1. The Taxation of Individuals
Tax is charged in Gibraltar on any income which is derived from, accrued in or is received in Gibraltar. However, no income tax is charged on income arising from moneys deposited with a bank or building society in Gibraltar if the depositor is not resident in Gibraltar for tax purposes. An individual not resident for tax purposes will not have income received from exempt companies taxed. There are other concessions for certain exempted individuals. These are set out in section 5 below.
All individuals resident in Gibraltar for tax purposes are also liable to pay income tax on their worldwide income. There is unilateral tax relief given in respect of any investment income which is taxed in the United Kingdom and is not remitted to Gibraltar. If the income is remitted then credit is given for the tax paid in the United Kingdom.
Individuals resident in Gibraltar for tax purposes benefits from certain allowances, for example the first L600 of interest paid on a building society deposit is tax free, an allowance of L10,000 is given for a first time purchaser of a residence for his own occupation, mortgage interest is allowed as is life insurance and certain pension premiums. The first L1,450 of income is also tax free or in the case of a married couple the first L2,800. Tax is payable at the rate of 20 per cent on the first L1,500 of assessable income, 30 per cent on the next L5,500, 35 per cent on the next L5,500, 40 per cent on the next L3,500, 45 per cent on the next L3,500 and 50 per cent on any balance.
2. Taxation of Companies
Companies which are ordinarily resident in Gibraltar for tax purposes, which essential means those managed and controlled in Gibraltar, are liable to be taxed on their taxable profits at the rate of 35 per cent. There are also rules governing the withholding of tax at the rate of 30 per cent on certain payments of interest to non-resident companies and individuals. Payments by contractors to sub-contractors who have not been issued with an exemption by the Commissioner of Income Tax have to suffer a withholding of 30 per cent.
Exempt and Qualifying companies enjoy the exemptions explained in Sections 5.1 and 5.2.
3. Estate Duty
Real property situate in Gibraltar and personal property wherever situate of any person domiciled in Gibraltar is chargeable to Estate Duty. The estate of a person dying who is not domiciled in Gibraltar is chargeable to Estate Duty to the extent that the estate consists of any property situate in Gibraltar except if it is a bank or building society deposit.
Estate Duty is chargeable at the rate of 5 per cent on the value of the estate exceeding L20,000 but not exceeding L40,000, 10 per cent on the next L20,000, 15 per cent on the next L40,000, 20 per cent on the next L100,000 and 25 per cent on any amount exceeding L200,000. The first L100,000 of the deceased's primary residence in Gibraltar is not chargeable to Estate Duty.
As explained in sections 5.1 and 5.2 certain exemptions to this charge exist if the property consists of shares in or loans to Exempt or Qualifying companies.
4. Stamp Duty
Stamp Duty is levied on the documents listed in the schedule to the Stamp Duties Ordinance, for example conveyances, transfers and assignments are charged at the rate of 63 pence for every L50 or part thereof, mortgages at the rate of 13 pence for every L100 or part thereof. No Stamp Duty is levied on mortgages or bills of sale relating to ships. There are also concessions in respect of Exempt and Qualifying companies as explained in sections 5.1 and 5.2.
5. Tax Concessions
5.1 Exempt Companies
The Companies (Taxation and Concessions) Ordinance has as its main object the exemption of profits not arising from local trade from Gibraltar Income Tax and the exemption of the value of assets held through or in exempt companies from Estate or Death duties. An exempt company also enjoys exemption from Stamp Duties in Gibraltar and share transfers as well as assignments of loans of and in companies are also the subject of exemption for the benefit of the shareholder or loanholder transferring the same. The privileges of an exempt company are available only to non-Gibraltarians
(whether of British nationality or otherwise) and persons who do not come within the definition of residents of Gibraltar for the purposes of the Income Tax Ordinance.
Generally speaking, an exempt company can carry on business from Gibraltar in any part of the world, but it cannot engage in local trade or business, nor can it conduct business with Gibraltarians or residents of Gibraltar unless in an exceptional case permission is obtained, on application to the Financial & Development Secretary or unless it is another exempt company. Gibraltar is a suitable forum for the establishment of holding and family companies, and also for companies engaged in banking, finance, insurance and general management services and consultancy work, or in the business of distributors and agents, worldwide import and export business, as well as for shipowning and operating companies, and those engaged in supplying services to shipping. The certificate of exemption normally defines in broad items, the actual business that the company is authorised to carry on, within the limits of its exempt status.
An exempt company is required to have a capital of not less than L100. Whilst details and references of intended shareholders must be submitted, the law allows the acquisition of shares by trustees.
Annual Tax is payable by an exempt company irrespective of its share capital, assets, profits or losses, at the rate of L225 per annum if the company is controlled in Gibraltar and is thus ordinarily resident in Gibraltar, or at the rate of L200 per annum if the company is controlled outside Gibraltar and is thus not ordinarily resident in Gibraltar.
In most cases, it is an important advantage to be able to place management of the company in Gibraltar without attracting local taxes. This facility is not usually available in other finance centres where the management of companies of exempt corporate status must be removed from the place of incorporation. The additional L25 per annum of Annual Tax is thus worthwhile. At the time exempt status is sought, it is important to make adequate arrangements for the punctual payment of annual tax on the 31st March of every year. Non-payment of tax leads to forfeiture of exempt status, with a consequent liability to Gibraltar Income Tax and Estate Duty.
Exempt status can be reinstated on application and explanation of the default, by payment of the tax due.
and a penalty of L225. Defaults result in added administration and costs. Arrangements can be made for the provision of registered offices, Company Secretary, a Board of Directors, Nominees or Trustees and Trustee Services, and for the general management and administration of the company, and of any trusts that might be established in Gibraltar. Fees are arranged in accordance with the requirements of each case, subject to standard minimum fees for each service as set out in the attached schedule.
5.2 Qualifying Companies
Like an exempt company, a qualifying company can be either a company incorporated in Gibraltar or a foreign company registered in Gibraltar. The requirements which have to be met by a qualifying company are the same as those of an exempt company except that its share capital must be a minimum of L1,000.00. There is a requirement that L1,000.00 be kept on deposit with the Gibraltar Government as security for the payment of future taxes. A fee of L250.00 is also payable to the Government of Gibraltar an application for a Qualifying Certificate.
The advantages enjoyed by a qualifying company are also the same as those enjoyed by an exempt company except that instead of a flat rate tax it is taxed by reference to its taxable profit. On application a percentage rate is agreed with the Government which must be between 2 and 35 per cent. At present the minimum accepted rate seems to be 5 per cent. Qualifying companies are useful where a jurisdiction grants unilateral tax relief if profits have already been taxed at a percentage rate in another jurisdiction where the company is resident for tax purposes.
The Qualifying (High Net Worth) Individuals Rules 1992 makes concessions for certain individuals. To qualify the individual must have available for his exclusive use for a minimum period of seven months approved residential accommodation in Gibraltar. He must also reside in this accommodation for a minimum of thirty days. The individual cannot otherwise be resident in Gibraltar and must not have been so resident in any of the previous five assessment years.
If the individual meets these requirements then he may apply to the Financial and Development Secretary for the issue of a certificate designating him as a High Net Worth individual. A fee of L500 is payable on making the application. This fee is not refundable.
Once issued with a certificate such individual's taxable income becomes chargeable to tax in accordance with the provisions of the Income Tax Ordinance. However, there are limitations to the amount of tax for which he is liable in Gibraltar. Liability is limited to a maximum taxable income of L45,000 (the maximum liability is therefore L19,750 at present tax rates). There is a minimum liability to pay L10,000 in each year of assessment.
The Income Tax (Allowances, Deductions and Exemptions) Rules 1992 exempt the income received by any trust or beneficiary under the trust in the following circumstances:-
(a) The trust is created by or on behalf of a non-resident person; and
(b) 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, be not liable to tax under the Income Tax Ordinance; and
(c) except in the case of a trust created before the 1st July 1983, the terms of the trust expressly exclude residents of Gibraltar (as defined in the Companies (Taxation and Concessions) Ordinance) as persons who either are, or may be, under any discretionary power of the trustee under the terms of the trust, a beneficiary or any class or classes of beneficiary.
5.5 Development Aid
The Development Aid Ordinance relieves income of development projects in Gibraltar from Income Tax if a Development Aid Licence has been issued to the project by the Minister responsible for economic development as advised by the Development Aid Advisory Committee.
The criteria for the grant of such Licence includes the following requirements:-
(i) It is a new project which has the effect of:-
(a) Creating a tangible and immovable asset in Gibraltar with a life span exceeding the time during which the Licence holder derives benefits under the Licence; and
(b) providing more than two additional units of housing accommodation in Gibraltar; or
(c) contributing materially to the development of tourism in Gibraltar; or
(d) providing any new industry in Gibraltar; or
(e) affording new employment opportunities or career prospects in Gibraltar; or
(f) otherwise improving materially the economic or financial infrastructure of Gibraltar.
(ii) It is for the economic benefit of Gibraltar.
(iii) It shall:-
(a) if it is one falling within paragraph (i) (b) above, be completed within two years of the issue of the Licence and the investment must be one of a minimum of L200,000 or within five years and the investment made one of a minimum of L400,000;
(b) if it is one falling within paragraph (i) (c) to (i) (d) above, be completed within two years of the issue of the Licence and the investment must be one of a minimum of L500,000 or within five years and the investment made one of a minimum of L1,000,000.
The Minister retains a discretion to vary the requirements listed in (iii) above as to time limitations and amount of investments.
This entry is intended for general information only and should not be used or considered as a detailed exposition of the Law. It is aimed at giving a rudimentary view of the Law applicable in Gibraltar. This entry is not to be used as a substitute for professional advice which should be sought in each particular case.