In a Notice gazetted yesterday, Monday 29 March 2021 (the "Notice"), HMGoG clarified that the deadline for any legal person that wishes to avail itself of the exclusionary provisions set out in Article 2(2)(b) of the UK/Spain tax agreement regarding Gibraltar (the "Agreement"), is the 30 April 2021.
The exclusionary provisions are designed to override Article 2(2)(a) of the Agreement, which provides that legal persons, entities, and other legal structures or arrangements registered in Gibraltar shall be considered to be tax resident in Spain if:
- the majority of assets are located in Spain; or
- the majority of income accrued in a calendar year derives from sources in Spain; or
- the majority of natural persons in charge of effective management are tax resident in Spain; or
- the majority of capital/equity, voting or profit-sharing rights are under the control of individuals who are tax resident in Spain or legal persons linked to tax residents in Spain.
However, under Article 2(2)(b), legal persons which were registered in Gibraltar before 16 November 2018 and which fall within the scope of Article 2(2)(a) (iii) or (iv), can benefit from exclusionary provisions which will allow those entities to remain tax resident in Gibraltar, notwithstanding that they would otherwise be considered tax resident in Spain. In order to avail themselves of the exclusion, these entities must satisfy all of the following five conditions, as at 31 December 2018:
- the entity must have a fixed place of business in Gibraltar through which the business is wholly or partly carried out with adequate staff (number and qualifications) and expenditure to support its core income-generating activities; and
- it is liable to and has paid corporation tax in Gibraltar; and
- it has operated in Gibraltar from its incorporation to 31 December 2018 and there has been no interruption or change in its trade since 1 January 2011; and
- more than 75% of its income for the last financial year before 31 December 2018 accrued in and derived from sources in Gibraltar; and
- for the last financial year before 31 December 2018, income accrued from sources in Spain cannot have exceeded the following thresholds:
- 15% for legal persons with an annual turnover of not more than €3m.
- 10% for legal persons with an annual turnover between €3m and €6m.
- 5% for legal persons with an annual turnover of over €6m.
In order to avail themselves of this exclusionary clause, legal persons were, in the original version of the agreement, required to notify the Income Tax Office by 31 March 2020. Given that the agreement was ratified this month, the original filing deadline had become obsolete, and the Notice clarifies and confirms that the original deadline is now replaced by 30 April 2021. The Notice also prescribes the form which must be used for the purposes of this notification.
Peter Isola, Senior Partner, commented: "We welcome the recent clarification offered by HMGoG with regard to the new reporting date. The new deadline will allow those affected sufficient time to make the necessary returns regarding tax residency. Those seeking further advice are encouraged to contact our expert legal team who are on hand to assist with any concerns."
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