Gibraltar: Domestic Corporate Taxation

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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 would be a tax on the company and payable by the company only.
A new Business Property Occupation Tax, introduced in respect of property occupied in Gibraltar by companies for business purposes.
In addition, all companies would pay an annual companies registration fee of GIP300 p.a. (if the company has income) or GIP150 (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 to be capped at 15%, local companies which used to pay 20% or 35% profits tax would have been better off, while 'offshore' companies would be worse off only if they employed staff or occupied 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.

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 GIP1.5 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.

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 a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."

"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 December 2008, the European Court of First Instance ruled in favour of Gibraltar, stating that the European Commission was wrong to argue that the tax reforms proposed in 2002/03 were in breach of state aid rules, and effectively giving the jurisdiction licence to set its own tax rules.

In a statement to the press at the time, Peter Caruana, Gibraltar's Chief Minister, said he was "overjoyed" by the outcome.

"The Court has found in Gibraltar’s favour and has accepted our arguments on each and every issue, relating both to regional selectivity and material selectivity, and has ordered the commission to pay the Gibraltar government’s legal costs.”

In his budget in June 2008, Peter Caruana announced his intention to bring forward a 3% cut in corporate tax originally scheduled to take place in 2009, meaning that the corporate rate would drop by 6% that year.

"Last year, and in order to signal the Government’s seriousness of purpose in reducing corporate tax rates, I reduced corporate tax rates to 33%, and said that I would reduce it further this year to 30%, with a signalled reduction to 27% next year," Caruana told Parliament in his budget speech.

"In order to further signal the Government’s commitment I am advancing that timetable by one year, and therefore the corporate tax rate is now reduced by 6% from 33% to 27% with effect from this year that is the year of assessment 2008/09," he added.

Caruana explained that he envisaged a further cut in the rate in 2009, before moving to the rate of between 10% and 12% from 2010, adding that: "My strong preference will favour the bottom end of that range."

In his 2009 budget announcement, Caruana outlined the salient features of the new regime, which include:

A corporate income tax rate of 10% effective from January 1, 2011; this means that the tax rate in respect of the first half of the tax year 2010/11 is 22%, and in respect of the second half of the tax year is 10%. Companies that are presently tax exempt will thus pay tax in respect of the tax year 2010/11 at the rate of 10% in respect of half a year. Companies that are not tax exempt will pay 22% corporate tax in respect of half a year, and at 10% in respect of half a year.
The preceding year basis of assessment, in effect until December 31, 2011, has been abolished in favour of an actual basis. Commencement provisions have been abolished. There are complex transitional rules;
The basis of taxation has not changed and will thus continue to be on an accrued and derived basis, effectively what is known as a source based system; and,
Wide-ranging and far-reaching anti–avoidance provisions.

The Situation in 2010 and 2011

The rate of corporation tax was 22% in 2010. But with effect from January 1, 2011 the new rate of 10% applies to all companies except energy and utility providers who pay a 10% surcharge and thus suffer a rate of 20%. These will include electricity, fuel, telephone service and water providers.

A start up rate of 10% applied to all businesses established in Gibraltar after July 1, 2009. Tax is assessed on an actual year basis.

The remainder of this page primarily deals with the corporate tax regime as it stood historically.

Gibraltar Scope Of Corporation Tax

Corporation (income) tax was levied under the Companies (Taxation and Concessions) Ordinance. Ordinarily resident companies pay income tax on their worldwide income. As applied to a company, 'ordinarily resident' means:

a company the management and control of whose business is exercised in Gibraltar; or
a company which carries on business in Gibraltar and the management and control of which is exercised outside Gibraltar by persons ordinarily resident there within the meaning of the Ordinance; or
in the case of an investment company (ie whose income mainly arises other than from the gains or profits derived from any trade, business or employment), which is domiciled anywhere outside Gibraltar, where control of the company, through shares or voting powers, is exercised by persons ordinarily resident in Gibraltar.

A non-resident company was defined as: a company which is incorporated in Gibraltar (whether or not exempt), owned by non-residents of Gibraltar and managed and controlled by directors who reside and hold board meetings outside Gibraltar.

A non-resident company paid Gibraltar corporation tax only on its income derived from or remitted to Gibraltar.

Gibraltar Corporate Tax Rates

Taxable profits were charged with corporation tax at 35%. From the 1999/2000 tax year there was a scale of lower rates between 20% and 35% for companies with profits between GIP35,000 or less and GIP105,000, providing 80% of turnover is from trading activity. (See Offshore Tax Regimes for further details of the duty and taxes payable by non-resident and exempt companies, and 'qualifying' companies.)

Gibraltar Calculation of Taxable Base

For companies, corporation tax was normally assessed for income arising in the previous fiscal year.

Allowable expenditure needs to be incurred 'wholly and exclusively' for the business; however, mixed private/company expenses can often be apportioned.

The rules for depreciation of business assets were as follows:

for fixtures and fittings, plant and machinery acquired after 30/6/87: 15% on the reducing balance;
ditto, acquired before 30/6/87: 25% on the reducing balance;
office machinery: 20% on the reducing balance;
industrial buildings: 4% of cost per annum;
ships: 10% of cost per annum;
capital payments for leasehold premises: over the period of the lease, up to 12 years maximum.

Disposal proceeds above w.d.v. count as taxable income, but balancing allowances are available if new, cheaper equipment replaces obsolete equipment.

Although Gibraltar has no double tax treaties, relief is given in respect of UK tax paid on income also chargeable in Gibraltar, and to a lesser extent on similar Commonwealth tax. By concession, other foreign tax paid on remitted income is allowed as a deduction.

Under the EU Parent/Subsidiary Directive 90/435, a Gibraltar company holding more than 25% of the shares of another normally-taxable EU company does not pay tax on dividends received; similarly a tax-paying Gibraltar company holding more than 25% of the shares of another EU company does not have to deduct withholding tax on dividends paid to that other company. Qualifying and tax-exempt companies are not covered by this rule; but see Gibraltar 1992 Companies in Offshore Tax Regimes for details of the special rules allowing 1% withholding taxes.

Companies in receipt of Development Aid, or active in Tax-Deductible Property Zones may be entitled to further allowances.

In the 2005 budget, Gibraltar extended unilateral tax relief provisions to all countries.

There is a gaming tax set at 3%; in the 2005 budget the cap on the gaming tax was increased to GIP425,000 with the minimum payable remaining at 20% of the cap figure.

Gibraltar Taxation of Trusts

Trust income is exempt from tax under the Income Tax (Allowances, Deductions and Exemptions) Rules 1992 if:

the trust is created by or on behalf of a non-resident person; and
the income either accrues or is derived outside Gibraltar, or in the case of income received by a trust would, if it had been received directly by the beneficiary, not be liable to tax under the Income Tax Ordinance; and
except in the case of a trust created before 1/7/83, the terms of the trust expressly exclude residents of Gibraltar (as beneficiaries).

NB: Interest income received from a Gibraltar bank is normally exempt from taxation.

Gibraltar Filing Requirements and Payment of Tax

Assessments are issued by the Commissioner of Income Tax; 50% of the tax payable is due within three months of the issue of the assessment, and the remainder within six months, or by 30th April in the year of assessment, whichever is the later.

Gibraltar Withholding Tax

Resident companies must generally deduct withholding tax at the standard rate from dividends paid out; if the tax deducted is more than the company's mainstream tax bill, the excess is payable; if the tax deducted is less than the company's mainstream tax bill, the difference is carried forward and set off against any future excess.

In Gibraltar's 2005 budget, the following changes were made:

Taxation was abolished on dividends paid by one Gibraltar Company to another Gibraltar Company;
Taxation was abolished on dividends and interest paid by a Company to a non resident recipient;
The requirement to withold tax from dividends in accordance with Section 39 of the Income Tax Ordinance was abolished.

See Offshore Tax Regimes for details of the withholding tax regime applicable to qualifying, tax-exempt and Gibraltar 1992 companies.