The new Income Tax Act ("the Act"), which came into force on 1st January 2011, introduces a new corporate tax rate of 10% and various other changes to the taxation regime in Gibraltar.
One of the features of this legislation is the new provision related to the holding and management of IP arrangements. This is achieved, in part, by the removal of tax charges on royalty payments. Part 2 of Schedule 5 to the Act specifically states that "royalty payments arising in Gibraltar shall be exempt from any taxes imposed on those payments". Businesses which utilise IP are thus able to centralise their IP rights and establish a vehicle in Gibraltar which exploits these rights. Such a company will not suffer any tax in respect of the receipt of any royalty payments. This, coupled with the fact that any payment of dividends would not be subject to withholding tax in Gibraltar and not suffer tax in the hands of another company in Gibraltar, means the jurisdiction has become a very attractive alternative for the holding and exploitation of IP rights.
Furthermore, given Gibraltar is part of the EU, it is an ideal location in which businesses can hold and/or exploit their IP when interested in effecting EU registrations or licence arrangements.
There are other interesting tax features available to Gibraltar companies. There is no capital gains tax, no withholding tax and there are no indirect taxes such as VAT. These, together with the new low headline corporate tax rate of 10%, means Gibraltar is also an attractive jurisdiction to which businesses may wish to headquarter part or the entirety of their operations.
By way of further background, the Act introduces new anti-avoidance provisions which may, in certain circumstances, limit the extent of deductibility allowed with regard to certain costs and charges. These restrictions are not, however, likely to be invoked in respect of conventional IP holding and licensing arrangements.
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.