Isle of Man unveils 0% business tax rate

The Isle of Man today unveiled plans to cut its business tax to zero by the end of 2005 in response to the EU's efforts to eliminate harmful corporate tax competition and to boost investment.

The decision will cost the Isle of Man ?22m a year, but the government believes that the loss will be offset by an influx of businesses and a fee that will be charged on companies regulated by the island's financial supervision commission and the insurance and pensions authority.

The move is a response to the trend for companies to "outsource" low-skill jobs to economies such as India, said Treasury minister Allan Bell. The plans received a cautious welcome from the UK government, which said that they appeared to comply with the EU's code of conduct on business tax.

Mr Bell denied that the move would turn the island into a tax haven for tax dodgers, insisting that it would promote the development of high-skill employment.

"The Isle of Man is most definitely not a tax haven," he said. "We are certainly a low-tax area, but ... we are a fully transparent jurisdiction which doesn't have the sort of secrecy that tax havens are known for.

"We have such a strong regulatory regime on the island at the moment. I don't believe we will attract the wrong sort of company. We are looking for high value-added jobs of good quality, of integrity, which will help us to re-structure the economy and enhance the reputation of the Isle of Man."

The island currently has a business tax of 15%, which is being reduced over the next four years. By December 2005 at the latest, the rate will fall to zero across the board for all trading companies.

"It is also an opportunity for the Isle of Man to restructure its own economy," Mr Bell said. "We recognise there is going to be a loss of jobs through outsourcing to India and places like that, so we are now using the tax mechanism to stimulate new business on the island to replace those jobs."

Financial services are the island's biggest earner. A breakdown of the gross national product for 1998-99 showed finance maintaining its established position as the island's main sector, with a 42% share of total income.

The island's chamber of commerce said earlier this year: "There are, quite simply, too many internationally acceptable competitor jurisdictions around the world who do not levy direct tax for us to be competitive at even a 10% tax rate."