This country-specific Q&A provides an overview to tax laws and regulations that may occur in the Gibraltar.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-4th-edition/
How often is tax law amended and what are the processes for such amendments?
Apart from the transposition of EU directives into our laws, tax law is amended by instigation from the Government of Gibraltar, or as an initiative driven by the industry itself. at any time. Normally, a bill of legislation incorporating the proposed amendments is presented to the Gibraltar Parliament who will ultimately decide if the new law is passed.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The Gibraltar tax year runs from 1 July – 30 June.
Persons other than companies (i.e. individuals and trusts)
Non-companies with income assessable to taxation in Gibraltar must prepare and file their tax returns for each tax year by the 30 November following the end of that tax year.
Companies must prepare their tax returns according to their financial year end. Companies’ tax returns must be filed within nine months after the date of its financial year end. For example, a company with a 31 December year end must prepare its tax return from 1 January to 31 December and file it by 30 September and a company with a 30 June year end must prepare its tax return from 1 July to 30 June and file it by 30 March etc.
Maintenance of records
Individuals, Companies and Trusts are all required to keep records of all business transactions including books containing daily entries of all cash received and cash paid, statements of annual stocktaking, all goods sold and purchased showing sufficient detail to enable those goods, buyers and sellers to be identified and any contracts, invoices or other underlying documentation significant to the trade, business profession or vocation undertaken, for at least six years from the end of the period for which they are required to deliver a return.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The key regulatory authorities are the Commissioner for Income Tax, who manages the Income Tax Office and is responsible for the administration and collection of tax in Gibraltar. The Minister for Finance is ultimately responsible for matters handled by the Income Tax Office.
Generally, the length of time it will take to resolve a matter will largely depend on the nature of the matter that is being considered. The Income Tax Office is on the whole, very easy to deal with and are readily accessible and able to help on any queries.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Yes, there is an Income Tax Tribunal (“Tribunal”) that handles tax matters. Members of the Tribunal are appointed by the Minister by notice in the Gazette and hold office for a period of one year or for such other period of time specified in the notice of appointment. Any party to proceedings which are to be heard by the Tribunal may serve notice on the Tribunal’s clerk requesting a date for the hearing to be fixed. On receipt of this notice the clerk shall send notice to each party entitled to attend the proceedings of the place, date and time of the hearing. The date of hearing unless specified otherwise by the parties shall not be earlier than twenty eight days after the date on which the notice is sent to the parties.
Any party to the proceedings if dissatisfied with the determination or decision as being erroneous in point of law, may within twenty one days after the final determination, by notice served on the clerk and payment of the fee require the Tribunal to state and sign a case for the opinion of the Supreme Court.
On 26 July 2019 H.M. Government of Gibraltar introduced the Tax Dispute Resolution Regulations 2019, which give effect to Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (the “Directive”). The Directive lays down rules on a mechanism to resolve dispute between Member States when those disputes arise from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income and, where applicable, capital, and lays down the rights and obligations of the affected persons when such disputes arise.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Taxes from income from employment is deducted from wages and salaries under the Pay As Your Earn (“PAYE”)_system. Every employer paying emoluments to an employee is required to deduct from the amount of emoluments a specified amount of tax and social contributions. Payment is due by the 15th day the following month.
Self-employed individuals must make two payments on account, by 31 January and 30 June, in each year and each payment on account should be 50% of the tax paid in the previous year’s assessment. Final payment of any outstanding tax for that year should be submitted with the individual’s tax return (30 November following the end of the tax year) and should be the tax liability for that year less the two payments on account made.
Companies are required to make two payments on account, by 28 February and 30 September, in each year and each payment should be 50% of the tax paid for a relevant accounting period as defined within the Income Tax Act 2010 (“Tax Act”). Final payment of any outstanding tax for that year should be submitted with the company’s tax return and should be the tax liability for that year less the two tax payments on account made.
Trustees of a trust with income assessable to taxation in Gibraltar must make two payments on account, by 31 January and 30 June, in each year and each payment on account should be 50% of the tax paid in the previous year’s assessment. Final payment of any outstanding tax for that year should be submitted with the trust’s tax return (30 November following the end of the tax year) and should be the tax liability for that year less the two payments on account made.
If a tax payer disputes an assessment, he may appeal against that assessment by notice in writing addressed to the Commissioner within 28 days of the date of service of the notice of the assessment. Any appeal shall be to the Tribunal and the notice of appeal against any assessment shall state the grounds of the appeal, in such reasonable detail as to enable all parties to the appeal to be aware of the issues to be contested.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government? Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public register of beneficial ownership?
Yes, the Income Tax Office will need to ensure compliance with the provisions of the General Data Protection Regulation (“GDPR”) which has been transposed into Gibraltar law as a result of the European Directive.
The Tax Office will however, be required to disclose data on any particular taxpayer if he is the subject of an investigation by any other tax authority and the information requested has been done so validly under the provisions of a Tax Exchange of Information Treaty or applicable directive.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Yes, Gibraltar has adopted the Common Reporting Standard and also maintains a Register of beneficial ownership. The Register is maintained by the Finance Centre and is not public. However persons who demonstrate legitimate interest under the relevant regulations may make a request to the Finance Centre for such information to be disclosed.
What are the tests for residence of the main business structures (including transparent entities)?
In order to be considered ordinarily resident in Gibraltar a company must either be managed and controlled in Gibraltar, or where the management and control is exercised outside Gibraltar by persons who are ordinarily resident in Gibraltar.
In order for an individual to be considered ordinarily resident in Gibraltar (irrespective of whether such individual is domiciled in Gibraltar or not) for any year of assessment must be present in Gibraltar for a period of, or periods together amounting to at least 183 days, or must be present in Gibraltar in any year of assessment which is one of three consecutive years in which the total days on which the individual is present in Gibraltar exceeds 300 days.
Have you found the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
There are relevant provisions applying to cross border transactions in European and international legislation and regulations that must be adhered to when dealing with international structures. These are applicable to Gibraltar. Tax authorities may pay particular attention to cross border arrangements, however generally, provided that the relevant rules and legislation are observed in each applicable jurisdiction, there should be no issues.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
CFC rules have been introduced under which the non-distributed income of a company or permanent establishment arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage must be included as income of the taxpayer for that tax period.
In order for an entity or permanent establishment to be considered as a CFC under the Regulations, two conditions must be satisfied. Firstly, in the case of an entity, the taxpayer must by itself or together with its associated enterprises, hold a direct or indirect participation of more than 50% of the voting rights or capital, or must be entitled to receive more than 50% of the profits of that entity. Secondly, the actual tax paid by that entity or permanent establishment must be lower than the difference between the tax that would have been charged on the entity or permanent establishment in accordance with the Act and the actual tax paid on its profits.
An arrangement or a series thereof is regarded as non-genuine under the Regulations to the extent that the entity or permanent establishment would not own the assets or would not have undertaken the risk which generate all or part of its income if it were not controlled by a company where the significant people functions which are relevant to those assets and risks, are carried out and are instrumental in generating the CFC’s income. Where there is such non-genuine arrangement, the income to be included will be the calculated in accordance with the arm’s length principle.
In order to ensure that there is no double deduction:
i) where the entity distributes profits to the taxpayer, and those distributed profits are included in the assessable income of the taxpayer, the amounts of income previously included as income of the taxpayer shall be deducted from the income of the taxpayer when calculating the amount of tax due on the distributed profits;
ii) where the taxpayer disposes of its participation in the entity of the business carried out by the permanent establishment, and any part of the proceeds from the disposal previously having been included in the income of the taxpayer, that amount shall be deducted from the income of the taxpayer when calculating the amount of tax due on those proceeds; and
iii) the Commissioner of Income Tax shall also allow a deduction of the tax paid by the entity or permanent establishment in its state of residence or location from the tax liability of the taxpayer in accordance with section 37 of the Act.
Entities or permanent establishments with accounting profits of no more than €750,000, and non-trading income of no more than €75,000 or those which the accounting profits amount to no more than 10% of its operating costs for the tax period will not be considered as CFCs under the Regulations.
Interest paid on a loan by a company to related parties (which are not themselves a company) or loans where security is provided by related parties, where the ratio of the value of the loan capital to the equity of the company exceeds 5 to 1 is considered as a dividend payment and thus not a deductible expense for tax purposes.
The amount of interest payments to connected persons which is in excess of that payable at “arm’s length” is deemed to be a dividend.
Also, if the amount charged for goods and services by the connected persons is not at “arm’s length” expenses allowed shall be the least of:
(i) The amount of the expense;
(ii) 5% of gross turnover; or
(iii) 75% of the pre expenses profit.
Is there a general anti-avoidance rule (GAAR) and, if so, in your experience, how would you describe its application by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only etc?
Yes, our Tax Act does contain anti avoidance provisions which are applied by the tax authority whereby the Commissioner may disregard part or all of any arrangements that are deemed to be artificial/or fictitious and whose purpose is to reduce or eliminate tax payable in Gibraltar. Companies will be expected to have regard to GAAR and other relevant international standards.
Have any of the OECD BEPS recommendations been implemented or are any planned to be implemented and if so, which ones?
Actions 5 and 13 of the OECD’s 15 measures against Base Erosion Profit Shifting (“BEPS”) were given effect to in Gibraltar by virtue of our implementation of Council Directive (EU) 2015/2376 and Council Directive (EU) 2016/881 respectively, both amending Directive 2011/16/EU. OECD Action 5 focuses on compulsory spontaneous exchange of tax rulings. OECD Action 13 contains revised guidance on transfer pricing documentation, including the template for country-by-country reporting.
On 20th December 2018, H.M. Government of Gibraltar introduced regulations which transposed Council Directive (EU) 2016/1164 (“ATAD”) which lays down rules against tax avoidance practices that directly affect the functioning of the internal market. The purpose of ATAD is to provide for uniform legislative implementation of some of the OECD BEPS recommendations.
Gibraltar is committed to transpose further measures against BEPS as they are coordinated as well as further measures against double non taxation.
In July 2019, H.M. Government of Gibraltar announced that the OECD has welcomed and agreed to Gibraltar becoming a full member of the Inclusive Framework on BEPS.
In your view, how has BEPS impacted on the government’s tax policies?
The policy of successive Gibraltar governments has been to provide a competitive tax environment that is fully compliant with international best practice, and Gibraltar has always been an early complier with OECD and other international initiatives. We expect that policy to continue.
Does the tax system broadly follow the recognised OECD Model? Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties? If so, what are the current rates and are they flat or graduated?
Gibraltar has its own tax system however, it was placed on the OECD white list of territories that has substantially implemented the internationally agreed standard on tax information exchange.
Furthermore, the OECD’s Global Forum on transparency and exchange of Information for tax purposes issued its Phase II report on Gibraltar, with an overall rating of ‘Largely Compliant’ – the same rating as Germany, the UK and the US.
Gibraltar taxes on profits that are accrued and derived in Gibraltar as a result of activities or services carried out from Gibraltar. It applies a corporate rate of tax of 10%.
Income tax is charged on income accruing in or derived from Gibraltar. Income tax is also charged on certain income accruing in, deriving from, or received in any place other than Gibraltar by any person ordinarily resident in Gibraltar.
Tax payers may opt to be taxed under the Gross Income Based System (“GIBS”) or the Allowance Based System (“ABS”). The Commissioner of Income Tax will calculate the final assessment on the basis of the system that is most beneficial for the taxpayer, irrespective of the system that is chosen by the taxpayer at the beginning of the tax year.
GIBS Rates (currently in force 2019/2020)
The income bands and tax rates for income up to £25,000 are:
The income bands and tax rates for income above £25,000 are:
£10,001 - £17,000
£17,001 - £25,000
£25,001 - £40,000
£40,001 - £105,000
£105,001 - £500,000
£500,001 - £700,000
ABS Rates (currently in force 2019/2020)
Taxable Income bands
Tax on band
£0 - £4,000
£4,001 - £16,000
The allowances and reliefs that apply under each system differ.
Pension income from an approved pension will not suffer tax in Gibraltar.
Gibraltar does not levy any VAT.
Passive income is not taxable in Gibraltar.
Royalties income is subject to tax at 10%.
Gibraltar has no capital gains tax.
Gibraltar has no inheritance tax.
Gibraltar has no wealth tax.
Stamp duty is only applied on the transfer of property (or transfer of shares where the company holds Gibraltar property) at the following rates:
First and second-time buyers
Balance above £260,000 to £350,000
Balance above £350,000
Where purchase price does not exceed £200,000
Purchase price of between £200,001 and £350,00
2% on first £250,000 and 5.5% on balance
Purchase price of over £350,000
3% on first £350,000 and 3.5% on balance
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Yes, the standards applied are normally the accounting principles of the UK or those of the European Union depending on the nature of the transaction.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
Yes, companies and trusts that have assessable income in Gibraltar are subject to tax at a rate of 10%. Partnerships are tax transparent and taxed in the hands of the Partners.
Is liability to business taxation based upon a concept of fiscal residence or registration? If so what are the tests?
Gibraltar levies tax on a territorial basis. This will be determined on whether income accrues or derives from Gibraltar or as a result of services being rendered in Gibraltar. Those businesses whose income arises from an underlying activity that requires a license and is regulated under any law of Gibraltar (or is licensed in another jurisdiction but enjoys passporting rights into Gibraltar) shall be deemed to accrue in and derive from Gibraltar.
Income which is not accrued in or derived from Gibraltar is not taxed in Gibraltar. “Accrued in and derived from” is defined by reference to the location of the activities which give rise to the profits. Where the income is intercompany interest or royalties it is automatically deemed to accrue in and derive from Gibraltar if it is received by a Gibraltar company.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Category 2 (“Cat 2”)
Gibraltar offers the opportunity for high net worth individuals to obtain Cat 2 status which places a cap over the tax liability of that individual. Tax is applied to the first £80,000 of assessable income (including worldwide income) meaning that a Cat 2 individual will pay a maximum of £27,560 tax per annum, subject to a minimum payable of £22,000 per annum (current rates).
Conditions of obtaining Cat 2 status:
- The individual must be of substantial and sound financial standing and have a minimum net worth of £2 million.
- The Cat 2 individual must either own or rent Cat 2 approved residential accommodation in Gibraltar.
- The Cat 2 individual cannot have been resident in Gibraltar during the five years immediately preceding the year of assessment.
High Executive Possessing Specialist Skills (“HEPSS”)
HEPSS status is a special employment status available to those individuals who intend to relocate to Gibraltar and take up employment. The tax payable by a HEPSS is limited to the first £120,000 of earned income. This would mean that an individual with HEPSS status would pay a fixed rate of £29,940 tax per annum (current rates) regardless of how much they would earn from that employment.
Unlike Cat 2 status which applies to the individual, HEPSS status does not apply to the individual. The application is made by a company on behalf of an eligible employee.
Conditions for obtaining HEPSS Status
- Applicants must possess skills not already present in Gibraltar, their coming to Gibraltar must also help promote and sustain economic activity in Gibraltar.
- Applicants must earn more than £120,000.
- Applicants cannot have been resident in Gibraltar for the three years immediately preceding the application.
HEPSS individuals must live in a Gibraltar qualifying property (similar to those of Cat 2 residents).
Are there any particular tax regimes applicable to intellectual property, such as patent box?
No, there are no such regimes.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Losses can be carried forward indefinitely but there is no such relief. Although it is possible to have consolidated accounts for a group, there is no group relief available in Gibraltar for tax purposes. Entitles would be taxed individually in accordance with the profits of that entity.
Are there any withholding taxes?
Except in the cases of payments to subcontractors in the construction industry and payments to employees under the PAYE system, there are no withholding taxes in Gibraltar.
Are there any recognised environmental taxes payable by businesses?
No, there are no such taxes.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not, how is it taxed?
There is no charge to tax on the receipt by a Gibraltar company of dividends from any other company, regardless of where incorporated. There is no tax on dividends paid by one Gibraltar Company to another, and there is no liability to tax on dividends paid by a Gibraltar company to a person who is not resident in Gibraltar.
Where a dividend, or part of a dividend, is the distribution of profits that were not assessable to tax in Gibraltar in the hands of the company that originally generated the income, then the dividend, or relevant part of the dividend is not taxable in the hands of an ordinarily resident individual receiving the dividend.
There is also no withholding tax on dividends paid, however, where a company declares a dividend, a return of dividends is required. Listed companies are exempted from this requirement.
If you were advising an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered?
Regardless of whether Gibraltar forms part of the EU by virtue of following the UK regarding Brexit, it is likely that it will continue to adhere to the same standards which will be reflected in local legislation.
As a UK overseas territory, it is proposed that Gibraltar would continue to have access to the UK markets for financial services post Brexit, and therefore anyone looking to re-locate from the UK to Gibraltar would continue to experience a number of benefits.
Located in the Mediterranean and in the geographic confines of continental Europe yet endowed with a familiar, reliable and predictable common-law system, Gibraltar is an attractive place for individuals wishing to relocate and/or do business.