Gibraltar: Domestic Corporate Taxation
In Gibraltar there is no capital gains tax, sales tax or VAT. The main tax for companies is corporation tax, and there are withholding taxes; there are also stamp duties on certain transactions, and property taxes ('rates').
Assessment and collection of tax is administered by the Commissioner of Income Tax; the tax year runs from 1st July to the following 30th June.
In July 2002 Gibraltar's Chief Minister, Peter Caruana announced a new corporate taxation policy setting a zero rate of corporation tax for all companies but introducing new taxes on company personnel and property occupation which would be capped at 15% of profits.
However, in April, 2004, the Commission argued that the new rules would give companies domiciled in Gibraltar an unfair advantage over their counterparts in the UK, under a principle known as 'regional selectivity'. The Commission also took issue with the fact that since the taxes were based on payroll and the occupation of business premises, offshore companies registered in Gibraltar would be unlikely to incur any tax liability. The EC therefore rejected the reforms, effectively suggesting that for taxation purposes, Gibraltar should be considered part of the United Kingdom.
Gibraltar dissolved its qualifying companies tax regime in January, 2005, as negotiations continued in Brussels. In a move that cost the Gibraltar government an estimated GIP1.5 million in annual tax revenues, the remaining qualifying companies, of which there were about 80, switched to the 'exempt' companies regime. "Each qualifying company has been dealt with on an individual basis and alternative arrangements made," Caruana added.
Later that month, it was announced that Gibraltar had been given until 2010 (2007 for new companies) to phase out its exempt company tax regime after the European Commission ruled that the scheme violated EU state aid rules.
Major changes to Gibraltar's corporate tax regime were announced in Chief Minister Peter Caruana's June 2007 Budget speech.
Mr Caruana explained that:
"The Tax Exempt Company has been the backbone of the development and growth of both our finance centre and the online gambling industry, and thus a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."
"By mid-2010 the Government will have introduced an across the board flat, low corporate tax rate. This will most probably be set at 10%, but in any event not higher than 12%. This will be similar to arrangements that already exist in Ireland, Cyprus, Malta and other EU Countries."
"In the intervening period, the Government will engage in an intensive, detailed and lengthy process of consultation with the different economic sectors."
"In order to signal the Government’s seriousness of purpose in this respect I am today taking the first step in the process of reducing corporate tax rates in Gibraltar, by 2% for the year of assessment 07/08 from 35% to 33%, and with effect from the year of assessment 2008/09 by a further 3% from 33% to 30%."
"I would also signal the intention of a further reduction the year after that to 27%, in anticipation of the introduction of the flat low tax rate in 2010."
In his budget in June 2008, Peter Caruana announced his intention to bring forward a 3% cut in corporate tax originally scheduled to take place in 2009, meaning that the corporate rate would drop by 6% that year.
"Last year, and in order to signal the Government’s seriousness of purpose in reducing corporate tax rates, I reduced corporate tax rates to 33%, and said that I would reduce it further this year to 30%, with a signalled reduction to 27% next year," Caruana told Parliament in his budget speech.
"In order to further signal the Government’s commitment I am advancing that timetable by one year, and therefore the corporate tax rate is now reduced by 6% from 33% to 27% with effect from this year that is the year of assessment 2008/09," he added.
Caruana explained that he envisaged a further cut in the rate in 2009, before moving to the rate of between 10% and 12% from 2010, adding that: "My strong preference will favour the bottom end of that range."
In his 2009 budget announcement, Caruana outlined the salient features of the new regime, which included:
- A corporate income tax rate of 10% effective from January 1, 2011; this means that the tax rate in respect of the first half of the tax year 2010/11 is 22%, and in respect of the second half of the tax year is 10%. Companies that are presently tax exempt will thus pay tax in respect of the tax year 2010/11 at the rate of 10% in respect of half a year. Companies that are not tax exempt will pay 22% corporate tax in respect of half a year, and at 10% in respect of half a year.
- The preceding year basis of assessment, in effect until December 31, 2011, has been abolished in favour of an actual basis. Commencement provisions have been abolished. There are complex transitional rules;
- The basis of taxation has not changed and will thus continue to be on an accrued and derived basis, effectively what is known as a source based system; and,
- Wide-ranging and far-reaching anti–avoidance provisions.
The Situation in 2010 and beyond
The rate of corporation tax was 22% in 2010. But with effect from January 1, 2011 the new rate of 10% applies to all companies except energy and utility providers who pay a 10% surcharge and thus suffer a rate of 20%. These include electricity, fuel, telephone service and water providers.
A start up rate of 10% applies to all businesses established in Gibraltar after July 1, 2009. Tax is assessed on an actual year basis.