This article gives an overview of taxation in Gibraltar.  It is not meant to replace detailed professional advice which should be sought by all interested parties.

Note
Unless otherwise stated, tax rates and allowances described in this article relate to tax year 2009/2010, based on Budget Measures as announced by the Government in June 2009.  These may require amendment once the corresponding legislation is published.

Benefits of moving to Gibraltar – at a glance

• No Capital Gains Tax, Wealth Tax, Inheritance Tax or Estate Duty;
• No Value Added Tax;
• Certain types of savings income are exempt from tax, principally bank and building society interest, and dividends from listed investments;
• Tax breaks for high net worth individuals and highly paid executives with specialist skills;
• Low corporation tax rate announced for 2011 onwards;
• For licensed gaming operators, Gaming Tax at 1% of turnover, with cap of £425,000.

Background

Gibraltar taxes are generally modelled on those in the United Kingdom.  However, in certain areas Gibraltar enjoys a more liberal fiscal regime.  

Though Gibraltar is a part of the European Union under Article 299(4) of the Treaty of Rome, it is specifically excluded from the regulations concerning the Common Agricultural policy, Value Added Tax and the Common Customs Tariff.

Income tax is charged on most classes of income “accruing in, derived from, or received in Gibraltar”.  The tax year runs until 30 June each year.

Tax Reform

The Government of Gibraltar has announced that it will implement a new low tax regime as from 1 January 2011.  Under the new regime the headline Corporation Tax rate will be reduced to a headline rate of 10%, except for energy and utility providers which will be subject to a rate of 20%.

It is possible that other measures will be announced that would mean a lower effective rate of corporation tax for e-gaming companies, and/or a reduction in Gaming Tax.

Double-Tax Treaties and Exchange of Information

Gibraltar does not have double-tax treaties with any other jurisdiction.  However tax relief is available in respect of income tax paid or payable in other jurisdictions, up to the lower of the tax payable in Gibraltar on that income or the tax suffered in the other jurisdiction.

Gibraltar has signed OECD-style Exchange of Information agreements with thirteen countries to date - Australia, Austria, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Ireland, New Zealand, Portugal, United Kingdom and the United States.
The possibility of entering into agreements with Spain covering both exchange of information and double taxation issues is being explored.

A. Taxation of Companies

General

In general, resident controlled companies are chargeable to Corporation Tax on their worldwide income.

The rate of Corporation Tax on adjusted company profits is currently 22%, to be reduced to 10% in 2011 (20% for energy and utility providers).

Small companies are chargeable to a reduced rate of 20% on taxable profits.  This lower rate applies to companies whose taxable profits do not exceed £35,000 and which derive at least 80% of their turnover from trading.  Marginal relief is applied to trading companies whose profits lie between £35,000 and £44,333.

Start-ups

Businesses starting up after 1 July 2007 (subject to certain conditions) are subject to Corporation Tax at the rate of 10% for tax year 2009/10.

Gaming tax

Gaming tax on remote fixed-odds betting and betting exchanges is currently levied at 1% of turnover.  For internet casinos, tax is levied at 1% of the gaming yield and 1% of rake in the case of poker operators.  In all cases, there is at time of print a minimum tax payable of £85,000 per annum and a cap of tax payable of £425,000 per annum, per licence.

Deductible expenses

Expenses which are wholly and exclusively incurred in the production of income are generally allowable for tax purposes.  Depreciation and amortisation for accounting purposes is not deductible.  However, capital allowances (“wear and tear”) are given for plant and machinery (which includes fixtures, fittings, commercial vehicles) and for computer equipment and programs as follows:

(i) The first £30,000 of “plant and machinery” acquired in a year of assessment is fully deductible within the year;
(ii) The first £50,000 of qualifying capital expenditure on computer equipment and programs is fully deductible within the year;
(iii) The balance of expenditure over the £30,000 and £50,000 limits, respectively, is deductible at the rate of 25% per annum on a straight line basis.

Losses

Losses can be carried forward indefinitely to be offset against future profits, but cannot be carried back against prior year profits.

Dividends, interest and royalties

Dividends paid by Gibraltar companies are not subject to withholding tax.  Such dividends are taxable in the hands of the recipient if this person is ordinarily resident in Gibraltar or is a permitted individual, but not otherwise.

Interest payments by Gibraltar companies are subject to a withholding tax at the standard rate of the recipient (company 22% and individual 30%) unless the situs of the loan on which the interest is paid is outside Gibraltar.  

Gibraltar has implemented the EU Directives on dividends, interest and royalties.  Consequently no taxes or withholding taxes apply on dividends, royalty or interest payments between associated companies within the EU, subject to meeting residency, establishment and minimum shareholdings rules.

Accrued in or derived from Gibraltar

In July 2005 the tax authorities stated that they accept that the precedent created by the Privy Council decisions in Hang Seng1 and HK-TVB2 applies in Gibraltar.

Therefore, it is accepted that where activities which give rise to income take place outside Gibraltar then the income is not subject to Corporation Tax in Gibraltar.  Although some examples of this have been given by the Commissioner of Income Tax, it is necessary to look at the specific circumstances of each case to provide any certainty.  The Commissioner of Income Tax will give advance rulings provided all the facts are put before him.

1.    Commissioner of Inland Revenue v Hang Seng Bank Limited {1990} STC 733

2.    Commissioner of Inland Revenue v HK – TVB International Limited {1992} STC 723

Development Aid

A Development Aid licence entitles a property developer to exemption from income tax in respect of any gains or profits from the relevant development until aggregate net gains first exceed the approved portion of qualifying expenditure on the project.  In addition, the profits of the concern may be distributed to the beneficial owners free of any taxes up to the amount granted under the licence.

II.    Non-resident Controlled Companies

Non resident owned and controlled companies incorporated in Gibraltar which do not trade, or earn income in Gibraltar are not liable to Corporation Tax.

III.    Exempt Companies

Exempt companies are those registered under the Companies (Taxation and Concessions) Act.  Such companies are entitled to exemption from Gibraltar corporation tax, with a fixed annual tax of £450 being payable by the company.

Exempt company status is being phased out, with no new applications are being accepted.  Remaining exempt companies may still benefit from this status until the end of 2010, provided there is no change in beneficial ownership or control.

B.    Taxation of individuals

General

A person is chargeable to income tax on income after deduction of all expenses which are wholly and exclusively incurred in the production of that income.

Certain types of savings income are exempt from tax, principally bank and building society interest, and dividends from listed investments.  There is no Capital Gains Tax, Wealth Tax, Inheritance Tax or Estate Duty in Gibraltar.

There are tax breaks for high net worth individuals and highly paid executives with specialist skills – see below.

Basis of taxation

Taxpayers may opt to be taxed under either:

•    The Allowance Based system, or
•    The Gross Income Based system.

Allowance Based System

Under the traditional allowance based system a persons’ income is reduced by various allowances to arrive at taxable income.  The tax rates below are then applied to the taxable income to calculate the tax payable.

Gross Income Based system

No allowances or reliefs are granted.  However, the tax rates are lower, as shown below.  

(a)    Persons on gross income up to £16,000

(b)    Persons on gross income between £16,000 and £25,000

Gross income between:

£16,001 - £17,000        Tax at 0% on first £5,000 and 20% on balance
£17,001 - £18,000        Tax at 0% on first £4,000 and 20% on balance
£18,001 - £19,000        Tax at 0% on first £3,000 and 20% on balance
£19,001 - £20,000        Tax at 0% on first £2,000 and 20% on balance
£20,001 - £25,000        Tax at 0% on first £1,000 and 20% on balance

(c)    Persons on gross income over £25,000

High Net Worth (“Category 2”) Individuals

Individuals who successfully obtain a Category 2 Individual certificate are liable to a minimum charge of £20,000 and an effective maximum tax charge 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 during 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”)

HEPPS individuals are subject to tax under the Gross Income Based system (see below) on the first £100,000 per annum of income only, effectively restricting the tax charge per annum to £26,750.

The individual must 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.  Existing “REPPS” individuals (see below) who earn more than £100,000 may apply to transfer to this category.

Relocated Executives Possessing Specialist Skills (“REPPS”)

These categories, which are also known as “Category 3” and “Category 4” Individuals have been abolished for new entrants.  Existing REPPS can retain their certificates until the later of expiry of their certificate or 30 June 2009.  REPPS who earn more than £100,000 may migrate to the new HEPPS category described above.

Residence

An individual is regarded as being resident in Gibraltar if he resides in Gibraltar except for “temporary absences which are considered reasonable by the Commissioner of Income Tax” (ie. generally if he/she resides in Gibraltar for more than six months in the year). 

Residents

A resident is chargeable to income tax on worldwide income, with certain exceptions.  As mentioned above, qualifying savings income is exempt from tax, and there is no capital gains tax.

Non-residents (excluding “Permitted Individuals”)

A non-resident is chargeable to income tax on income accruing in, derived from or received in Gibraltar.  As well as types of income generally exempt from tax in Gibraltar, the following exemptions apply to non-residents:

a)    income from ownership, chartering or operation of a ship;
b)    income arising outside Gibraltar, but received in Gibraltar;
c)    dividends received from a Gibraltar company.

Non-residents (other than British subjects) are not entitled to claim any personal reliefs, nor are they entitled to the reduced rate on the first £4,000 of assessable income.

Permitted Individuals

Permitted Individuals are non-resident persons who carry on a trade, business, vocation or employment in Gibraltar.  They are entitled to claim allowances applicable to a resident, with the exception of property-related allowances and those for children educated abroad.  Allowances (except for life assurance) are reduced for each complete calendar month in which the trade, business vocation or employment is not carried out in Gibraltar.  

Permitted individuals are liable for taxation on their Gibraltar income only.

Trusts

The income received by any trust or beneficiary under a trust is exempt from taxation provided:-

(a) it is created by or on behalf of a non-resident of Gibraltar (other than a category 2 individual); and
(b) residents of Gibraltar (other than category 2 individuals) are expressly excluded as beneficiaries either specifically or under the discretionary powers of the trustees

The capital of a trust is not liable to tax in Gibraltar.