Several
key changes to Gibraltar's personal tax regime
were introduced by Chief Minister, Peter Caruana
in his 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 would 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 that year's budget. The alternative system
is a new Gross Income Based system, in which
the taxpayer receives no allowances, but pays
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
would "very significantly" reduce
the tax payments of around 6,500 local taxpayers,
and would 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 would pay more than 20% income tax; no
taxpayer with income below GBP50,000 would pay
more than 25% income tax; no taxpayer with income
below GBP100,000 would pay more than 27.5% income
tax; and no taxpayer with income below GBP125,000
per annum would pay more than 30% income tax.
Access
to the Gross Income Based alternative was to
be subject to rules to prevent married couples
and others living together from benefiting from
both alternative systems, he announced.
Caruana
also unveiled some amendments to the jurisdiction's'
high-net-worth individual (HNWI) scheme. For
HNWIs this scheme was to remain largely intact
except that with effect from 1 July 2007 the
minimum tax payable would be increased from
GBP14,000 per annum to GBP18,000 per annum and
the taxable income level increased from GBP50,000
to GBP60,000.
Category
3 status was 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
was to rise with effect from 1 July 2007 from
GBP10,000 to GBP15,000 per annum.
A
new category called ‘High Executive Possessing
Specialist Skills’ (HEPSS) was established
for:
Tax
would 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 was 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 was to
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 was reduced
from 42% to 40%.
The
standard tax rate band (on which tax is paid
at 30%) was to be widened by GBP3,000 from the
present GBP4,000 to GBP13,000 to GBP4,000 to
GBP16,000.
As
a result of changes to the low income tax credit
system, no tax would 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, would be extended
to people who earn up to GBP19,500 per annum.
Then
in June 2008, the Chief Minister announced
further cuts in personal income taxation in
his Budget for that year.
These
were mainly aimed at those on lower incomes,
although the top rate of tax for taxpayers
on the Gross Income Based System was also
to be reduced with effect from 1st July 2008
from 40% to 38%.
Under
the measures announced by Caruana, tax payable
by low income earners would be further reduced
by increasing Low Income Earners’ Allowance
with effect from 1st July 2008 as follows:
-
By
GBP880 for taxpayers with incomes below
GBP8000. This meant that people with income
less than GBP7,500 would pay no tax at all.
-
By
GBP300 for taxpayers with incomes between
GBP8,000 and GBP17,500
-
By
GBP250 for taxpayers with incomes between
GBP17,500 and GBP18,500
-
By
GBP150 for taxpayers with incomes between
GBP18,500 and GBP19,500
The
remainder of this page deals primarily with
the Gibraltar personal taxation system prior
to the introduction of the above changes.
Individuals
have traditionally paid quite high taxes on
their income in Gibraltar unless they are able
to take advantage of High Net Worth Individual
status or gain exemption as an expatriate executive.
Import duties are quite high on some items.
However there is no capital gains tax, wealth
tax, or sales taxes.
The
budget announced in July, 2005, contained a
number of changes affecting individual taxation,
including the abolition of tax on savings income
and increases in personal allowances.
In
December 2005, it emerged that an agreement
had been reached between the governments of
Gibraltar and the United Kingdom over the Rock's
obligations under the EU Savings Tax Directive,
which came into force in July of that year.
The
jurisdiction had come under fire from the Channel
Islands, as its legal status in relation to
the UK and European Union meant that the Directive
did not apply to it in quite the same way.
However,
under the deal announced by the UK's then Paymaster
General, Dawn Primarolo and Gibraltar's Chief
Minister, Peter Caruana , Gibraltar and the
UK exchange information about the returns on
savings under the Directive, or, in Gibraltar's
case only, if the savers so choose, impose a
withholding tax on returns on savings of UK
residents with accounts there.
The
rate was set at 15% from April 1 2006 to June
30 2008, following which it was to rise to 20%
for the next three years, and 35% thereafter.
In
a statement released in the summer of 2005,
responding to the Channel Islands' criticism,
the Gibraltar authorities announced that:
"The
Government of Gibraltar notes statements in
the Channel Islands which refer to a 'last minute
problem' and 'an initial difference of views
between the UK and Gibraltar' in the implementation
of the Taxation of Savings Directives between
the UK and Gibraltar and demanding a 'quick
resolution to the problem'. There have even
been calls for UK to 'force' Gibraltar to comply
with the Directive."
"These
remarks are based on lack of familiarity with
the facts. Gibraltar already is within the ambit
of and complies with the Savings Directive.
There has been no 'last minute problem', nor
any difference of views. Nor, as has been said
has 'Gibraltar signed up to the Directive'.
The Directive applies, and has always applied
to Gibraltar as of right and obligation because
Gibraltar is an integral part of the EU. However,
as was stated jointly by the Gibraltar Government
and the UK Government in a joint press statement
issued by them on 1st July 2005, the Directive
does not apply as between the UK and Gibraltar
because we are not separate member states in
relation to each other."
"Nevertheless,
as announced jointly on 1 July 2005 the two
governments are in discussion to agree appropriate
arrangements for exchange of information between
them outside of the legal framework of the Directive,
which does not apply between them. The two Governments
have jointly announced that they are working
together with a view to agreeing such arrangements
during the next few months. Expectations by
ill informed third parties that this should
happen by the end of this month are as inappropriate
as they are unrealistic."
Gibraltar 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 has accommodation there and sets foot
on the territory during the tax year (1st
July to 30th June in the following year).
This is the basis that was applied in the
UK until 1993/94.
Gibraltar introduced 'High
Net-Worth Individual Status' to encourage
wealthy people to live there. A person who
has not been resident in Gibraltar for the
last 5 years may apply for this status, which
limits total tax payable. Expatriate executives
or people with specialist skills may be able
to obtain a similar limitation on total tax
payable.
The
tax treatment of non-resident individuals,
and with attention to category 3 and 4 individuals,
is also described under Offshore Legal and Tax Regimes. (However,
see above for changes to this regime)
Residents
are liable to tax on their world-wide income
with certain exemptions, see below.
Gibraltar Income Tax
Income
tax is charged on eight types of income:
- Gains
or profits from any trade, business, profession
or vocation
- Gains
or profits from employment, including allowances,
perquisites or benefits in kind
- Dividends,
interest, discounts (NB: interest received
from a Gibraltar bank is normally exempt
from tax, by concession)
- Pensions,
charges, annuities, maintenance, alimony
or any payment made to a wife under a court
order or deed of separation
- Rents,
royalties, premiums and any other profits
arising from property
- The
income of any person from the occupation
of premises for residential purposes
- Capital
sums in excess of 25% of the capital value
of the pension received by an individual
on retirement from any approved fund
- Dividends,
interest, or emoluments of office accruing
in, derived from or received in any place
other than Gibraltar by a resident.
No
tax is payable on the business profits of
residents earned abroad and not remitted to
Gibraltar. However there is a provision to
tax 'constructive' overseas income, when a
benefit is obtained in Gibraltar equivalent
to the income.
In
the 2005 budget, tax on savings was abolished;
savings income is defined as:
-
dividends
arising from investments quoted in a recognised
stock exchange;
-
interest paid directly or indirectly –
(i) by banks, building societies or other
financial services institutions licensed
in Gibraltar or in any other recognised
jurisdiction to undertake deposit-taking
or investment business; or
(ii) arising from investments quoted on
a recognised stock exchange; or
(iii) by the Gibraltar Government Savings
Bank.
Tax
is charged on employment income on a current
year basis through a 'PAYE'-style system; other
types of income are assessed on a previous year
basis, with special provisions for the opening
and closing years of a source of income. The
income tax year runs from 1st July to 30th June
in the following year.
There
are allowances for single and married persons,
children, dependent relatives etc. Mortgage
interest and life assurance premiums are deductible,
as are pension contributions and building society
interest (all of these subject to some limits
and conditions).
The
tax allowance for medical and health insurance
premiums was increased from GBP500 pa to GBP1000
pa in 2005.
The
general rates of income tax, as from 2003, were
as follows (however, see above for changes to
these rates put in place by the 2007 budget):
| Income Band, G£ |
Tax Rate, % |
| 0 - 4,000 |
17 |
| 4,001 - 10,000 |
30 |
| 10,001 - 15,000 |
35 |
| 15,001 upwards |
45 |
The
Main Basic Allowances - after changes in the
Budget 2005 - were:
Personal
allowance = £2,578 pa
Allowance for wife = £2,414 pa
First child only = £902 pa
One-parent family = £2,414 pa
Home purchasers allowance = £14,000
Senior citizens’ allowance = £10,000
pa
Child abroad allowance = £1,015 pa
Disability
allowance = £2,500 pa.
Mortgage
interest: 100% is allowed for Gibraltar property
only.
Home purchase one-off allowance on the first
time purchase of a property in Gibraltar = £10,000
NB. Life Insurance premiums are 100% allowed
subject to premiums not exceeding 1/6th of assessable
income or 7% of capital sum assured.
In
December 2005, the Government published a new
Stamp Duties Ordinance implementing the Budget
Measure to abolish stamp duty on all instruments
except those relating to real estate in Gibraltar.
The
Bill maintained the language of the old Ordinance
but deleted provisions no longer applicable.
It also modernised certain aspects of stamp
duty administration.
Gibraltar Social Insurance
There
are two contributory schemes of social insurance,
both of which are offered in return for regular
weekly contributions:
The
Employment Injuries Insurance Scheme provides
cash benefits for: people who are unable to
work (due to an accident at work for example),
people with disabilities, and for widows, widowers
and dependants of industrial casualties.
The
Social Insurance Scheme provides allowances
in the event of widowhood and for guardians
or orphans, payment at childbirth and death,
unemployment benefit and pensions on reaching
pensionable age.
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