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Gibraltar - The Big Rock With Low Expat Taxes

Expat Briefing Editorial Team
09 November, 2017


In this feature, we look at the special tax schemes designed to lure skilled professionals, investors and entrepreneurs to Gibraltar, which has a thriving financial services and e-commerce sectors.

About Gibraltar

Gibraltar is a small peninsula located on the southern coast of Spain. It covers a total area of 6.5 sq km and its coastline stretches for 12 km only; there is a 1.2 km borderline with Spain. The Strait of Gibraltar links the Mediterranean Sea and the North Atlantic Ocean.

Gibraltar enjoys a Mediterranean climate with warm summers and mild winters.

The highest point is the world-famous rock of Gibraltar which reaches 426m and is surrounded by narrow coastal lowland.

The population was estimated to be just over 29,000 in July 2017 and the official language is English, although Spanish is also spoken.

Although Gibraltar remains a dependent territory of the United Kingdom, it has its own directly-elected parliament. A new constitution approved by a referendum in the jurisdiction in 2006 gave it more autonomy from the UK over its own internal affairs. 

The jurisdiction's currency is the Gibraltar pound, which is at par with the British pound. There are no exchange controls in Gibraltar.

Gibraltar entered the EU along with the UK, it does not belong to the EU's VAT, Common Agricultural Policy or common external tariff regimes. However, Gibraltar has implemented much EU financial legislation and can apply Common European Passport regulations in the insurance, banking and fund management spheres.

The United Kingdom’s decision to withdraw from the European has, however, cast some uncertainty over Gibraltar’s crucial relationship with the EU.

E-Commerce

A combination of favorable legislation – Gibraltar was one of the first jurisdictions to legislate in this area – and a benign tax regime has ensured that Gibraltar has become a leading jurisdiction for e-commerce, particularly in the e-gaming sector. By May 2016, the number of licensed e-gaming operators had grown to 34, including such household names as Ladbrokes, BetVictor, bwin and 32 Red.

Financial Services

The banking sector is well established in Gibraltar in both the offshore and local market. Most of the banks established in Gibraltar are branches of major UK, European or US banks. Banking activity is directed to asset management for high-net-worth individuals, not least because Gibraltar has tried hard to attract such people with special tax regimes.

Trust management has been a traditional business for Gibraltar for more than fifty years. Originally most trust business emanated from wealthy UK individuals and was tax-related, but asset protection trusts have become important in recent years, with a much more diverse clientele.

Legislation passed in 2017 also allows service providers to offer foundations as an alternative to the trust form. Often used as a vehicle by investors from countries with a civil law tradition, who are often unfamiliar with common law trusts, a Private Foundation is an entity with separate legal personality that is able to hold and deal with property in its own name as legal and beneficial owner, as provided in the Foundation Charter.

Gibraltar has also emerged as a popular alternative jurisdiction for investment funds and their managers, offering robust fund legislation, efficient regulation, tax advantages and political and economic stability. Importantly, as previously mentioned, Gibraltar's EU membership provides entry to the single market in financial services, thereby enabling passporting throughout the member states of the EU.

Gibraltar is well-positioned as an alternative to Dublin and Luxembourg for the establishment and management of hedge funds with the coming into force of the EU's Alternative Investment Fund Managers Directive (AIFMD) in July 2013.

Access to the EU financial services markets, combined with low taxation and efficient regulations has also resulted in the insurance industry having a substantial presence in Gibraltar. The predominant class of business is motor insurance and Gibraltar insurers write about 10 percent of the total UK motor market.

Personal Taxation

For taxation purposes, an individual is either resident or non-resident, and nationality is not a factor in determining tax status. An individual is "ordinarily resident" if he or she is present in Gibraltar for a period of at least 183 days in aggregate in any one tax year, or is present in Gibraltar in excess of 300 hundred days in three consecutive years. Non-resident means any person other than a person ordinarily resident.

Several allowances and deductions are given under Gibraltar tax law. Examples in 2017 include a GIP3,215 personal allowance, a GIP3,215 spouse allowance, dependent relative allowances up to GIP305, a home purchase allowance of GIP12,000, child allowances up to GIP1,105, a disabled individual allowance of GIP9,040, a single parent allowance of GIP5,290, a nursery school allowance of GIP5,025, and a medical insurance allowance of GIP5,020. There are also deductions for life insurance contributions and mortgage interest payments, and there is a special deduction for senior citizens.

Taxpayers can elect to be taxed under two different tax assessment systems in Gibraltar as follows:

Under the Allowance Based System, tax is charged following the deduction of personal and other allowances from gross income at the following tax rates (2016/17): the first GIP4,000 of taxable income at 14 percent; the next GIP16,000 of taxable income at 17 percent; and the remainder of taxable income at 39 percent.

The alternative system is a new Gross Income Based system, in which the taxpayer receives no allowances (except for allowances for mortgage interest, home purchases, pension contributions and private medical insurance), but pays tax on gross income at the following rates:

Individuals with gross assessable income not exceeding GIP25,000:

  • The first GIP10,000 of assessable income at 6 percent
  • The next GIP7,000 at 20 percent
  • The remainder at 28 percent

Individuals with gross assessable income exceeding GIP25,000:

  • The first GIP17,000 of assessable income at 16 percent
  • The next GIP8,000 at 19 percent
  • The next GIP15,000 at 25 percent
  • The next GIP65,000 at 28 percent
  • The next GIP395,000 at 25 percent
  • The next GIP200,000 at 18 percent
  • The remainder at 5 percent

There is no capital gains tax in Gibraltar and estate duty was abolished with effect from April 1, 1997. 

High-Net-Worth Regimes

Given the importance of the offshore sector to Gibraltar's economy, the government has traditionally offered tax regimes to attract highly-qualified expat workers and high-net-worth individuals to fill senior management roles or invest in the jurisdiction. The government currently offers two such regimes, outlined below:

In 2016/17, Qualifying (Category Two) Individuals are liable to income tax on the first GIP80,000 of assessable income only. The minimum amount of tax payable by an HNWI in any one year of assessment under this scheme is GIP22,000 and the maximum is approximately GIP30,000. Applicants must have available for their exclusive use approved residential accommodation in Gibraltar and possess net assets to a value of at least GBP2m. Evidence of an individual's wealth will be sought, although it is not necessary for the individual to declare his worldwide wealth or earnings. The Government also requires that the individual has private medical insurance to cover both him and his family whilst residing in Gibraltar. Additionally, an applicant must not have been resident in Gibraltar in the previous five years.

A new category called "High Executive Possessing Specialist Skills (HEPSS)" was established for existing Category Three (since abolished) holders who earn more than GIP120,000 per annum as well as for new applicants who possess skills not available in Gibraltar and, in the Government's opinion, are of particular economic value to Gibraltar, who will occupy a high executive or senior management position. Under the HEPSS scheme, tax is payable only on the first GIP120,000 of assessable income under the Gross Income Based System. HEPSS applicants must also satisfy residential accommodation and residency conditions.




 

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