislation

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The Isle of Man government has published draft legislation imposing requirements on Isle of Man resident companies undertaking specific activities to demonstrate that they have sufficient substance in the Isle of Man to access the island’s corporate tax regime.

The Income Tax (Substance Requirements) Order 2018 is designed to meet the high-level commitment made by the IOM government in November 2017, to address the EU code of conduct group’s concerns that some IOM tax-resident companies do not have sufficient substance in that territory.

The legislation is intended to apply with effect from 1 January 2019 and apply to IOM resident companies with accounting periods commencing on or after 1 January 2019 that undertake ‘relevant activities’. This covers nine sectors: banking; insurance; shipping; fund management; financing and leasing; headquartering; operation of a holding company holding intangible property; and distribution and services centre business.

Companies that carry out relevant activities will be required to demonstrate that they:

  • are directed and managed in the IOM;
  • carry on core income generating activities in the IOM; and
  • have adequate staff, expenditure and physical premises in the IOM proportionate to the level of the relevant activity carried on there.

Penalties for the first year of non-compliance will be up to a maximum of £10,000 (£50,000 for high risk IP companies), rising to £100,000 for subsequent years of non-compliance.

Where a company meets the definition of a ‘high risk IP company’ the economic substance tests will be assumed not to be met.

IOM Treasury Minister, Alf Cannan, said: ‘In 2017 the EU code of conduct group confirmed the Isle of Man as a cooperative jurisdiction, but did identify possible concerns, to which we made clear commitments to address. This is an important piece of legislation that needs to be enacted by 31 December 2018 to ensure that the Isle of Man meets this high-level commitment made last year and remains fully compliant with international tax standards’.


The Isle of Man follows Jersey and Guernsey, whose governments published draft legislation in October. A joint guidance document ‘Key aspects in relation to proposed economic substance requirements, as issued by Guernsey, Isle of Man and Jersey’ (see was published on 5 November.

Issue: 1422
Categories: News , International taxes