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 (which were to be put in place
in 2003, but see below), 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 would
be a tax on the company and payable
by the company only.
-
A new Business Property Occupation Tax,
introduced in respect of property occupied
in Gibraltar by companies for business
purposes.
-
In addition, all companies would 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 to be capped at 15%, local
companies which used to pay 20% or 35% profits
tax would have been 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.
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.
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."
In
December 2008, the European Court of First
Instance ruled in favour of Gibraltar, stating
that the European Commission was wrong to
argue that the tax reforms proposed in 2002/03
were in breach of state aid rules, and effectively
giving the jurisdiction licence to set its
own tax rules.
The
Court dismissed the EU Commission’s
case, and stated that although the UK is
representative of Gibraltar, Gibraltar does,
however, have fiscal autonomy from the UK,
and therefore can introduce its own individual
tax system (the aforementioned 10-12% corporation
tax).
In
a statement to the press at the time, Peter
Caruana, Gibraltar's Chief Minister, said
he was "overjoyed" by the outcome.
"The
Court has found in Gibraltar’s favour
and has accepted our arguments on each and
every issue, relating both to regional selectivity
and material selectivity, and has ordered
the commission to pay the Gibraltar government’s
legal costs.”
“This
needs to be clearly understood. Had Gibraltar
lost the Regional Selectivity case, we would
have had to adopt the UK’s company
tax system and company tax rates. That would
result in the bulk, if not all, of the finance
centre and gambling companies leaving Gibraltar.
That would have meant the loss of thousands
of jobs throughout our economy, and a very
large fall in government revenue. This in
turn would have rendered unsustainable our
current level of public services and public
sector employment.”
“This
is a huge and vital victory for Gibraltar.
A threat to our economic, social, and thus
political well-being, has, once again, been
successfully seen off. I believe that the
economy of Gibraltar now has the opportunity
to forge ahead to the next level of growth
and development, to fulfil its great potential
and thus to guarantee that we shall bequeath
economic and social prosperity and stability
to our children, grand children and future
generations. “
”Once
again, this small community has demonstrated
that, when right is on our side, and we
hold our nerve and we behave reasonably
and intelligently, we have the ability and
determination to defend our rights and interests
as a people, even when they are challenged
by more powerful entities and forces.”
”On
behalf of the people of Gibraltar, I wish
to thank all those companies in the financial
services and gambling sectors and other
sectors of the economy that have had the
faith and confidence in us to stay with
Gibraltar during these difficult and uncertain
times.”
“The
threat that Gibraltar has faced cannot be
understated, nor therefore, can the importance
of this victory to Gibraltar and its people
and our future.”
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 next year, 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."
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.)
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Gibraltar
Calculation of Taxable Base
For
companies, corporation tax was 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 obsolete
equipment.
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.
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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.
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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 generally deduct withholding
tax at the standard rate 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.
In
Gibraltar's 2005 budget, the following
changes were made:
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