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 originally to have been
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.
Further
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
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.
