Isle of Man Economic Substance Rules now extends to Partnerships and LLC’s following Tynwald’s approval of The Income Tax (Substance Requirements) Order 2021 on 16 June 2021.
By way of a recap, the Isle of Man approved legislation in December 2018 to introduce substance tests on Isle of Man resident companies within certain business sectors. We have included a link to our article ‘Isle of Man Economic Substance Rules’ which provides further background to the economic substance rules currently in play in the Isle of Man here.
Tynwald, parliament of the Isle of Man, approved The Income Tax (Substance Requirements) Order 2021 (the “Order”) on 16 June 2021 which extends the scope of the economic substance rules (which are contained within Part 6A of the Income Tax Act 1970) to capture partnerships (whether registered in or outside of the Isle of Man), limited partnerships and limited liability companies. The extended rules will apply to accounting periods commencing on or after 1 July 2021.
Partnerships (whether registered in or outside of the Isle of Man) will be caught if they are resident in the Isle of Man and derive revenue from any relevant sector. The residence of a partnership or limited liability company will be determined by its place of “effective management”. Whilst revised guidance has not yet been issued by Isle of Man Assessor of Income Tax, it is likely to be considered at the place where key management and commercial decisions are made.
Limited liability companies will be treated as Isle of Man resident unless its place of effective management is in a jurisdiction which imposes the same economic substance test or where the highest rate that may be charged to tax on any part of its profits is at least 15%.
Collective investment schemes (other than ‘self-managed schemes’), partnerships where the partners are individuals and subject to personal income tax and partnerships that are not part of a multinational group and carry out all of its activities on the Isle of Man fall outside of the scope of the economic substance rules.
The Order also introduces civil penalties for late filings of partnership tax returns and a registration requirement for certain foreign or general partnerships that carry out business activities in the Isle of Man. A partnership caught by the economic substance rules that fails to meet the test in a single financial period can be fined up to £10,000, increasing in stages of up to £150,000 for each additional period.
For further assistance or any queries on the expanded economic substance rules, please do not hesitate to contact Kirsten Middleton.
