On this Page:
- Gibraltar Residence and
Liability for Taxation
- Gibraltar Income
Tax
- Gibraltar Social
Insurance
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 GIP25,000; 30% on the next GIP75,000;
40% above GIP100,000.
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 GIP25,000 per annum
would pay more than 20% income tax; no taxpayer
with income below GIP50,000 would pay more than
25% income tax; no taxpayer with income below
GIP100,000 would pay more than 27.5% income tax;
and no taxpayer with income below GIP125,000 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
GIP14,000 per annum to GIP18,000 per annum and
the taxable income level increased from GIP50,000
to GIP60,000.
Category 3 status was abolished for new entrants.
Existing Category 3 holders were able to retain
that status until expiry of their current certificate
or for two years until 30 June 2009, whichever
was the longer. However, the amount of tax payable
rose with effect from 1 July 2007 from GIP10,000
to GIP15,000 per annum.
A new category called ‘High Executive Possessing
Specialist Skills’ (HEPSS) was established
for:
- Existing Category three holders who earn
more the GIP100,000 per annum;
- New applicants who possess skills not available
in Gibraltar and, in the Government’s
opinion, necessary to promote and sustain economic
activity of particular economic value to Gibraltar,
who will occupy a high executive or senior management
position, and who will earn more than GIP100,000
per annum of income in Gibraltar.
Tax would be payable only on the first GIP100,000
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
were able to retain the status until the end of
the current certificate or 30 June 2009, whichever
was the longer. However, minimum tax payable was
to increase with effect from 1 July 2007 from
GIP5,000 per annum to GIP7,500 per annum.
As of July 1, 2009, the government introduced
a dual tax system under which taxpayers may choose
the basis on which they will be taxed. Taxpayers
will be now able to opt for either a Gross Income
Based (GIB) system, under which income tax rates
will be reduced, but no allowances given, or retain
the traditional Allowance Based System.
The GIB system, effective July 1, works as follows:
- For persons whose gross income does not exceed
GIP16,000 per annum, a new band of GIP10,000
will be added on which tax will be paid at 10%.
- For persons with incomes between GIP16,000
and GIP25,000, new bands will be added as follows
on which tax will be paid at 0%:
- Income of GIP16,000 to GIP17,000, on
the first GIP5000 - 0%
- Income of GIP17,000 to GIP18,000, on
the first GIP4000 - 0%
- Income of GIP18,000 to GIP19000, on the
first GIP3000 - 0%
- Income of GIP19,000 to GIP20,000,on the
first GIP2000 - 0%
- Income of GIP20,000 to GIP25,000,on the
first GIP1000 - 0%
According to government statistics, these new
bands will benefit 3,600 taxpayers by between
GIP40 and GIP640 per annum. For example a single
person earning GIP16,000 per annum will pay GIP640
less tax, a 22% reduction in tax.
For the 2010/2011 tax year,
bands were changed as follows:
- for people with gross incomes between GIP8,000
and GIP16,000 per annum, the first GIP10,000
will be taxed at 8% (previously 10%) and the
remainder at 20%
- for those with gross incomes between GIP16,000
and GIP25,000, new bands are introduced as follows:
- Income: GIP16,000 - GIP17,000, on the
first GIP6,000 - 0%
- Income: GIP17,000 - GIP18,000, on the
first GIP5,000 - 0%
- Income: GIP18,000 - GIP19,000, on the
first GIP4,000 - 0%
- Income: GIP19,000 - GIP20,000, on the
first GIP3,000 - 0%
- Income: GIP20,000 - GIP25,000, on the
first GIP2,000 - 0%, remaining income taxed
at 20%.
- For individuals with gross incomes between
GIP25,000 and GIP35,000 the maximum effective
tax rate is 20%. For individuals with gross
incomes between GIP35,000 and GIP100,000
the maximum effective tax rate is 26.25%.
The top rate band of 35% for gross incomes
above GIP100,000 was abolished and replaced
with a top rate of 29%.
For incomes above GIP100,000 a year the
tax rates are 20% for the first GIP25,000,
29% for income between GIP25,001 and GIP353,000
(20% for income between GIP353,001 to GIP704,800,
10% for income between GIP704,800 to GIP1
million and 5% on income in excess of GIP1
million)
In the July 2009 budget alterations were also
made to the upper income tax bands under the GIB
system as follows:
- The 30% band, on income exceeding GIP25,000,
but less than GIP100,000, has also been reduced
by 1% to 29%. This is expected to benefit 4,000
taxpayers by up to GIP750 per annum.
- The top band rate, levied on income exceeding
GIP100,000, will be subject to a reduced rate
of 35%, from 38%.
The attractiveness of the existing Allowances
Based System has also been improved - the government
has announced that all personal allowances will
be increased by 2.8% with immediate effect.
Although the reforms reduced
the income tax burden on most taxpayers, High
Net Worth Individuals (HNWIs) and Category Two
Individuals, saw marginal increases in their tax
burden. The 2009 budget increased the minimum
amount of tax they must pay from GIP18,000 to
GIP20,000, while the maximum amount of their income
on which they pay tax also increased from GIP60,000
to GIP70,000. Both changes were effective from
July 1, 2009.
In the July 2010 budget,
social insurance contributions were increased
to 20% of gross earnings, capped at GIP32.97 for
employer and GIP15.00 for employee.
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 increased to
20% for the next three years, rising to 35% thereafter.
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.
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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).
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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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