Gibraltar has a competitive tax regime. In Gibraltar there is NO:
- capital gains tax;
- tax on interest or gains made from bank/financial investments*;
- taxes on liquidation distributions;
- inheritance tax;
- wealth tax;
- gift tax; and
- withholding tax.
(*Interest earned by financial institutions, insurance companies and DLT firms are treated as trading income and pay tax at 12.5%. Loan interest recieved by a company or more than £100,000 per annum also pays tax at 12.5%.)
In addition, there is no tax on dividends paid by any company or to a non-resident individual. This makes Gibraltar a very attractive jurisdiction for non-residents to set up holding companies as dividends can be received completely free of tax.
Gibraltar companies pay corporation tax of 12.5% of their profits. However, only income which accrues in or is derived from Gibraltar is subject to corporation tax in Gibraltar.
Gibraltar operates a low tax residency scheme for individuals with net assets in excess of £2m capping the maximum personal income tax at between £37,000 and £44,740.
For those persons who are not Gibraltar nationals, who claim residency in or are resident in Gibraltar, do not hold Category 2 or HEPPS (High Executive Possessing Specialist Skills) status and are not in third party employment, they will be taxed on their full savings income, including pension income, interest income, dividend income and income from other passive sources. These persons have the option to retrospectively apply for Category 2 status to rationalise their position.
Assessment and collection of tax is administered by the Commissioner of Income Tax with the tax year running between 1st July and 30th June.
Corporation tax of 12.5% is payable on income which accrues in or is derived from Gibraltar. This means that if the preponderance of the income-generating activity takes place in Gibraltar, it will be subject to corporation tax but not otherwise.
Royalties and loan interest of more than £100,000 per annum are exceptions to the rule. Also, interest earned by financial institutions, insurance companies and DLT (distributed ledger technology) firms are treated as trading income and pay tax at 12.5%
On the above basis, many Gibraltar companies are not liable to pay tax in Gibraltar and further advice on this can be provided by our firm.
Gibraltar’s tax regime provides real structuring opportunities for companies with activities which can sensibly be performed outside their owner’s country of origin. For example, marketing, logistics planning, research, software development, web site maintenance, administrative and many other functions. Even bricks and mortar companies based in Gibraltar can benefit by paying 12.5% corporation tax on profits from income accruing in or derived from Gibraltar but not on other income.
Many companies are now choosing to locate in Gibraltar and conduct all of their business from here. Its low tax corporation tax rate of 12.5%, business-friendly environment, well-qualified workforce and political stability make it an attractive proposition.
There is, of course, the added advantage of no VAT, no capital gains tax and no tax on investment income.
Tax Position of Gibraltar-based Investment Funds
Investment funds are exempt from tax under Rule 3(17) of the Income Tax (Allowances, Deductions and Exemptions) Rules. This includes an exemption from investment and derivative premiums, interest income, securities trading income, financial instruments and property of any class, including real property and capital gains achieved from the trading of any of these. In addition, funds will not be subject to tax if their income does not accrue in and does not derive from Gibraltar.
Apart from transactions involving real estate in Gibraltar, there is no stamp duty. Significantly, there is no stamp duty on the transfer of shares in any Gibraltar company or fund.
Stamp duty is payable on real estate transactions in Gibraltar and, consequently, share transfers in companies which own real estate in Gibraltar are subject to stamp duty.
As Gibraltar has no tax on investment income and no capital gains tax, a Gibraltar company or trust is an ideal vehicle for holding a bank account, dealing in stocks and shares, holding portfolios of investments and for purchasing other financial products. All interest earned as well as any capital gains or other profits made are paid entirely free of tax. Many major international banks and financial institutions are based in Gibraltar and our firm has long-standing relationships with all of them.
Taxation of Individuals
Persons who are ordinarily resident in Gibraltar are liable to taxation on their worldwide income. There are special low tax provisions for high net worth individuals with fiscal residence in Gibraltar. There are also special provisions for persons with low incomes so that persons earning £10,500 or less will not pay any income tax.
Persons may elect to pay tax under either under the gross income based system or the allowance based system.
Gross Income Based System
Under this system persons are taxed on their gross income without any allowances being taken into account and without any deductions being made. The following rates apply.
Individuals with a gross income of less than £25,000 per annum:
- the first £10,000 at 7%;
- the next £7,000 at 21%;
- balance at 29%.
Individuals with a gross income between £25,000 and £100,000 per annum:
- first £17,000 at 17%;
- next £8,000 at 20%;
- next £15,000 at 26%;
- next £65,000 at 29%; and
- balance at 26%.
Individuals with a gross income above £100,000 per annum:
- first £17,000 at 18%;
- next £8,000 at 21%;
- next £15,000 at 27%;
- next £65,000 at 30%; and
- balance at 27%.
The maximum effective rate of taxation in Gibraltar is 27%.
Allowance Based System
Under this system persons may claim allowances and deductions and will be taxed on their taxable gross income less allowances.
Individuals with a gross income of less than £100,000 per annum:
- the first £4,000 of assessable income at the rate of 15%;
- the next £12,000 of assessable income at the rate of 18%;
- the remainder of assessable income at the rate of 40%.
Individuals with a gross income of above £100,000 per annum:
- the first £4,000 of assessable income at the rate of 16%;
- the next £12,000 of assessable income at the rate of 19%;
- the remainder of assessable income at the rate of 41%.
Allowances include things such as mortgage interest relief, medical insurance, child allowances and pension tax-relief.