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| Direct
Corporate Taxation |
Major
changes to Gibraltar's corporate tax regime were
announced in Chief Minister Peter Caruana's June
2007 Budget speech.
Mr
Caruana explained that:
"The
Tax Exempt Company has been the backbone of the
development and growth of both our finance centre
and the online gambling industry, and thus of
a very significant part of our economy. It continues
to underpin thousands of jobs in Gibraltar and
large amounts of Government revenue."
"In
order to comply with EU law we must phase out
the tax exempt company in 2010. However, in order
to sustain our successful economic model we must
retain a commitment to a very competitive corporate
tax model."
Since
it is no longer legally acceptable to have one
tax model for ‘local’ companies and
a different one for ‘foreign’ companies
it is necessary to have a low tax system for all
companies because
without a low tax system for overseas companies
they will leave, and our economy
will suffer hugely. Thousands of jobs would be
lost, as well as significant Government revenue.
I have therefore already said, and I reaffirm
now, that the Gibraltar Government is irrevocably
committed to the principle of ‘low tax’
for our economic operators."
"By
mid-2010 the Government will have introduced an
across the board flat, low corporate tax rate.
This will most probably be set at 10%, but in
any event not higher than 12%. This will be similar
to arrangements that already exist in Ireland,
Cyprus, Malta and other EU Countries."
"In
the intervening period, the Government will engage
in an intensive, detailed and lengthy process
of consultation with the different economic sectors."
"In
order to signal the Government’s seriousness
of purpose in this respect I am today taking the
first step in the process of reducing corporate
tax rates in Gibraltar, by 2% for the year of
assessment 07/08 from 35% to 33%, and with effect
from the year of assessment 2008/09 by a further
3% from 33% to 30%."
"
I would also signal the intention of a further
reduction the year after that to 27%, in anticipation
of the introduction of the flat low tax rate in
2010."
The
following section deals with the corporate tax
regime as it stands prior to the entry into force
of the Budget 2007 changes.
In
Gibraltar there is no capital gains tax, sales
tax or VAT. The main tax for companies is corporation
tax, and there are withholding taxes; there are
also stamp duties on certain transactions, and
property taxes ('rates').
Assessment
and collection of tax is administered by the Commissioner
of Income Tax; the tax year runs from 1st July
to the following 30th June.
In
July 2002 Gibraltar's Chief Minister, Peter Caruana
announced a new corporate taxation policy setting
a zero rate of corporation tax for all companies
but introducing new taxes on company personnel
and property occupation which would be capped
at 15% of profits.
The
new taxes (put in place in 2003), were:
- A
“Company Payroll Tax” (similar to what
exists in Bermuda and elsewhere), introduced in
respect of employees in Gibraltar and charged
as a sum per annum per employee. This payroll
tax is a tax on the company and is payable by
the company only.
-
A new Business Property Occupation Tax was introduced
in respect of property occupied in Gibraltar by
companies for business purposes.
-
In addition, all companies pay an annual companies
registration fee of £300 p.a. (if the company
has income) or £150 (if the company has
no income) inclusive of annual return fees.
In addition, and subject to EU clearance, two sectors
of the economy only were to pay a new tax on profit.
The sectors were financial services providers and
utility companies.
Since
the taxes were capped at 15%, local companies which
used to pay 20% or 35% profits tax would be better
off, while 'offshore' companies would be worse off
only if they employed staff or occupy premises locally.
Many companies, particularly those used to hold
Spanish property interests, do neither.
In
March, 2003, the EU's Council of Finance Ministers
confirmed that the reforms did not constitute harmful
tax measures. However,
in April, 2004, the Commission argued that the new
rules would give companies domiciled in Gibraltar
an unfair advantage over their counterparts in the
UK, under a principle known as 'regional selectivity'.
The Commission also took issue with the fact that
since the taxes were based on payroll and the occupation
of business premises, offshore companies registered
in Gibraltar would be unlikely to incur any tax
liability. The EC therefore rejected the reforms,
effectively suggesting that for taxation purposes,
Gibraltar should be considered part of the United
Kingdom.
Chief
Minister, Peter Caruana slammed the EC for suggesting
that the jurisdiction is fiscally part of the United
Kingdom, pointing to its 1969 constitution, which
gives the territory fiscal autonomy. The United
Kingdom government is said to be “100% on-side”
regarding the ‘regional selectivity’ debate, and
Gibraltar is challenging the EC's view at the European
Court of Justice. The issue will take years to resolve,
and meanwhile Brussels officials seem to have agreed
that the existing situation (confusing as it is)
may be allowed to continue.
Gibraltar
dissolved its qualifying companies tax regime in
January, 2005, as negotiations continued in Brussels.
In a move that cost the Gibraltar government an
estimated £1.5 million in annual tax revenues, the
remaining qualifying companies, of which there were
about 80, switched to the ‘exempt’ companies regime.
“Each qualifying company has been dealt with on
an individual basis and alternative arrangements
made,” Caruana added.
Later
that month, it was announced that Gibraltar had
been given until 2010 (2007 for new companies) to
phase out its exempt company tax regime after the
European Commission ruled that the scheme violated
EU state aid rules.
The
remainder of this page primarily deals with the
corporate tax regime as it stood historically.
Scope Of Corporation Tax
Corporation
(income) tax was levied under the Companies (Taxation
and Concessions) Ordinance. Ordinarily resident companies
pay income tax on their worldwide income. As applied
to a company, 'ordinarily resident' means:
-
a
company the management and control of whose business
is exercised in Gibraltar; or
-
a
company which carries on business in Gibraltar
and the management and control of which is exercised
outside Gibraltar by persons ordinarily resident
there within the meaning of the Ordinance; or
-
in
the case of an investment company (ie whose income
mainly arises other than from the gains or profits
derived from any trade, business or employment),
which is domiciled anywhere outside Gibraltar,
where control of the company, through shares or
voting powers, is exercised by persons ordinarily
resident in Gibraltar.
A
non-resident company was defined as: a company which
is incorporated in Gibraltar (whether or not exempt),
owned by non-residents of Gibraltar and managed and
controlled by directors who reside and hold board
meetings outside Gibraltar.
A
non-resident company paid Gibraltar corporation tax
only on its income derived from or remitted to Gibraltar.
BACK TO TOP
Corporate Tax RatesTaxable
profits were charged with corporation tax at 35%.
From the 1999/2000 tax year there was a scale of lower
rates between 20% and 35% for companies with profits
between £35,000 or less and £105,000,
providing 80% of turnover is from trading activity.
(See Offshore Tax Regimes
for further details of the duty and taxes payable
by non-resident and exempt companies, and 'qualifying'
companies.)
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Calculation
of Taxable Base
For
companies, corporation tax is normally assessed
for income arising in the previous fiscal year.
Allowable
expenditure needs to be incurred 'wholly and exclusively'
for the business; however, mixed private/company
expenses can often be apportioned.
The
rules for depreciation of business assets were as
follows:
-
for
fixtures and fittings, plant and machinery acquired
after 30/6/87: 15% on the reducing balance;
-
ditto,
acquired before 30/6/87: 25% on the reducing
balance;
-
office
machinery: 20% on the reducing balance;
-
industrial
buildings: 4% of cost per annum;
-
ships:
10% of cost per annum;
-
capital
payments for leasehold premises: over the period
of the lease, up to 12 years maximum.
Disposal
proceeds above w.d.v. count as taxable income, but
balancing allowances are available if new, cheaper
equipment replaces obsolescent equipment.
Losses
can be carried forward indefinitely, but not backwards.
There are opening and closing year rules, except
for 'qualifying' companies, which are assessed on
an actual, not previous year basis. The EU's Fourth
and Seventh Directives are being incorporated into
Gibraltar law during 2000, and will presumably apply
to company and group accounting as from the next
tax year.
Although
Gibraltar has no double tax treaties, relief is
given in respect of UK tax paid on income also chargeable
in Gibraltar, and to a lesser extent on similar
Commonwealth tax. By concession, other foreign tax
paid on remitted income is allowed as a deduction.
Under
the EU Parent/Subsidiary Directive 90/435, a Gibraltar
company holding more than 25% of the shares of another
normally-taxable EU company does not pay tax on
dividends received; similarly a tax-paying Gibraltar
company holding more than 25% of the shares of another
EU company does not have to deduct withholding tax
on dividends paid to that other company. Qualifying
and tax-exempt companies are not covered by this
rule; but see Gibraltar 1992 Companies in Offshore Tax Regimes for details of
the special rules allowing 1% withholding taxes.
Companies
in receipt of Development Aid, or active in Tax-Deductible
Property Zones may be entitled to further allowances.
In
the 2005 budget, Gibraltar extended unilateral tax
relief provisions to all countries.
There is a gaming tax set at 3%; in the 2005 budget
the cap on the gaming tax was increased to £425,000
with the minimum payable remaining at 20% of the
cap figure.
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Taxation of Trusts
Trust
income is exempt from tax under the Income Tax (Allowances,
Deductions and Exemptions) Rules 1992 if:
- the
trust is created by or on behalf of a non-resident
person; and
- 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,
not be liable to tax under the Income Tax Ordinance;
and
- except
in the case of a trust created before 1/7/83,
the terms of the trust expressly exclude residents
of Gibraltar (as beneficiaries).
NB:
Interest income received from a Gibraltar bank is
normally exempt from taxation.
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Filing
Requirements and Payment of Tax
Assessments
are issued by the Commissioner of Income Tax; 50%
of the tax payable is due within three months of the
issue of the assessment, and the remainder within
six months, or by 30th April in the year of assessment,
whichever is the later.
Withholding
Tax
Resident
companies must deduct withholding tax at 35%
from dividends paid out; if the tax deducted
is more than the company's mainstream tax bill,
the excess is payable; if the tax deducted is
less than the company's mainstream tax bill,
the difference is carried forward and set off
against any future excess.
Interest
payments made by a company in respect of a mortgage,
debenture or loan of a capital nature, payments
made to non-residents for management consultancy
or similar services, and royalty payments are
subject to the deduction of tax at the standard
rate applicable to the recipient, ie 30% for
individuals and 35% for companies.
NB
Withholding tax arrangements have changed under
the new corporate taxation regime implemented
from 2003.
In
Gibraltar's 2005 budget, the following changes
were made:
-
Taxation
was abolished on dividends paid by one Gibraltar
Company to another Gibraltar Company;
-
Taxation was abolished on dividends and interest
paid by a Company to a non resident recipient;
-
The requirement to withold tax from dividends
in accordance with Section 39 of the Income Tax
Ordinance was abolished.
See
Offshore Tax Regimes for details
of the withholding tax regime applicable to qualifying,
tax-exempt and Gibraltar 1992 companies.
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