The Gibraltar tax year runs from the 1st July to 30th June and on 25 June the Chief Minister Peter Caruana delivered his budget speech to reflect on the performance of the Gibraltar economy and set out the Government's budget proposals for the fiscal year ending 30 June 2010.
He was pleased to announce that whilst the global economy was in turmoil from the fallout of the credit crunch the Gibraltar economy although not immune from world events had held up remarkably well. In fact the local economy continued to grow together with the jobs available in the local economy.
In order for the economy to continue on a sustained and stable course the government announced plans to retain and attract local business by making changes to adopt a new attractive but EU compliant low corporate tax environment. The previous hurdle in the way of bringing this change was the pending EU tax case which questioned Gibraltar's right to determine its own corporate tax system. This has now been resolved in Gibraltar's favour.
The most significant changes are in relation to the taxation of local companies. With effect from 1 January 2011 all companies will be subject to a tax rate of 10% with the exception of energy and utility providers which will suffer a rate of 20%. In addition new businesses establishing themselves in Gibraltar from 1st July 2009 will be able to take immediate advantage of this 10% corporate tax regime.
However existing businesses must wait until 1 January 2011 to convert to the new regime but a progressive reduction in their rates will be made as they move towards this date. As a result the previous rate of 27% has been reduced to 22%.
The basis for assessment to tax is also to be simplified from that of assessment for the current year based on the previous year to assessment on an actual basis. This will avoid some unfair anomalies which can arise using the preceeding year as a base for assessment.
Whilst all companies will fall into the new 10% regime some categories of investment income, as is currently the case will not be taxable here as that source of income falls out of scope of taxation in Gibraltar. The Chief Minister also announced that the basis of taxation would not change and would remain to be levied on income accrued and derived in Gibraltar. Our current understanding is that this effective territorial basis will allow certain international income not derived from local activity to be earned without being subject to local company taxation. Guidelines on the details of the new regime are still to be published and we shall update readers when these are available.
Gibraltar has two systems for the taxation of personal income. The allowance based system and the gross income based system. The system adopted is that which is most beneficial for the taxpayer.
The Allowance Based System
This entitles the taxpayer to deduct certain allowances from their gross income before arriving at income which is assessable to income tax. Some of the allowances and in particular housing allowances are generous making this basis beneficial to a number of people who are resident in Gibraltar with a local mortgage. Other personal allowances available have been increased in line with the local inflation rate of 2.8%. Low income earners allowances have been increased but general taxation rates remain the same as in the previous year.
The Gross Based System
Many Gibraltar taxpayers because they live in Spain and therefore not entitled to the housing allowances or those without children can be unfairly disadvantaged under the allowance based system as they are entitled to assessment on gross earnings without entitlement to deductions. The rates of tax on income bands under this basis are lower than for the allowance based system which taxes the reduced income after deductions. In this budget rates under the gross based system which tended to benefit higher earners were lowered to make it more attractive for lower income earners who have few allowances to claim.
As in the previous year there continues to be no capital gains tax, no inheritance tax, no gift tax, no wealth tax and no VAT.
The taxation of High Net Worth Individuals
Gibraltar has a special tax regime for high net worth individuals.
This regime is beneficial to qualifying individuals who wish to relocate from a high tax jurisdiction to one with significantly lower rates of tax. This arrangement is likely to become more attractive as countries around the world and in particular Europe, as countries increase tax rates on their wealthy residents to meet government revenue shortfalls.
High net worth individuals for the tax year from 1 July 2009 now have an annual cap on the maximum tax payable here of £25,880 an increase from the previous year where the cap was at £21,380.
A detailed account of the budget can be found on the government website at www.gibraltar.gov.gi
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.