Gibraltar offers various fiscal incentives which make the territory an attractive place from which to do business.
A flat rate of 10% Corporate Tax rate came into effect on 1 January 2011 for all companies except energy and utility providers, which are subject to a further 10% surcharge.
In certain cases, income earned outside Gibraltar is not subject to Gibraltar Corporation Tax.
Qualifying (Category 2) Individuals
Individuals who have obtained a Category 2 Individual certificate are subject to a special tax regime. They are liable to a minimum charge of £20,000 and an effective maximum of £26,000 for a full tax year. Such individuals must have approved residential accommodation in Gibraltar available for their exclusive use and that of their families, but must not have been resident in or engaged in trade, business or employment in Gibraltar suring the preceding five years.
Category 2 individuals may not engage in a trade, business or employment in Gibraltar other than duties which are incidental to any trade business or employment based outside Gibraltar or duties as a director of an Exempt Company.
High Executives Possessing Specialist Skills (HEPPS)
With effect from 1 July 2007 a new category has been established for individuals who possess skills not available locally and which are of particular economic value to Gibraltar, who will occupy a high executive or senior management position, and who will earn more than £100,000 per annum in Gibraltar. The individuals must have approved accommodation available for their use in Gibraltar and should not have been resident locally during the previous three years. HEPPS individuals are subject to tax under the Gross Income Based system (see below) on the first £100,000 per annum of income only. Existing Category 3 individuals who earn more than £100,000 may apply to transfer to this category.
The concept of the trust is familiar to finance centre professionals and widely used. The income received by a trust, or beneficiary under a trust formed in Gibraltar is exempt from taxation provided it is created by or on behalf of a non-resident of Gibraltar, residents of Gibraltar are excluded as beneficiaries and the income is derived from outside Gibraltar. Additionally, the trust continues to be tax-exempt even if it earns interest on local bank deposits or income from exempt companies.
Since Gibraltar has no wealth or gift taxes or estate duty or other capital taxes, the capital of the trust is likewise not liable to Gibraltar tax.
Asset Protection Trusts
This type of trust is designed to protect the assets of a settlor from issues like political strife, forced repatriation, confiscatory taxes, exchange controls and, most recently, risks associated with litigation arising out of malpractice or negligence suits. Such a trust may be invaded by a creditor of the settlor should it be shown that transfers into the trust lacked legal propriety. It is this matter of legal propriety which has a long and complicated history in Anglo-Saxon common law jurisdictions dating back to the Statute of Elizabeth (the Fraudulent Conveyances Act 1571). Gibraltar has sought to reduce the uncertainties when determining propriety by shifting the focus from the subjective test of intent contained in the above statute to the objective test of solvency contained in the Bankruptcy Ordinance, s42A.
This higher degree of certainty makes Gibraltar a favourable location for setting up Asset Protection Trusts.
The Gibraltar government is keen to encourage inward investment particularly in those areas which will generate significant job opportunities for the local workforce. There is a wide range of fiscal and financial incentives as shown below:
Government of Gibraltar Financial Assistance
Under the Government’s Enterprise Initiative businesses may benefit from a comprehensive range of assistance to help both start-up and expanding businesses. The Government has introduced three schemes offering financial assistance, brief details of which are given below:
European Union Funds
European Union funding has been a major source of finance for economic regeneration in Gibraltar in recent years. Gibraltar has been entitled to support through the European Regional Development Fund (ERDF) (for business development, tourism, technology transfer and infrastructure projects) and the European Social Fund (ESF) (for training and retraining projects). Gibraltar currently participates in the Objective 2007-2013 EU Programme.
Gibraltar also benefits from funding under the European Social Fund which primarily targets development of training activities and development of skills. The present Structural Fund Programmes focus mainly on employment and skills issues and will support projects to increase competitiveness, employment and skills and encourage diversification and use of new technology Both the ERDF and ESF will operate within the Competitiveness and Employment Objective which is where Gibraltar becomes eligible.
Under the present programme Gibraltar has been allocated €5.8 million with an equivalent amount contributed by Government. Therefore monies available under the objective amount to €11.6 million.
Wholesaling, retailing, financial services and mobile investments are areas of business activity not eligible for funding.
The Development Aid Act provides that licenses may be granted for certain development projects. Applications for a Development Aid license must be made to the Development Aid Advisory Committee which is headed by the Minister for Trade and Industry. If the application is successful and a Development Aid license is granted, the Development Aid Advisory Committee will determine what portion (in percentage terms) of the total qualifying capital expenditure is available for tax relief. The percentage reflects the perceived economic and social benefits that the project will bring to Gibraltar.
Tax relief on Capital Expenditure
The Development Aid license entitles the developer to exemption from corporation tax in respect of any gains or profits from the relevant development until aggregate gains less losses first exceed the approved portion of capital expenditure on the project.
The profits of the concern may also be distributed to the beneficial owners free of any taxes up to the amount granted under the licence.
Interest received on loans made to any person for the purposes of a development project to which Development Aid applies is exempt from income tax, provided the terms and conditions of the loan have been approved by the Minister responsible for Trade and Industry.
In addition, occupiers of property relating to a project which has been granted a Development Aid licence are automatically entitled to relief on the rates payable. This takes the form of an allowance in percentage terms) of the amount which would normally be payable.