Taxes in Gibraltar, Taxation in Gibraltar, Taxes system in Gibraltar
The principal tax statute is the Income Tax Act. There is no capital gains tax, no inheritance tax, wealth tax or VAT.
b. Tax system
i. General concepts of tax liability
Individuals are subject to income tax in Gibraltar on income accruing in, deriving from or received in Gibraltar. An ordinarily resident individual is also generally liable to income tax in respect of dividends, interest, pension or emoluments of office from non-Gibraltar sources. Nonetheless, certain exemptions from tax apply for bank and building society interest, dividends from quoted companies, dividends paid to non-residents and foreign taxed income not remitted to Gibraltar.
Gibraltar-resident companies similarly pay income tax on income that is accrued in, derived from or received in Gibraltar after deduction of normal business expenses incurred wholly and exclusively in the production of that income. Whether income is taxable or not requires an examination of what a company has done to earn the profits and where the company has done so. This ‘territorial’ basis of taxation means that Gibraltar companies trading internationally may achieve a low effective tax rate.
On 18 December 2008 the ECJ finally gave its long awaited judgement concerning Gibraltar. The ECJ annulled in its entirety the European Commission’s decision, which claimed that the proposed reform of corporate tax (in fact income tax for companies) in Gibraltar constituted unlawful State Aid.
In its judgment, the ECJ confirmed that Gibraltar is indeed free to introduce a new harmonised tax system, which differs from the UK’s, as always argued by these parties. The Gibraltar government is therefore continuing with its plans to introduce a new tax regime for companies, which will be compliant with the European Union Code of Conduct for Business Taxation. The legislation necessary to implement the new, low-rate corporate tax system will be finalised by 1 July 2009, with the new system beginning on 1 July 2010. The new rate of tax for companies is anticipated to be 10 per cent.
ii. Rates and incentives
For individuals, there is a choice of income tax systems.
1. An allowance-based system under which various deductions and personal allowances are allowed against assessable income, and the rate of income tax applied to taxable income ranges from 17 per cent to 40 per cent.
2. A flat rate system under which no deductions or allowances are available with tax of 20 per cent on the first GBP25,000, 30 per cent on the next GBP75,000 and 38 per cent above GBP100,000. The flat rate system generally favours ‘frontier workers’, i.e. those who work in Gibraltar but live in Spain.
For pensioners aged 60 or over, income received from a Gibraltar approved pension is taxed at the rate of 0 per cent. In addition, there is no taxation of lump sums. Residents who have accrued pension rights overseas (e.g. the UK) may be able to transfer these rights to an approved Gibraltar pension scheme. In addition, new legislation for Personal Pension Schemes is being introduced.
For companies, the standard rate of tax for 2008/09 is 27 per cent. A lower rate of 20 per cent applies to trading companies with adjusted profits of not more than GBP35,000. Marginal relief applies for profits between GBP35,000 and GBP105,000. A new low flat corporate tax rate is anticipated to come into effect by 1 July 2010, which is targeted at 10 per cent. This will coincide with the end of the tax-exempt regime. In the meantime it is envisaged that the standard rate of tax will fall from 27 per cent for 2009/10.
No withholding tax is to be deducted from dividends or royalties paid by companies, and no tax is payable on inter-company dividends between Gibraltar companies.
iii. Filing requirements
The Gibraltar income tax year runs from 1 July to 30 June.
The Companies (Accounts) Act and Companies (Consolidated Accounts) Act have implemented the Fourth and Seventh EU Company Law Directives under which companies incorporated in Gibraltar are required to file accounting information annually. The amount of disclosure depends on the classification of the company, as determined by level of turnover, net asset value and number of employees. Private companies must file accounts within 13 months of their accounting date; a PLC has to file within ten months. Fixed penalties may apply to late filing.
i. Non-resident individuals
Non-residents are liable to tax on taxable income accruing in, derived from or received in Gibraltar, with certain exemptions.
Except for ‘permitted individuals’ (see ii. below), non-residents are not generally eligible for personal allowances and deductions.
In the normal course of business, employers are required to withhold taxes from salaries paid to employed individuals. A dispensation alleviating this withholding obligation, and indeed the income tax liability for the employee, may be possible where the salary is being paid to a non-resident for duties performed wholly outside of Gibraltar.
ii. Permitted individuals
Permitted individuals are non-resident persons who carry on, exercise or undertake in Gibraltar a trade, business, vocation or employment. They may, with certain exceptions, claim Gibraltar personal allowances. Permitted individuals are not required to disclose income accruing, derived or received outside Gibraltar. They are, however, taxed on Gibraltar dividend income, unlike non-residents.
iii. Qualifying individuals
1) Qualifying individuals
A person not ordinarily resident or domiciled in Gibraltar who has no income derived from Gibraltar other than from a tax exempt company may apply for this status and pay tax on worldwide income at an agreed rate of not less than 2 per cent. The maximum tax charged for each tax year is, however, capped at GBP20,000.
2) Qualifying (Category 2) individuals
An individual who satisfies certain criteria may be granted qualifying (Category 2) individual status and treated as a resident of Gibraltar for tax purposes.
An application will be considered by reference to personal and financial factors. The applicant must have a net wealth exceeding GBP2 million in order to satisfy the financial requirements. Approved residential accommodation in Gibraltar (bought or rented) must be available to the applicant for personal use for the whole of the year of assessment (or for the remaining part of the year of application).The individual must not have been resident in Gibraltar or engaged in any trade, business or employment in Gibraltar in any of the previous five tax years. Certain duties are excepted.
While Category 2 resident, the individual must not generally engage in any trade, business or employment in Gibraltar. There are, however, exceptions to this and in September 2008 government guidance was issued. This was timely given the current phasing out of the tax exempt status regime for Gibraltar companies and it recognises the growing trend of entrepreneurial high-net-worth-individuals who wish to establish themselves in Gibraltar and yet still carry out important economic activity.
Category 2 individuals pay tax by reference to the allowances-based system in Gibraltar, with their tax capped at a taxable income level of GBP60,000. Annual tax liability is between a maximum of GBP21,880 and a minimum of GBP18,000. In the first and last years of assessment, the minimum tax payable is pro-rated for each month (or part) for which the certificate is in force.
3) Qualifying (Categories 3 and 4) individuals
These regimes are now closed to new entrants, but existing holders still had the option to retain their status until the later of expiry of their current certificate or 30 June 2009.
4) High Executive Possessing Specialist Skills (HEPPS)
This status is for people with specialist skills of exceptional economic value to Gibraltar, earning more than GBP100,000 per annum. Tax liability is limited to that based on the first GBP100,000 calculated under the gross-based system so resulting in an effective tax rate of 27.5 per cent or less. Similar to the Category 2 status, a HEPPS individual must retain suitable approved accommodation in Gibraltar (either bought or rented).
iv. Exempt companies
From 1 July 2006, it is no longer possible to register a company as an exempt company, and exempt company status is being phased out, ending on 31 December 2010. If an existing exempt company changes its activity or ownership it will immediately lose its exempt status.
The exempt company is, subject to an annual fee of GBP450, exempt from tax in Gibraltar and pays no tax on fees, dividends, interest and annual payments to non-residents and non-Gibraltarians, and no stamp duty on a transfer of its issued share capital.
v. Gaming companies
Gaming tax (capped at GBP425,000) is chargeable at 1 per cent of online casino gaming yield or online betting, with a minimum payable of 20 per cent of the cap.
vi. Tax treaties
There are no double tax agreements in force between Gibraltar and any other country; however, unilateral tax relief is available to companies in respect of foreign taxes paid by them.
vii. EU tax directives
As it is required, Gibraltar has transposed all relevant EU law into local law, meaning that Gibraltar companies may benefit from tax directives including the Parent & Subsidiary, Interest & Royalty and Mergers & Acquisitions directives.
On 31 March 2009, the United States and Gibraltar signed an agreement to allow the exchange of information on tax matters between the two countries. The TIEA is the first of its kind for Gibraltar and should come into force for tax years beginning after 2008. Gibraltar is committed to signing more to meet OECD standards.
d. Taxation of trusts
Trusts that are settled by or on behalf of a non-Gibraltar resident or by a Category 2 resident, which make provision in the trust deed to exclude Gibraltarians and residents of Gibraltar (other than Category 2 residents who have a valid certificate at the date the trust is settled) from being beneficiaries of the trust, benefit from the exemption of the trust income from Gibraltar income tax, even if the trustees are resident in Gibraltar.
e. Taxation of estates
There is no wealth tax, inheritance tax, death tax or estate duty in Gibraltar, and accordingly there is no tax to pay in Gibraltar on an estate, otherwise than in respect of certain income arising to the estate of a Gibraltarian or resident of Gibraltar.
f. Stamp duties
Stamp duty is charged under the Stamp Duties Act only on share and loan capital transactions at a fixed GBP10 and on real estate at rates of 1.26 per cent on value exceeding GBP160,000, or 1.6 per cent on value exceeding GBP250,000, or 2.5 per cent on value exceeding GBP350,000.
g. Social insurance
Those over the age of 15 employed in Gibraltar, whether resident in Gibraltar or not, are subject to the social security legislation, but for certain limited categories are liable to pay social security contributions at specified rates.
Result of the Chief Minister’s budget speech on the 3 June 2008.
6% reduction in the rate of corporation tax from 33% to 27%.•
2% reduction in the top rate of tax on the Gross Income Based • system from 40% to 38%.
Mortgage interest relief on new mortgages will be limited to loans • up to a maximum of L300,000. Existing mortgage loans in excess of this amount will be grandfathered, and borrowers will continue to enjoy interest relief on the loan in excess of L300,000 while that loan continues to be secured on the current property and in the name of the current borrower. There will be a 1/10th reduction per year from the sum of the loan over and above L300,000 that is eligible for relief until the eligible loan is reduced to L300,000.
Life insurance premiums tax relief to be capped at 1/7th of Income • instead of 1/6th as it previously was. Tax relief on premiums from policies acquired as from 3 June 2008 will be at the basic rate (currently 17%). Policies acquired prior to 3 June 2008 will continue to attract relief at the tax payer’s marginal rate provided there has been no change in either the value, term or premium.
Social Insurance contributions maximum cap to rise by 10%. • Minimum contributions remain unchanged.
Working pensioners exempted from tax on first L20,000 of earnings.•
Proprietary directors and shareholders may participate in approved • company pension schemes and contributions to personal pension schemes to be tax deductible.
All sex discrimination eliminated from tax legislation.•
Tax Facts 2008/2009
Who is liable to taxation in Gibraltar?
Income tax is charged on income accruing in, derived from or received in Gibraltar. It is also charged on income with the exception of certain categories, accruing in, derived from or received in any place other than Gibraltar by any person ordinarily resident in Gibraltar. Ordinarily resident, means an individual who, irrespective of whether such individual is domiciled in Gibraltar or otherwise, resides in Gibraltar for more than 183 days a year. An individual who is a British subject or citizen of the Republic of Ireland who is employed in Gibraltar and resides in the surrounding area is also considered ordinarily resident.
Gibraltar has introduced a number of tax incentives which allow certain categories of resident individuals to limit the total tax payable in any tax year, subject to certain criteria been met (see page 9).
A company will be considered resident in Gibraltar if the management and control of its business is exercised from Gibraltar.
The location of central management and control will be established with legal principles laid down in the United Kingdom and is the place of the highest form of control and direction over a company’s affairs, as opposed to decisions on the day-to-day running of the business.
Tax year and basis of assessment
Tax is charged for the year of assessment (running from the 1 July in one calendar year to 30 June in the next) on the basis of the income of the preceding year except for income from employment which is charged on the basis of the income for that year.