a. Introduction

The principal tax statute is the Income Tax Act. There is no capital gains tax, 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, derived 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 accruing 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 judgment 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.

As part of the 2009 Gibraltar budget, the government announced measures that will ensure that Gibraltar continues to have a competitive corporate tax system. These measures have recently been included in the Gibraltar tax legislation through the Rates of Tax Rules 2009.

ii. Rates and incentives

For individuals, there is a choice of income tax systems.

Band of taxable income (GBP) Tax percentage

Gross income 16,000 or less

0 – 10,000 10

10,001 – 16,000 20

Gross income 16,001 – 25,000

Income 16,001 – 17,000

First 5,000 0

Remaining 11,001 – 12,000 20

Income 17,001 – 18,000

First 4,000 0

Remaining 13,001 – 14,000 20

Income 18,001 – 19,000

First 3,000 0

Remaining 15,001 – 16,000 20

Income 19,001 – 20,000

First 2,000 0

Remaining 17,001 – 18,000 20

Income 20,001 – 25,000

First 1,000 0

Remaining 19,001 – 24,000 20

Gross income more than 25,000

0 – 25,000 20

25,001 – 100,000 29

Over 100,000 35

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 has been introduced.

There is a 10 per cent corporation tax rate for new companies from 1 July 2009, subject to conditions. There is also an opportunity for businesses that commenced after 1 July 2007 to benefit from this new rate from 1 July 2009, subject to conditions and anti-avoidance legislation.

 The corporation tax rate is reduced from 27 per cent to 22 per cent with effect from 1 July 2009 for companies that have previously been paying corporation tax. A small company’s rate of 20 per cent applies to companies whose taxable profits do not exceed GBP35,000 and which derive at least 80 per cent of their turnover from trading. Marginal relief is applied to trading companies whose profit is between GBP35,000 and GBP44,333.

There will be a 10 per cent corporation tax rate for existing companies (including current tax-exempt companies whose tax-exempt status will cease on 31 December 2010) from 1 January 2011.

The preceding year basis of tax assessment is abolished in favour of an actual basis.

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.

c. International

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 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 GBP70,000. Annual tax liability is between a maximum of GBP25,880 and a minimum of GBP20,000. 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 26.75 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

The exempt company status is being phased out and all existing exempt companies will lose their exempt status on 31 December 2010. If an existing exempt company changes its activity or ownership before then it will immediately lose its exempt status.

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.

viii. TIEAs

As at 18 May 2010 Gibraltar had signed 18 agreements to allow the exchange of information on tax matters between countries. The majority of the TIEAs commenced as of 28 January 2010. Gibraltar is on the OECD ‘white list’.

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 values between GBP160,000 and GBP 250,000, at 1.6 per cent on values between GBP250,000 and GBP 350,000, and 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 and, apart from certain limited categories, are liable to pay social security contributions at specified rates.


Article Search

© 2012 Society of Trust & Estate Practitioners