| In
this Section:
- GIBRALTAR FORMS OF OFFSHORE OPERATION
- GIBRALTAR TAX TREATMENT
OF OFFSHORE OPERATIONS
- GIBRALTAR TAX
TREATMENT OF FOREIGN EMPLOYEES OF OFFSHORE OPERATIONS
- GIBRALTAR HIGH
NET-WORTH INDIVIDUALS
- GIBRALTAR OFFSHORE
ACTIVITIES
- GIBRALTAR EMPLOYMENT
AND RESIDENCE
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.
The
term 'offshore' is not used in Gibraltar legislation
or in describing company forms. The main forms
useful for offshore operations in Gibraltar
are the Exempt Company (but see above for changes
to this corporate form), the Qualifying Company
(abolished), the Gibraltar 1992 Company and
the Trust. Non-resident companies also escape
taxation on foreign income.
In July, 2002, Gibraltar's Chief Minister, Peter
Caruana announced the territory's 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 will be capped at 15% of profits.
The
existing corporate forms which allowed zero
taxation, the Exempt and Qualifying companies,
were to be abolished.
The
new taxes, which were originally intended to
come into force from 1st January 2003, were:
-
A
“Company Payroll Tax” (similar to
what exists in Bermuda and elsewhere) will
be introduced in respect of employees in Gibraltar.
This will be charged at 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 will
be introduced in respect of property occupied
in Gibraltar by companies for business purposes.
In addition, all companies will 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
current annual return fees.
-
In addition, and subject to EU clearance under
State Aid Rules, two sectors of the economy
only will pay a new tax on profit. The sectors
are financial services providers and utility
companies. The intended rate of profits tax
for financial services providers is 8%, and
will be subject, aggregated to the other taxes,
to a maximum cap of 15% of profit.
Since
the taxes were capped at 15%, local companies
which paid 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 are 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. This apparently means that Exempt
and Qualifying companies will be allowed to
continue in existence alongside the new tax
regime, pending a judicial resolution.
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 are 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
in the 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
government of Gibraltar welcomed the European
Commission's approval of the Exempt Company
Status Agreement as an acceptable compromise.
Peter Caruana observed that:
"Given
the hostility to any such agreement by powerful
sections of the EU Commission, and the extremely
tough and difficult negotiation that has been
required, this represents a reasonably good
arrangement which avoids the worst consequences
for Gibraltar. It is an excellent agreement
which delivers absolute legal certainty to exempt
companies compared to what the position would
be if we had not reached any agreement."
He
went on to add: "This agreement does not deliver
everything that we wanted, but it avoids the
worst consequences and enables the Finance Centre,
and other sectors of the economy to continue
while the European Court rules in the regional
selectivity case. We have thus been able to
avoid the worst case scenario which would have
required us to close the exempt status regime
and not be able to replace it with anything
competitive for the Finance Centre and other
businesses."
The remainder of this section describes
the offshore tax regime as it existed historically.
Gibraltar Forms
of Offshore Operation
Offshore
operations may take place within the following
forms:
Click on
the appropriate form for details of its legal
basis in Forms of Company.
Gibraltar Tax Treatment of
Offshore Operations
See
Domestic Corporate Taxes for the general principles
of Gibraltar corporate taxation, which also apply
to offshore entities except as indicated below.
Offshore
Gibraltar companies are taxed as follows:
Gibraltar Taxation of Foreign
Employees of Offshore Operations
In
addition to the corporate tax changes mentioned
above, several key changes to Gibraltar's personal
tax regime were also introduced in the June
2007 Budget:
Acknowledging
Gibraltar's relatively high headline rates of
income tax, Chief Minister Peter Caruana announced
a dual income tax system and changes to the
high-net-worth individual (HNWI) scheme designed
to make the tax system more attractive to expat
workers employed in the jurisdiction's finance
industry.
"Our
tax system has very high ‘headline’
rates of taxation, but these are reduced to
lower ‘effective’ rates by a generous
system of tax allowances, the main ones of which
are mortgage interest relief, life insurance
premium relief, child allowances etc. This is
all very well, but taxpayers who cannot benefit
from these allowances because they are single,
have no mortgage, no children or no life insurance
are left to pay the very high ‘headline’
rates" Caruana told parliament in his budget
speech.
"This
is harsh on affected local residents, as well
as being a disincentive for location in Gibraltar
for companies that need to recruit specialist
skills from abroad," he observed.
To
remedy this, Caruana announced that from 1 July
2007, every taxpayer will be able to choose
for each tax year between two systems to pay
tax, and to choose the one that results in the
lower tax payment, either of which can be paid
through the PAYE system.
The
first system is the existing Allowance Based
System under current tax rates, which were reduced
in this year's budget. The alternative system
is a new Gross Income Based system, in which
the taxpayer will receive no allowances, but
will pay tax on gross income at the following
rates: 20% on the first GBP25,000; 30% on the
next GBP75,000; 40% above GBP100,000.
Caruana
said that the new Gross Income Based alternative
will "very significantly" reduce the
tax payments of around 6,500 local taxpayers,
and will substantially redress the balance of
taxation between those who enjoy certain allowances
and those who do not. As a result, no taxpayer
with income below GBP25,000 per annum will pay
more than 20% income tax; no taxpayer with income
below GBP50,000 will pay more than 25% income
tax; no taxpayer with income below GBP100,000
will pay more than 27.5% income tax; and no
taxpayer with income below GBP125,000 per annum
will pay more than 30% income tax.
Access
to the Gross Income Based alternative will be
subject to rules to prevent married couples
and others living together from benefiting from
both alternative systems.
Caruana
also announced some amendments to the jurisdiction's'
high-net-worth individual (HNWI) scheme. For
HNWIs this scheme will remain largely intact
except that with effect from 1 July 2007 the
minimum tax payable is increased from GBP14,000
per annum to GBP18,000 per annum and the taxable
income level is increased from GBP50,000 to
GBP60,000.
Category
3 status is abolished for new entrants. Existing
Category 3 holders will be able to retain that
status until expiry of their current certificate
or for two years until 30 June 2009, whichever
is the longer. However, the amount of tax payable
rises with effect from 1 July 2007 from GBP10,000
to GBP15,000 per annum.
A
new category called ‘High Executive Possessing
Specialist Skills’ (HEPSS) will be established
for:
-
Existing
Category three holders who earn more the GBP100,000
per annum;
-
New
applicants who possess skills not available
in Gibraltar and, in the Government’s
opinion, necessary to promote and sustain
economic activity of particular economic value
to Gibraltar, who will occupy a high executive
or senior management position, and who will
earn more than GBP100,000 per annum of income
in Gibraltar.
Tax
will be payable only on the first GBP100,000
per annum of income under the dual choice tax
system. New applicants may not have been resident
in Gibraltar for any part of the period of three
years immediately preceding the application.
Category
4 Status is abolished for new entrants with
effect from 1 July 2007. Existing holders may
retain the status until the end of the current
certificate or 30 June 2009, whichever is the
longer. However, minimum tax payable will increase
with effect from 1 July 2007 from GBP5,000 per
annum to GBP7,500 per annum.
Caruana
also announced rate cuts in the ordinary income
tax system. The top rate of tax is reduced from
42% to 40%. The reduction in the top rate will
thus have been reduced from 50% to 40% over
the last 10 years.
The
standard tax rate band (on which tax is paid
at 30%) will be widened by GBP3,000 from the
present GBP4,000 to GBP13,000 to GBP4,000 to
GBP16,000. This measure will benefit 7,000 taxpayers,
who will see the tax rate on the first GBP3,000
of taxable income after GBP13,000 reduced by
12% from 42% to 30% or by GBP120 per GBP1,000.
As
a result of changes to the low income tax credit
system, no tax will be payable by anyone with
income below GBP7,000 per annum. Caruana also
announced that the principle of tax cuts targeted
to the lower paid, currently limited to people
who earn less than GBP8,000, will be extended
to people who earn up to GBP19,500 per annum.
The
remainder of this section details the personal
tax regime in for expat workers as it existed
prior to the introduction of the 2007 changes.
There
are no special rules applying generally to the
foreign or Gibraltarian employees of offshore
operations, who will pay tax according to the
normal rules if they are resident in Gibraltar
(see Personal Taxation);
however there are some special arrangements for
expatriate executives and other workers with specialist
skills.
Subject
to various conditions, such an individual who
works for an exempt or qualifying company can
apply to the Financial and Development Secretary
for a certificate which limits their annual tax
bill to G£10,000, regardless of income.
A qualifying individual is known as a Category
3 Individual.
A
comparable scheme exists for specially skilled
individuals working for other types of company,
limiting tax to £5,000 if income is up to
£50,000, or £10,000 otherwise. Such
individuals are known as Category 4 individuals.
BACK TO TOP
Gibraltar High Net-Worth Individuals
The
Gibraltar government, wanting to encourage wealthy
individuals to establish residences there, introduced
a special taxation regime for 'High Net-Worth
Individuals' (HNWI) conforming to the following
guidelines (they are not all statutory):
- The
person must not have been a resident of Gibraltar
in the 5 years preceding an application to be
an HNWI;
- The
person must have a residence available for his
exclusive use for at least 7 months during the
tax year for which he wishes to be treated as
an HNWI;
- The
person and his family must have adequate medical
insurance;
- The
person must have sufficient means to maintain
himself and his family; however, a declaration
of world-wide wealth is not required;
- The
person must 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 a Qualifying or Exempt Company.
An
individual with HNWI status have traditionally
paid tax according to the following table (however,
see above for changes to these rates introduced
in 2007):
| Taxable
Income Band, G£ |
Tax
Payable, % |
| 0
- 7,000 |
30 |
| 7,001
- 12,500 |
35 |
| 12,501
- 15,500 |
40 |
| 15,501
- 19,000 |
45 |
| 19,001
- 45,000 |
50 |
There
is no capital gains tax in Gibraltar, and an HNWI
is also exempt from Estate Duty.
An
application for HNWI status is made to the Financial
and Development Secretary under the Qualifying
(High Net Worth Individual) Rules of the Income
Tax Ordinance. There is a G£500 non-refundable
application fee (GBP1,000 as from July, 2004),
and the application must be accompanied by two
references, one from a banker.
Tax
status certificates, which previously had no expiry
date, will now be issued for a period of three
years. However, there will be no need to reapply
as a fresh certificate will be issued once the
authorities receive a declaration from the individual
that they are compliant with the tax rules.
BACK TO TOP
Gibraltar Offshore Activities
High
Net-Worth Individuals are permitted to hold shares
in an exempt company or a qualifying company,
and to hold deposits in Gibraltar banks; income
from these sources is only taxable (for the company)
if paid to the HNWI for his own use in Gibraltar.
BACK TO TOP
Gibraltar Employment and Residence
There
are no special privileges for the employees of
non-resident or offshore entities in Gibraltar,
but see above for the rules regarding High Net-Worth Individuals and
Expatriate Executives. See also Personal Taxation
- Residence and Liability for Taxation.
For taxation purposes, an individual is either resident
or non-resident, and nationality is not a factor
in determining tax status. An individual is considered
resident in Gibraltar if he resides there for
more than 183 days in any one tax year (1st July
to 30th June in the following year).
A non-resident individual will be taxed
on income derived from, accrued in or received
in Gibraltar; however payments from exempt or
qualifying companies are tax-exempt, as is bank
interest. Withholding taxes will be charged on
payments from other Gibraltar companies, at 30%
for an individual.
Property
bought by a non-resident may be owned by an individual
applicant or joint applicants, or alternatively,
in the name of a company of which the applicant
is the 100 per cent beneficial owner and over
which he/she has full and effective control. In
fact there are tax advantages if the property
is purchased through a Gibraltar company. It is
not essential that the property be purchased prior
to approval of an application. However, the property
to be purchased must be stated before an agreement
will be entered into between the applicant and
the vendor of the property so that on payment
of a refundable deposit the property would be
reserved for the applicant until the application
is considered by the Government. Once the application
is approved the applicant, on completion of the
purchase of the property, will obtain a permit
of residence.
A
permit is renewable after a specified term providing
the requirements are met and the property is owned
by the applicant. The holder of a residence permit
need not live in Gibraltar and is not automatically
entitled to social security or citizenship. However,
the resident's children may attend local schools
and are entitled to the same benefits as other
local residents.
If
a non-EU national wishes to stay in Gibraltar
other than through the property 'doorway', he
must try to find employment, for which he will
receive a work permit only if there are no Gibraltarians
able and willing to perform it. Such individuals
will be given residence permits for shorter or
longer periods depending on the nature of the
work for which they have a permit. The government
can deny a non-EU national the possibility of
buying residential property.
Non-Gibraltarians
need work permits, issued under the Control of
Employment Ordinance. A work permit cannot be
refused to an EU national.
BACK TO TOP
|
