On 8 May 2009, the Isle of Man concluded a treaty for the avoidance of double taxation with Estonia. The treaty generally follows the OECD Model Tax Convention and, to the Isle of Man Government’s credit, it is a first of its kind for any of British international finance centres.

The treaty affords exemption relief for the taxing of any income received by a resident (i.e. a person liable to tax) in one of the counterparty jurisdictions provided it has already been subject to taxation by the other counterparty jurisdiction. Specifically, article 21 of the treaty provides that Estonia will exempt 50% of the income received by an Estonian resident from the Isle of Man.

This is the case even if that income was effectively exempt from tax in the Isle of Man. The treaty also limits withholding taxes on dividends, interest and royalties to 0% and, given that Estonia is a member state of the European Union, and currently has an existing network of double taxation agreements with some 38 other territories, this now makes the Isle of Man an attractive tax neutral location for founding vehicles or structures to hold beneficial interests in international corporate groups, investments and intellectual property rights.

The treaty was ratified by Tynwald, the Isle of Man’s legislature, on 16th June 2009 and, having been provisionally approved by the Estonian Ministry of Finance at the beginning of October 2009, it now only awaits ratification by the Estonian parliament, the Riigikogu, for it to come into full reciprocal operation.

Current indications are that this pending ratification may be given prior to the end of the calendar year. Clearly this new and currently unique treaty gives rise to any number of tax planning opportunities for professional advisors and their prospective clients, be they either private individuals or corporations.

Abacus has already established contacts, and will be regularly travelling to meet with representatives of a number of leading international firms operating from Tallinn in Estonia.

Consequently, we are very well positioned to offer the broadest possible spectrum of tax planning and compliance solutions to prospective clients once the treaty comes into effect.

If you have any comments, questions or would like further details of the services Abacus can offer to clients wishing to make use of the new treaty, please do not hesitate contact Bryan Moyer at our Isle of Man offices (bryan.moyer@abacusiom.com).