Relationship with UK & EU
The Isle of Man operates a value added tax (VAT) regime which is essentially identical to, and interlinked with, that of the UK.
VAT in the Isle of Man is levied at the same UK standard rate, currently 20%.
By virtue of the Customs and Excise Agreement with the UK the Isle of Man has the benefit of being regarded as part of the European Single Market for Customs and Excise purposes, such that transactions involving the Isle of Man are treated by EU Member States as if they involved the United Kingdom (UK).
In addition, through the Agreement with the UK the Island has secured specific reduced 5% VAT rates (not available in the UK) for repairs and maintenance of domestic accommodation for its citizens and on hotel/bed and breakfast accommodation for visitors to the Island. These complement the existing IOM/UK lower rates for social benefit including zero rates for food, certain charitable activities, children’s clothing and written media amongst others.
Businesses trading in the Isle of Man, or in both jurisdictions, may apply to register for VAT in the Isle of Man providing that they can show that day to day management and control of the business is effected from the Island. For example by showing that all record-keeping, bank accounts, premises, directors, invoicing and administration take place in the Isle of Man.
Once VAT-registered, any Isle of Man business is subject to the normal UK/EU VAT rules.
Isle of Man businesses trading outside UK/EU
For Isle of Man businesses that are trading outside the UK and Isle of Man, their trading would normally be outside the scope of UK and Isle of Man VAT, and so they would not be required to register in either territory unless they wished to do so on a voluntary basis - usually in order to recover any VAT they may incur (for example on fees from lawyers, company administrators, etc).