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 (which were to be put in place in
2003, but see below), 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 would be a tax on the company and payable
by the company only.
-
A new Business Property Occupation Tax, introduced
in respect of property occupied in Gibraltar
by companies for business purposes.
-
In addition, all companies would 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 to be capped at 15%, local companies
which used to pay 20% or 35% profits tax would
have been 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.
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.
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."
In
December 2008, the European Court of First Instance
ruled in favour of Gibraltar, stating that the
European Commission was wrong to argue that the
tax reforms proposed in 2002/03 were in breach
of state aid rules, and effectively giving the
jurisdiction licence to set its own tax rules.
The
Court dismissed the EU Commission’s case,
and stated that although the UK is representative
of Gibraltar, Gibraltar does, however, have fiscal
autonomy from the UK, and therefore can introduce
its own individual tax system (the aforementioned
10-12% corporation tax).
In
a statement to the press at the time, Peter Caruana,
Gibraltar's Chief Minister, said he was "overjoyed"
by the outcome.
"The
Court has found in Gibraltar’s favour and
has accepted our arguments on each and every issue,
relating both to regional selectivity and material
selectivity, and has ordered the commission to
pay the Gibraltar government’s legal costs.”
“This
needs to be clearly understood. Had Gibraltar
lost the Regional Selectivity case, we would have
had to adopt the UK’s company tax system
and company tax rates. That would result in the
bulk, if not all, of the finance centre and gambling
companies leaving Gibraltar. That would have meant
the loss of thousands of jobs throughout our economy,
and a very large fall in government revenue. This
in turn would have rendered unsustainable our
current level of public services and public sector
employment.”
“This
is a huge and vital victory for Gibraltar. A threat
to our economic, social, and thus political well-being,
has, once again, been successfully seen off. I
believe that the economy of Gibraltar now has
the opportunity to forge ahead to the next level
of growth and development, to fulfil its great
potential and thus to guarantee that we shall
bequeath economic and social prosperity and stability
to our children, grand children and future generations.
“
”Once
again, this small community has demonstrated that,
when right is on our side, and we hold our nerve
and we behave reasonably and intelligently, we
have the ability and determination to defend our
rights and interests as a people, even when they
are challenged by more powerful entities and forces.”
”On
behalf of the people of Gibraltar, I wish to thank
all those companies in the financial services
and gambling sectors and other sectors of the
economy that have had the faith and confidence
in us to stay with Gibraltar during these difficult
and uncertain times.”
“The
threat that Gibraltar has faced cannot be understated,
nor therefore, can the importance of this victory
to Gibraltar and its people and our future.”
In
his budget in June 2008, Peter Caruana announced
his intention to bring forward a 3% cut in corporate
tax originally scheduled to take place in 2009,
meaning that the corporate rate would drop by
6% that year.
"Last
year, and in order to signal the Government’s
seriousness of purpose in reducing corporate tax
rates, I reduced corporate tax rates to 33%, and
said that I would reduce it further this year
to 30%, with a signalled reduction to 27% next
year," Caruana told Parliament in his budget
speech.
"In
order to further signal the Government’s
commitment I am advancing that timetable by one
year, and therefore the corporate tax rate is
now reduced by 6% from 33% to 27% with effect
from this year that is the year of assessment
2008/09," he added.
Caruana
explained that he envisaged a further cut in the
rate next year, before moving to the rate of between
10% and 12% from 2010, adding that: "My strong
preference will favour the bottom end of that
range."
The
following section deals with the corporate tax
regime as it stood prior to the entry into force
of the Budget 2007 changes.