Isle of Man: Guidance on tax treatment of dividends from domestic companies

The tax authority published Guidance Note 49 [PDF 1.2 MB] regarding the tax treatment of dividends that specifically provides that the tax liability of an Isle of Man resident shareholder on the receipt of dividends from an Isle of Man company can be fully or partially offset by tax credits when the profits out of which they have been paid have already been subject to tax. To obtain this concessional treatment a company must file a “reserves analysis” with its annual tax return.

In addition, the tax authority released Practice Note 224/24 [PDF 531 KB] amending the concessional treatment of the amounts currently contained within “Box 2“ of these reserves analyses (i.e., profits that arose in the 2005/2006 tax year or earlier and were subject to tax in the Isle of Man at a rate of at least 10%).

• Concessional treatment for these profits was previously only accessible if the company had fully distributed its “Box 1” reserves (i.e., those reserves with no tax credits attaching to them). 
• The practice note introduces transitional provisions that permit a company to distribute Box 2 reserves in priority to the Box 1 reserves as long as they are distributed between 29 February 2024 and 5 April 2025 (inclusive). However, such treatment is only available to the extent that a company has accounting reserves in excess of its Box 1 reserves.
• Any Box 2 reserves that have not been distributed prior to 6 April 2025 will be transferred into Box 1 and any tax credits attaching to such reserves will be lost.

Read a March 2024 report prepared by the KPMG member firm on the Isle of Man