Gibraltar Domestic Corporate Taxation

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 of a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."

"In order to comply with EU law we must phase out the tax exempt company in 2010. However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model."

Since it is no longer legally acceptable to have one tax model for ‘local’ companies and a different one for ‘foreign’ companies it is necessary to have a low tax system for all companies because
without a low tax system for overseas companies they will leave, and our economy
will suffer hugely. Thousands of jobs would be lost, as well as significant Government revenue. I have therefore already said, and I reaffirm now, that the Gibraltar Government is irrevocably committed to the principle of ‘low tax’ for our economic operators."

"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."

The following section deals with the corporate tax regime as it stands prior to the entry into force of the Budget 2007 changes.

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.

The new taxes (put in place in 2003), were:

A “Company Payroll Tax” (similar to what exists in Bermuda and elsewhere), introduced in respect of employees in Gibraltar and charged as a sum per annum per employee. This payroll tax is a tax on the company and is payable by the company only.
A new Business Property Occupation Tax was introduced in respect of property occupied in Gibraltar by companies for business purposes.
In addition, all companies pay an annual companies registration fee of £300 p.a. (if the company has income) or £150 (if the company has no income) inclusive of annual return fees.

In addition, and subject to EU clearance, two sectors of the economy only were to pay a new tax on profit. The sectors were financial services providers and utility companies.

Since the taxes were capped at 15%, local companies which used to pay 20% or 35% profits tax would be better off, while 'offshore' companies would be worse off only if they employed staff or occupy premises locally. Many companies, particularly those used to hold Spanish property interests, do neither.

In March, 2003, the EU's Council of Finance Ministers confirmed that the reforms did not constitute harmful tax measures. 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.

Chief Minister, Peter Caruana slammed the EC for suggesting that the jurisdiction is fiscally part of the United Kingdom, pointing to its 1969 constitution, which gives the territory fiscal autonomy. The United Kingdom government is said to be “100% on-side” regarding the ‘regional selectivity’ debate, and Gibraltar is challenging the EC's view at the European Court of Justice. The issue will take years to resolve, and meanwhile Brussels officials seem to have agreed that the existing situation (confusing as it is) may be allowed to continue.

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 £1.5 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.

The remainder of this page primarily deals with the corporate tax regime as it stood historically.

Gibraltar Scope Of Corporation Tax

Corporation (income) tax was levied under the Companies (Taxation and Concessions) Ordinance. Ordinarily resident companies pay income tax on their worldwide income. As applied to a company, 'ordinarily resident' means:

a company the management and control of whose business is exercised in Gibraltar; or
a company which carries on business in Gibraltar and the management and control of which is exercised outside Gibraltar by persons ordinarily resident there within the meaning of the Ordinance; or
in the case of an investment company (ie whose income mainly arises other than from the gains or profits derived from any trade, business or employment), which is domiciled anywhere outside Gibraltar, where control of the company, through shares or voting powers, is exercised by persons ordinarily resident in Gibraltar.

A non-resident company was defined as: a company which is incorporated in Gibraltar (whether or not exempt), owned by non-residents of Gibraltar and managed and controlled by directors who reside and hold board meetings outside Gibraltar.

A non-resident company paid Gibraltar corporation tax only on its income derived from or remitted to Gibraltar.

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Gibraltar Corporate Tax Rates

Taxable profits were charged with corporation tax at 35%. From the 1999/2000 tax year there was a scale of lower rates between 20% and 35% for companies with profits between £35,000 or less and £105,000, providing 80% of turnover is from trading activity. (See Offshore Tax Regimes for further details of the duty and taxes payable by non-resident and exempt companies, and 'qualifying' companies.)

Gibraltar Calculation of Taxable Base

For companies, corporation tax is normally assessed for income arising in the previous fiscal year.

Allowable expenditure needs to be incurred 'wholly and exclusively' for the business; however, mixed private/company expenses can often be apportioned.

The rules for depreciation of business assets were as follows:

for fixtures and fittings, plant and machinery acquired after 30/6/87: 15% on the reducing balance;
ditto, acquired before 30/6/87: 25% on the reducing balance;
office machinery: 20% on the reducing balance;
industrial buildings: 4% of cost per annum;
ships: 10% of cost per annum;
capital payments for leasehold premises: over the period of the lease, up to 12 years maximum.

Disposal proceeds above w.d.v. count as taxable income, but balancing allowances are available if new, cheaper equipment replaces obsolescent equipment.

Losses can be carried forward indefinitely, but not backwards. There are opening and closing year rules, except for 'qualifying' companies, which are assessed on an actual, not previous year basis. The EU's Fourth and Seventh Directives are being incorporated into Gibraltar law during 2000, and will presumably apply to company and group accounting as from the next tax year.

Although Gibraltar has no double tax treaties, relief is given in respect of UK tax paid on income also chargeable in Gibraltar, and to a lesser extent on similar Commonwealth tax. By concession, other foreign tax paid on remitted income is allowed as a deduction.

Under the EU Parent/Subsidiary Directive 90/435, a Gibraltar company holding more than 25% of the shares of another normally-taxable EU company does not pay tax on dividends received; similarly a tax-paying Gibraltar company holding more than 25% of the shares of another EU company does not have to deduct withholding tax on dividends paid to that other company. Qualifying and tax-exempt companies are not covered by this rule; but see Gibraltar 1992 Companies in Offshore Tax Regimes for details of the special rules allowing 1% withholding taxes.

Companies in receipt of Development Aid, or active in Tax-Deductible Property Zones may be entitled to further allowances.

In the 2005 budget, Gibraltar extended unilateral tax relief provisions to all countries.

There is a gaming tax set at 3%; in the 2005 budget the cap on the gaming tax was increased to £425,000 with the minimum payable remaining at 20% of the cap figure.

Gibraltar Taxation of Trusts

Trust income is exempt from tax under the Income Tax (Allowances, Deductions and Exemptions) Rules 1992 if:

the trust is created by or on behalf of a non-resident person; and
the income either accrues or is derived outside Gibraltar, or in the case of income received by a trust would, if it had been received directly by the beneficiary, not be liable to tax under the Income Tax Ordinance; and
except in the case of a trust created before 1/7/83, the terms of the trust expressly exclude residents of Gibraltar (as beneficiaries).

NB: Interest income received from a Gibraltar bank is normally exempt from taxation.

Gibraltar Filing Requirements and Payment of Tax

Assessments are issued by the Commissioner of Income Tax; 50% of the tax payable is due within three months of the issue of the assessment, and the remainder within six months, or by 30th April in the year of assessment, whichever is the later.

Gibraltar Withholding Tax

Resident companies must deduct withholding tax at 35% from dividends paid out; if the tax deducted is more than the company's mainstream tax bill, the excess is payable; if the tax deducted is less than the company's mainstream tax bill, the difference is carried forward and set off against any future excess.

Interest payments made by a company in respect of a mortgage, debenture or loan of a capital nature, payments made to non-residents for management consultancy or similar services, and royalty payments are subject to the deduction of tax at the standard rate applicable to the recipient, ie 30% for individuals and 35% for companies.

NB Withholding tax arrangements have changed under the new corporate taxation regime implemented from 2003.

In Gibraltar's 2005 budget, the following changes were made:

Taxation was abolished on dividends paid by one Gibraltar Company to another Gibraltar Company;
Taxation was abolished on dividends and interest paid by a Company to a non resident recipient;
The requirement to withold tax from dividends in accordance with Section 39 of the Income Tax Ordinance was abolished.

See Offshore Tax Regimes for details of the withholding tax regime applicable to qualifying, tax-exempt and Gibraltar 1992 companies.