Income Tax
The taxation of income of companies and individuals is governed by the Income Tax Act. Income tax is charged on most classes of income accruing in, derived from or received in Gibraltar. The year of assessment runs from 1 July in any year to 30 June of the next year. Taxation in any year of assessment is normally levied on income derived from the preceding year except in the case of income from employment that is subject to deduction on an actual basis via a pay-as-you-earn system.
There are currently no double-tax treaties in force between Gibraltar and any other country. However, tax relief is available in respect of income tax paid or payable in another jurisdiction and chargeable to Gibraltar tax up to the lower of that tax or tax in the other jurisdiction. In certain cases, income earned, taxed and retained overseas is not taxable in Gibraltar.
Who is liable to taxation in Gibraltar?
Income tax is charged on income accruing in, derived from or received in Gibraltar. It is likewise charged on certain income, accruing in, derived from or received in any place other than Gibraltar by any person ordinarily resident in Gibraltar. Ordinarily resident means an individual who, irrespective of whether such individual is domiciled in Gibraltar or otherwise, resides in Gibraltar except for reasonable temporary absences. An individual that is a British subject or citizen of the Republic of Ireland who is employed in Gibraltar and resides in the surrounding area is also considered ordinarily resident. Gibraltar has introduced a number of tax incentives that allow certain categories of resident individuals to limit the total tax payable in any tax year, subject to certain criteria being met.
Tax Year & Basis of Assessment
Tax is currently charged for the year of assessment (running from 1 July in one calendar year to 30 June in the next) on the basis of the income of the preceding year except for income from employment that is charged on the basis of the income for that year.
The preceding year basis of assessment will be abolished in favour of an actual basis as from 1 January 2011. Commencement provisions will be abolished and there will be transitional rules introduced.
The following special rules apply for the first three years following the commencement of trade and the last two years preceding the cessation of trade:
The tax payer has the option to make an election in the second and third tax years to be assessed on an actual basis if this results in a lower tax charge for the tax payer and there has been no cessation.
The tax office needs to be advised of this no later than twelve months after the end of the third tax year and the option is for both years and cannot be exercised separately for each year.
Partnerships
An assessment is made on the partners in respect of the partnership profits split between the partners according to the proportion in which they share profits. The income is assessed on a prior year basis after adjustments.
Branches
The basis for taxation of branches of foreign enterprises is the same as for companies i.e. assessed on a prior year basis after adjustments.
Dividends
Except in the case where the income forms part of the company’s trading receipts, dividend income from companies listed on a recognised stock exchange is not taxable in Gibraltar. There is no withholding tax on dividends paid. However, a company must submit a return of any dividend paid within 30 days following the year end of each year of assessment. There is no liability to tax for dividends paid to a person who is not resident in Gibraltar. There is no tax on dividends paid by one Gibraltar Company to another.
Dividends received from participating interests or from any subsidiaries in the participating interest group are not liable to taxation in Gibraltar. A participating interest exists where there is a direct or indirect shareholding of at least 10%, as from 1 January 2009, in a company registered in the EU (or a company that is registered in a country that has a bilateral agreement with the EU).
What income is taxable in Gibraltar?
Income tax is charged on:
• Gains or profits from any trade, business, profession or vocation
• Gains or profits from employment
• Discounts, dividends and interest (except dividends arising from investments quoted on a recognised stock exchange, and interest paid by banks, building societies, or other financial services institutions that are exempt)
• Rents, royalties, premiums and any other profits arising from property
• The income of any person from the occupation of premises for residential purposes
• Dividends, interest, or emoluments of office accruing in, derived from or received in any place other than Gibraltar by a resident
With the exception of dividends, interest, pensions or emoluments of office, income which is not accrued in or derived from Gibraltar is not taxed in Gibraltar. Specifically, income derived from the following categories will not accrue in or derive from Gibraltar for the purposes of the Income Tax Act:
• The letting of property where that property is outside Gibraltar
• Trading in future delivery contracts for the purchase and sale of commodities in markets outside Gibraltar with parties outside Gibraltar
• Salvage operations taking place outside the jurisdiction
• The oversight of a construction operation outside Gibraltar
• The lending of money outside Gibraltar
Deductions Allowed
For the purpose of ascertaining the assessable income there shall be deducted all outgoings and expenses wholly and exclusively incurred in the production of the income. No deduction shall be allowed in respect of:
• Domestic or private expenses
• Expenses not incurred wholly and exclusively in the generation of income
• Any expenses of a capital nature
• Any sum recoverable under an insurance contract or contract of indemnity
• Property expenses not incurred for the purposes of producing income
• Any tax charged under the Income Tax Act
• Depreciation of assets (although capital allowances are available)
• Employee remuneration not accompanied by a certified statement of names, addresses and amount of remuneration
Capital Allowances
The first £30,000 of qualifying expenditure on plant and machinery (including fixtures and fittings) acquired in a year of assessment is fully deductible with the balance deductible at the rate of 25% per annum on a straight line basis.
The first £50,000 of qualifying expenditure on information technology investment is fully deductible with the balance deductible at the rate of 25% per annum on a straight line basis.
Expenditure on motor vehicles that do not qualify as plant and machinery is deductible at the rate of 25% per annum on a straight line basis.
Expenditure on industrial buildings attracts an allowance of 4% per annum on a straight line basis.
Capital payments for leases that are for periods of less than 12 years are fully deductible in the year in which the premium is paid.
Personal Taxation
Gibraltar has a dual tax system, whereby taxpayers are free to elect between an Allowance Based System and a Gross Income Based System.
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Income of £18,000 to £19,000
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0% on the first £3,000 and the remainder is
payable at 20%
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Income of £19,000 to £20,000
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0% on the first £2,000 and the remainder is
payable at 20%
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Income of £20,000 to £25,000
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0% on the £1,000 and the remainder is
payable at 20%
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Gross Income Based System
Persons earning more than £25,000 will be paying the following tax:
• 20% on first £25,000
• 29% on next £75,000
• 35% above £100,000
Allowance Based System
Individuals who have opted to be taxed under the Allowances Based System are charged to tax on their taxable income, which is determined by deducting personal and other allowances from the assessable income at the following rates:
• 17% on the first £4,000 of taxable income
• 30% on the next £12,000 of taxable income
• 40% on the remainder of taxable income
Plus the deduction of the following allowances:
| Personal allowance |
£2,735 |
| Spouse allowance |
£2,560 |
| 1 Parent family allowance |
£2,560 |
| Child relief (first child educated in Gibraltar) |
£970 |
| Allowance per child studying abroad |
£1,075 |
| Disabled individuals |
£2,650 |
| Nursery school allowance |
£995 |
| Dependent relatives (resident) |
£185 |
| Dependent relatives (non-resident) |
£135 |
| Age allowance (married man over 65) |
£5,295 |
| Age allowance (single/married woman over 65) |
£7,855 |
| Home purchase allowance (deduction of) |
£11,500 |
| Additional (£1,000 max. p.a.) |
£4,000 |
| Blind person allowance |
£610 |
| Apprenticeship allowance |
£370 |
| Medical insurance (Max Relief) |
£1,090 |
Corporation Tax
The rate of corporation tax is currently 22%. With effect from 1 January 2011, a new rate of 10% will apply to all companies except energy and utility providers, which will pay a 10% surcharge and thus incur a rate of 20%. These will include electricity, fuel, telephone service and water providers.
Regarding any new businesses, with effect from 1 July 2009, a start up rate of 10% will apply to any business established in Gibraltar after 1 July 2009. Tax will be assessed on an actual year basis.
As an anti-avoidance provision, it will not apply in respect of any commercial activity being carried out before 25 June 2009 and that is reorganised by the taxpayer in the name of a different entity for the purpose of benefiting from the scheme.
Qualifying Category 2 Individuals – High Net Worth Individuals (HNWIs)
An individual that has obtained a Category 2 Individual certificate is assessable to income tax on the first £60,000 of income only. Therefore, the maximum tax payable in a full year is approximately £23,000. The minimum tax payable is £18,000, though this will be adjusted pro-rata if the certificate was obtained partway during the tax year.
Income received by any trust or beneficiary under the trust is exempt from tax where the trust is settled by, or on behalf of, a Category 2 Individual status. For the exemption to apply, inter-alia, no resident of Gibraltar (other than a Category 2 Individual) may be a beneficiary under the trust.
The main condition is that he or she has available for his exclusive use approved residential accommodation in Gibraltar. The applicant should not have been resident in Gibraltar during the previous five years.
High Executive Possessing Specialist Skills (HEPSS) Status
The individual must have specialist skills of exceptional economic value to Gibraltar, earning more than £100,000 per annum.
Approved Residential Accommodation in Gibraltar
In order for an individual to qualify as Qualifying (Category 2) Individual he must have approved residential accommodation available for his exclusive use in Gibraltar throughout the year. The individual must posses experience or skills that are not available in Gibraltar and are assessed as necessary to promote and sustain economic activity of particular economic value to Gibraltar.
The Individual must occupy a high executive or senior management position and have accommodation available for the exclusive use of themselves and their families in Gibraltar. The person should not have been resident or employed in Gibraltar during the three years prior to the year in which the application is made (the FCD may, however, waive this requirement).
Stamp Duty
Stamp Duty is only payable on real estate and capital transactions at the following rates:
• 1.26% for Real Estate
• £10 for Share Capital
• £10 for Loan Capital
On purchase of homes:
• Nil for homes costing up to £160,000
• 1.26% for homes costing over £160,000 to £250,000
• 1.6% for homes costing over £250,000 to £350,000
• 2.5% for homes costing over £350,000
Import Duties – Levied on Imported Goods (Mostly at rates of 0% – 12%)
A tariff is a tax imposed on goods when they are moved across a political boundary. They are usually associated with protectionism, the economic policy of restraining trade between nations. Tariffs are usually imposed on imported goods, although they may also be imposed on exports.
Excise Duties – Levied mainly on Spirits, Wines, Tobacco and Mineral Oils
An excise or excise tax (sometimes called an excise duty) is a type of tax charged on goods produced within the country, as distinct from customs duties that are charged on goods from outside the country. It is a tax on the production or sale of goods.
Estate Duty – There is NO Estate Duty in Gibraltar
In countries where it is charged, it is a tax on the estate, or total value of the money and property, of a person who has died.
Capital Gains Tax – There is NO Capital Gains Tax in Gibraltar
In countries where it is charged, capital gains tax is a tax charged on the profit realised from the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realised from the sale of stocks, bonds, precious metals and property. Not all countries impose a capital gains tax and most have different rates of taxation for individuals and corporations.
Other Capital Taxes – There are NO Wealth, Gift or other Capital Taxes in Gibraltar
A wealth tax is generally conceived as a direct tax on all household wealth holdings, including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and unincorporated businesses; and corporate stock, financial securities, and personal trusts.
Value Added Tax – There is NO VAT in Gibraltar
Value added tax (VAT) is a sales tax on value added. It works by being charged on the sale price of goods and services whether purchased by intermediate or final consumers; intermediate parties can reclaim VAT paid on their inputs, thus ensuring that the net VAT they pay is in effect based only on the value added at that particular stage of the process.
Social Insurance Contributions
Since 1 April 2007, weekly rates of contributions payable are, subject to a predetermined minimum and maximum rate, earnings related. This means that the employee’s and the employer’s share of contributions will be based on a percentage of earnings, as follows:
• Employee social insurance contributions will be payable at 10% of gross earnings, subject to a maximum of the current maximum adult rate contribution of £23.74 per week and subject to a minimum of £5.00 per week (a reduced rate of contribution would therefore be payable by all employees who earn less than £207.50 per week).
• Employer social insurance contributions will be payable at 20% of gross earnings, subject to a maximum of the current maximum adult rate contribution of £29.97 per week and subject to a minimum of £15.00 per week (a reduced employer contribution will therefore be payable in respect of all employees with earnings below £131 per week).
For more informations contact Ascheri &Partners at info@ascheri.co.uk.
