Country Name: Republic of the Marshall Islands (RMI)
Currency: United States Dollar (USD)
Primary Tax Authority: Marshall Islands Revenue and Taxation Office
Key Legislation:
- Income Tax Act
- Business Profits Tax Act
- Import Duties Act
- Corporate Regulation Act
Fiscal Authority Allocation
Centralized Fiscal System:
The Marshall Islands operates a centralized tax system. The Marshall Islands Revenue and Taxation Office is responsible for collecting taxes, including personal income tax (PIT), business profits tax (BPT), and import duties. Local governments do not have taxing authority.
Corporate Income Tax (CIT) / Business Profits Tax (BPT)
Standard Rate: 3% on Gross Revenue
The Marshall Islands does not impose a traditional corporate income tax. Instead, it levies a Business Profits Tax (BPT) on all resident companies and permanent establishments of foreign entities. The BPT is set at 3% of gross revenue.
Corporate Forms and Taxation:
- Domestic Companies: Taxed under the BPT system at 3% of gross revenue.
- Foreign Branches: Taxed at the same 3% BPT on Marshall Islands-sourced gross revenue.
Exemptions and Incentives:
- Investment Incentives: The Marshall Islands offers tax holidays, reduced import duties, and other incentives to encourage investment in sectors such as tourism, fisheries, and infrastructure development.
- Offshore Financial Sector: Companies registered under the International Business Companies (IBC) regime are exempt from Marshall Islands taxes if they do not conduct business within the jurisdiction.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
No GST or VAT:
The Marshall Islands does not impose a goods and services tax (GST) or value-added tax (VAT). Instead, the government relies on business taxes and import duties as its main sources of revenue.
Personal Income Tax (PIT)
Progressive Rates:
The Marshall Islands imposes a personal income tax (PIT) on income earned from employment within the country. The rates are as follows:
- Up to USD 10,400: 8%
- Above USD 10,400: 12%
Exemptions:
Certain government and aid-related income may be exempt from personal income tax.
Additional Mandatory Contributions
Social Security Contributions:
Employers and employees are required to contribute to the Marshall Islands Social Security Fund, which provides pensions and social benefits.
- Employer Contribution: 7% of gross salary.
- Employee Contribution: 7% of gross salary.
Withholding Taxes
- Dividends: No withholding tax on dividends.
- Interest: No withholding tax on interest.
- Royalties: No withholding tax on royalties.
There are no withholding taxes on dividends, interest, or royalties in the Marshall Islands.
Transfer Pricing Rules
The Marshall Islands does not have formal transfer pricing regulations. However, the government expects transactions between related parties to follow the arm’s-length principle, consistent with international best practices.
Special Tax Regimes
- International Business Companies (IBC): The Marshall Islands is a popular jurisdiction for registering IBCs, which are exempt from all local taxes provided they do not conduct business in the Marshall Islands. IBCs are typically used for offshore financial services, asset management, and international business activities.
- Shipping Industry: The Marshall Islands operates one of the world’s largest ship registries. Shipowners and operators can register their vessels under the Marshall Islands flag and benefit from tax exemptions on international shipping income, as long as no business is conducted within the RMI.
Other Taxes
- Customs Duties: Import duties are levied on goods brought into the Marshall Islands. Rates vary by product type but are typically between 5% and 15%. Essential goods such as food and medical supplies often benefit from lower rates or exemptions.
- Excise Taxes: Excise duties are imposed on specific goods, including alcohol, tobacco, and fuel.
Double Taxation Agreements (DTAs)
The Marshall Islands has no double taxation agreements (DTAs) with other countries. As a result, income earned from cross-border activities may be subject to taxation under the respective tax rules of the other jurisdictions involved.
Local Taxes
Local governments in the Marshall Islands do not have authority to impose taxes. All major taxes, including BPT, PIT, and import duties, are centrally managed by the Marshall Islands Revenue and Taxation Office.
Compliance and Reporting
Annual Filing:
Businesses in the Marshall Islands are required to file their business profits tax returns annually. Personal income tax returns must also be filed by March 31st of the following tax year.
Penalties for Late Filing:
Penalties for non-compliance or late filing include interest on overdue taxes and fines. The interest rate on unpaid taxes is typically set at 1.5% per month.
Recent Developments
Sustainability and Fisheries:
The Marshall Islands is actively promoting sustainable fishing practices and has introduced tax incentives for companies engaged in fisheries and ocean management. These incentives include customs duty exemptions and reduced tax rates for fishing companies investing in sustainable practices.
Offshore Financial Services:
The Marshall Islands continues to be a major player in the offshore financial services industry, particularly in the registration of International Business Companies (IBCs) and shipping vessels. The IBC regime remains an attractive option for international businesses due to its tax-neutral status.
Climate Resilience and Infrastructure:
As one of the countries most vulnerable to climate change, the Marshall Islands is focused on attracting investment in renewable energy and climate-resilient infrastructure. Companies investing in solar, wind, and other renewable energy projects may qualify for tax incentives, including customs duty exemptions on imported equipment.
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