Gibraltar: Focussing on the Rock

Expat Briefing Editorial Team, 11 September, 2013

On occasion, the Spanish authorities can make life quite uncomfortable for the almost 30,000 inhabitants of the British overseas territory of Gibraltar, as was demonstrated visibly in the world’s media earlier this summer. However, with its substantial financial services industry, burgeoning e-commerce sector and attractive tax regimes for skilled employees - not to mention its pleasant Mediterranean climate - the “Rock” still offers opportunities for expat workers to advance their careers while saving tax and getting a sun tan.

Gibraltar Fact File

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 – which, as it happens, is the source of much diplomatic friction.

The Strait of Gibraltar links the Mediterranean Sea and the North Atlantic Ocean, and Gibraltar enjoys a mild Mediterranean climate. Its highest point is the rock of Gibraltar which reaches 426m and is surrounded by narrow coastal lowland. The supply of fresh water is limited and there is no agriculture. Tourism, financial service and e-commerce are the main industries.

In July, 2012, the population was estimated at around 29,000. The official language is English although Spanish, Italian, Portuguese and Russian are also spoken. The ethnic groups settled in Gibraltar include Italian, English, Maltese, Portuguese and Spanish.

The history of the Rock of Gibraltar is rich and varied due to its strategic location. Spain controlled Gibraltar from the late 15th century until the War of the Spanish Succession (1702-1713), when the Treaty of Utrecht ceded the Rock to Great Britain "for ever." Spain's last attempt to take it back by force was in 1779.

During the nineteenth century, Gibraltar developed into an impregnable fortress and a prosperous society developed within its walls. It remained a key British military and naval outpost until very recently and British culture has heavily influenced most aspects of Gibraltarian life.

Gibraltar is politically stable and as a British colony since 1704 its legal systems are based on English models, although of course EU law applies in most areas.

In modern times Spain has pursued its claim to Gibraltar in every possible way short of force of arms; but the population will have none of it, and no resolution of the problem is in sight.

Offshore Financial Services

The banking sector is well established in Gibraltar in both the “offshore” and local market, although the Banking Ordinance 1992 repealed the previous distinction between 'A' onshore and 'B' offshore licences, and introduced a single banking licence. There has, however, been a steady fall in the number of banks located in the jurisdiction, from 26 banks in Gibraltar in 1996, to 20 banks as of March 2013 (a figure which includes 10 locally-incorporated banks; six branches; and four e-money businesses).

Most of the banks established in Gibraltar are branches of major UK, European or US banks. Much of the banking activity in Gibraltar 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 (see below). Licensed banks can in theory take advantage of 'passporting' opportunities and branch out across the EU and EEA without the need for further authorisation

There is also a lively investment management sector in Gibraltar, with around 20 licensed portfolio management firms. Many of the banks in Gibraltar also offer investment management services, and there are also independent stockbrokers.

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

Successive tightenings of UK anti-avoidance legislation have reduced the possibilities for UK citizens, but trust work continues to be significant, with many collective investment schemes based on trusts.


There is something of a competition between offshore jurisdictions to offer the most advanced e-commerce environment to businesses seeking an offshore base for part or all of their operations. Gibraltar would claim to be one of the preferred jurisdictions in this competition.

The ongoing sovereignty dispute with Spain means that Gibraltar cannot realistically be a tax-efficient base for the distribution for physical goods, so it has given preference to digital products, including financial services.

The Gibraltar Government elected early in 2000 was quick to make its intentions clear as regards e-commerce and in March 2001 the Electronic Commerce Ordinance was passed by the Gibraltar parliament, the House of Assembly, and was viewed as an important step in Gibraltar's development as an e-commerce hub. By locating websites in Gibraltar to carry out functions previously based in high-tax jurisdictions such as sales and marketing, treasury management, supply of financial services, and most of all, the supply of digital goods such as music, video, training, software etc, businesses can take advantage of low rates of taxation for increasingly substantial parts of their operation.

A case in point is the betting and gambling sector: In 2000 and 2001 Gibraltar attracted many of the bookmakers who fled the UK's high-tax regime in order to set up telephone betting service centres offshore. The gradually worsening tax climate in the UK and increasing international competition drove many betting and gaming operators away between 2006 and 2011, with quite a few of them migrating to Gibraltar, including some of the sector’s leading players Betfair, Ladbrokes and William Hill.

The growth of such businesses has also opened up numerous employment opportunities for expats with skills and experience not readily available in Gibraltar’s tiny labour market, particularly for those in senior management positions. Highly-paid expats can also take advantage of some special tax regimes (see below).


The presence of substantial financial services and e-commerce industries in Gibraltar is undoubtedly the result of its benign corporate and personal tax regimes.

After a protracted and complex legal dispute with the European Union over its former “offshore” tax regime, Gibraltar has set a flat 10% tax rate on resident and non-resident companies under the new Income Tax Act, which has applied from January 1, 2011 (although utility companies pay income tax at 20%).

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.

The standard rate of tax for individuals and trusts in Gibraltar is 30%. However, several key changes to Gibraltar's personal tax regime were introduced in 2007.

Acknowledging Gibraltar's relatively high headline rates of income tax, the Government announced a dual income tax system and changes to the high-net-worth individual (HNWI) scheme designed to make the tax system more attractive to expat workers employed in the jurisdiction's finance industry.

The first system is the existing Allowance Based System, under which the tax is charged following the deduction of personal and other allowances from gross income at the current tax rates: the first GIP4,000 of taxable income at 17%; the next GIP12,000 of taxable income at 30%; and the remainder of taxable income at 40%.

The alternative system is a new Gross Income Based system, in which the taxpayer receives no allowances, but pays tax on gross income at the following rates:

Individuals with gross assessable income not exceeding GIP25,000:

Individuals with gross assessable income exceeding GIP25,000:

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

Given the importance of the offshore sector to Gibraltar's economy, but with its very limited local labour pool, the government has traditionally offered tax schemes 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 schemes, outlined below:

Qualifying (Category Two) Individuals are liable to income tax on the first GIP80,000 of assessable income only. However, the minimum amount of tax payable by an HNWI in any one year of assessment under this scheme is GIP22,000. Applicants must have available for their exclusive use approved residential accommodation in Gibraltar. The Government also requires that the individual has sufficient means to maintain himself and his family. They will therefore be looking for evidence of wealth 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.

The High Executive Possessing Specialist Skills (HEPSS) was established for existing Category Three (since abolished) holders who earn more than GBP120,000 per annum and 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, and who will earn more than GBP120,000 per annum of income in Gibraltar. 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.

Obtaining Permission To Live And Work In Gibraltar

Nationals of EU member states have the right to enter, live and work in Gibraltar. Persons who are not entitled to work in Gibraltar (e.g. non-European Economic Area nationals) will require the prospective employer to request the issue of a work permit before commencement of employment.

Various conditions will need to be met by the employer before approval may be granted for the issue of a work permit. A work permit is issued for a period not exceeding 12 months.

Employers who breach work permit rules by not obtaining a valid permit for an employee who needs one face a fixed fine of GIP1,500.

In the June 2007 budget, passport issue and renewal fees were abolished for persons aged 65 and over.

The Spanish Problem

Recently, images of long queues of cars waiting for hours in sweltering heat to cross from Gibraltar to Spain, the result of more stringent border checks by Spanish officials, were broadcast in the UK and around the world. Sadly, this wasn’t a one-off event, and it represented the latest manifestation of the long dispute between Spain, Gibraltar and the UK over the Rock’s sovereignty which usually entails the deployment by Spain of all sorts of bureaucratic restrictions that generally make life difficult for Gibraltarians. For example, Spain has in the past restricted flights to and from Gibraltar’s airport, which lies in an area of disputed land between the two territories, and Madrid wants to exclude Gibraltar from the EU Single European Sky initiative, which would effectively place the Rock’s airspace outside the EU. Gibraltar has also long complained that Spain has not allocated it enough telephone numbers.

Things looked to be changing for the better about a decade ago when the former Labour Government in the UK got round the table with the former Socialist Government in Spain for discussions that for the first time also included representatives from the Gibraltar Government. This tripartite process culminated in the 2006 Cordoba Agreement, under which Spain agreed to: lift restrictions on flights between Gibraltar and the Spanish mainland; make provision for more telephone lines in Gibraltar and remove blocks on both calls made from Spain to Gibraltar and mobile phone roaming; and ease border checks, among other changes.

The tripartite process looks to have broken down though following the election of new governments in the UK and Spain in 2010 and 2011, respectively. Indeed, the recent events seemed to have confirmed this.

Earlier this year, Spain alleged that Gibraltar's construction of an artificial reef is hurting Spanish fishermen. In retaliation Madrid has threatened to impose a frontier tax on people crossing the border from Spain to Gibraltar, ostensibly to support Spanish fishermen whose livelihoods have supposedly been affected by the building of the reef. When the EU warned Spain that such a move would be illegal under EU law, it proposed instead a "congestion charge" on traffic crossing the Gibraltar border.

The situation hasn’t been helped however, by the British Government’s rejection of Spain's invitation to one-on-one talks over the British Overseas Territory's sovereignty.

Spain's foreign minister, Jose Manuel Garcia-Margallo, has said that negotiations with Britain regarding Gibraltar's sovereignty "have been on hold for too long." But a spokesman for British Prime Minister David Cameron responded that Britain would be willing to enter talks to address Spain's concerns about Gibraltar's fishing practices only, and would not discuss the enclave's sovereignty.

With both sides dug in to their respective positions, it would appear that there is little chance of a compromise being found in the foreseeable future, certainly while Spain continues to pursue its sovereignty claim and the UK refuses to discuss it. Until one is found, Gibraltarians will probably continue to suffer the inconveniences brought on them by the Spanish authorities, although to them this probably comes as no surprise.

Further Reading

Additional details on Gibraltar’s personal and corporate tax regimes as well as its business environment, business sectors and investment opportunities can be found on the Gibraltar pages of our partner website,

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