Income Tax in Gibraltar

Taxes on personal income:

Income tax is charged on income accruing in or derived from Gibraltar. The 'accrued in and derived from' principle is softened for individuals who carry out activities in Gibraltar for a period of less than 30 days in aggregate during the year of assessment, so that such individuals will be reimbursed for taxes paid on the income from their activities in Gibraltar.

Income tax is also charged on certain income accruing in, derived from, or received in any place other than Gibraltar by any person ordinarily resident in Gibraltar.

Personal income tax rates:

Individuals have the choice of being taxed under either an Allowances Based system or under a Gross Income Based system and will be assessed under the system that results in the lower tax.

Allowances Based system:

Under the Allowances Based system, the individual will be taxed on their income less allowances (see the Deductions section). For the 2016/17 tax year, the applicable tax rates are:

Taxable income	Rate of tax (%)
First GBP 4,000	14
Next GBP 16,000	17
Balance	39

Persons whose taxable income does not exceed GBP 11,050 per annum are exempt from tax.

A tapering relief is available for individuals whose taxable income is between GBP 11,050 and GBP 19,500.

Gross Income Based system

Under the Gross Income Based system, the applicable income bands and tax rates for the 2016/17 tax year are as follows for income up to GBP 25,000:

Taxable income	Rate of tax (%)
First GBP 10,000	6
Next GBP 7,000	20
Balance	28

The income bands and tax rates for income above GBP 25,000 are:

Taxable income	Rate of tax (%)
First GBP 17,000	16
Next GBP 8,000	19
Next GBP 15,000	25
Next GBP 65,000	28
Next GBP 395,000	25
Next GBP 200,000	18
Balance	5

Individual – Residence:

The definition of residence for individuals includes reference to a day count of 183 days in any tax year and over 300 days in aggregate over three consecutive years of assessment.

Income determination:

Employment income:

All remuneration paid in cash or in kind is taxable without regard to length of residence or source of income. Benefits in kind are taxed as if they were income from employment.

Specific legislation has been introduced on how to tax benefits and the allowances available, particularly on the following:

·  Expense payments.

·  Vouchers and credit tokens.

·  Living accommodation.

·  Cars, vans, and related expenditure.

· Loans to employees.

· Loans to directors, shadow directors, or connected persons.

· Removal benefits and expenses.

The notable exceptions are contributions paid to an approved pension scheme, medical insurance premiums up to GBP 3,000, and the cost of providing accommodation to a relocated employee for the first seven years, which are all exempt from tax.

The Commissioner may also tax benefits not specifically covered in legislation. The value of the benefit is the cost to the employer less any amount made good by the employee.

There is a non-taxable allowance in respect of benefits, where the total annual value of the benefit is less than GBP 250 in respect of any employee.

The employer may opt to pay the tax on the benefits on behalf of an employee. When the annual value of these benefits is between GBP 250 and GBP 15,000, tax shall be paid at the rate of 20%. When the annual value of the benefit is more than GBP 15,000, tax shall be paid at the rate of 29%.

Capital gains:

There is no tax on capital gains in Gibraltar.

Dividend income:

Dividends are taxable to the extent that the underlying income of the company comprises income that is taxable in Gibraltar.

Interest income:

There is no tax on interest income in Gibraltar.

Tax administration:

Taxable period:

The taxable period for individuals runs from 1 July, or the commencement of the source of income (if later), to 30 June in the year of assessment.

Tax returns:

Individuals are required to file returns and calculate their tax liability for the year. The return, together with the estimated liability, needs to be accompanied by payment of the tax due.

The due date for filing is 30 November. Individuals liable to tax or having assessable income for a year of assessment must make a full and complete return of their income for that year by 30 November immediately following the end of that year of assessment. Failure to submit a return by this date will result in a GBP 50 fine, which will increase by a further GBP 300 after three months.  If the failure continues beyond six months, an additional penalty of GBP 500 is payable.

Payment of tax:

For employees, the collection of tax is initially through a pay-as-you-earn (PAYE) system. Every employer paying emoluments to an employee is required to deduct a specified amount of tax from the amount of emoluments.

At the end of the year of assessment, the employer is obligated to make a return of the employees' emoluments and tax deducted together with the payment of any outstanding tax.

Where the source of income is not collected under the PAYE system, individuals are required to make two payments on account, on 31 January and 30 June, in each year of assessment based on the previous year's assessment. Each payment should be equal to 50% of the previous year's tax payable. The balance of tax due (i.e. the actual liability less payments on account) is due on the date of filing of the return.

Late payment will result in a penalty of 10% of the amount of tax due. This will increase to 20% after a further 90 days.

Taxes on corporate income:

Companies are subject to Gibraltar taxation on income accrued in and derived from Gibraltar.

The standard CIT rate is 10%, with utility and energy providers and companies that abuse a dominant position paying a higher rate of 20%. For telecommunications companies, the 10% rate will apply to the gains and profits arising from their non-telecommunications business and activities.

Corporate - Corporate residence:

A company will be considered resident in Gibraltar if the management and control of its business is exercised from Gibraltar or from outside Gibraltar by persons who are ordinarily tax resident in Gibraltar.

The location of central management and control will be established under legal principles laid down in the United Kingdom and is the place of the highest form of control and direction over a company's affairs, as opposed to decisions on the day-to-day running of the business.

Permanent establishment (PE):

Gibraltar has not entered into any double tax treaties (DTTs); consequently, there are no provisions on PE from a general treaty perspective. Nevertheless, the Gibraltar Tax Commissioner accepts the definition of PE set out in Article 5 of the Organisation for Economic Co-operation and Development (OECD) Model Convention.

Under the Gibraltar Companies Act 2014 (CA 2014), foreign companies that establish a place of business in Gibraltar or have a branch in Gibraltar must register with the Registrar one month after commencing business in Gibraltar. Under the CA 2014, the definition of a company includes a foreign company registered in Gibraltar. The profits or gains of a foreign company registered in Gibraltar shall be assessable on the accounting period beginning whenever that company is first registered in Gibraltar.

Income determination:

Generally, companies are subject to Gibraltar taxation on income accrued in and derived from Gibraltar.

The ‘accrued in and derived from’ principle is defined by reference to the location of the activities that give rise to the profits.

Should the activity of a business be a licensable activity under Gibraltar law, the profits from this activity will be deemed to arise in Gibraltar. Furthermore, the profits of a business that can lawfully be transacted in Gibraltar, through a branch or any form of PE, by virtue of the fact that it is licensed in another jurisdiction that enjoys passporting rights into Gibraltar and which would otherwise require such licence and regulation in Gibraltar shall be deemed to arise in Gibraltar.

In the case of royalty income and inter-company interest income, both revenue streams are deemed to accrue in and derive from Gibraltar where the entity in receipt of the income is a Gibraltar-registered company.

Inventory valuation:

Inventory is valued at the lower of historical cost or net realisable value. A first in first out (FIFO) basis of determining cost where items cannot be identified is acceptable, but not the base-stock or the last in first out (LIFO) method.

Capital gains:

Capital gains are not subject to tax in Gibraltar.

Dividend income:

There is no charge to tax on the receipt by a Gibraltar company of dividends from any other company.

Interest income:

Companies with a banking or money lending licence and earning interest as a trading receipt will have that interest treated as income chargeable to tax.

Interest received or receivable by a Gibraltar company arising from an inter-company loan will be chargeable to tax at the standard CIT rate. Where the interest received or receivable is less than GBP 100,000 per annum, the interest is exempt from any charge to taxation.

All other interest received or receivable is not taxable in Gibraltar.

Royalty income:

Income from royalties received or receivable by a Gibraltar company is taxable at the standard CIT rate.

Foreign income:

Foreign income is not normally taxed in Gibraltar. Exceptions to this rule are interest income and royalty income.

Corporate - Tax administration:

Taxable period:

The taxable period is the accounting period of the company, which begins on the later of the beginning of the accounting period and the date when the company first receives a source of taxable income and ends on the earlier of the end of the accounting period, 12 months from the beginning of the accounting period, or the date on which trade ceased.

Tax returns:

Companies with income subject to tax in Gibraltar are required to file a return and calculate their tax liability for the year. The return, together with the estimated liability, needs to be accompanied by payment of the tax due nine months after the date of the company's financial year end.

Companies with assessable income of more than GBP 1.25 million are required to file audited accounts together with the tax return.

Where companies have assessable income of less than GBP 1.25 million, the accounts can be accompanied by an Independent Accountant's Report.

Companies with no assessable income are still required to file tax returns. The accounts to be filed depend on the size of the company as determined by the CA 2014. Full audited accounts are required except where the company qualifies as 'small', which would mean satisfying two of the following criteria for two consecutive years:

· Net turnover of less than GBP 10.2 million.

· Total assets of less than GBP 5.1 million.

· Average employees of less than 50.

Where the company is 'small' and has no assessable income, only an abridged balance sheet needs to be filed.

Payment of tax:

Companies are required to make payments on account of future liabilities on 28 February and 30 September in each calendar year. Each payment should be equal to 50% of the tax payable for the relevant accounting period. The relevant accounting period is a prior accounting period whose tax payable date (i.e. nine months after the date of the company’s financial year end) precedes the first payment on account date for the accounting period in question. The relevant table in Schedule 10 of the Income Tax Act can be used to determine the correct relevant accounting period for the purposes of calculating the payments on account.

The balance of tax due (i.e. the actual liability less payments on account) is payable on the date of filing of the return.

Penalties and fines:

The following penalties and fines are applicable:

· For the late payment of tax, there is a penalty of 10% of the amount of tax due on the day immediately after such payment was due. If unpaid within 90 days, a further amount of 20% of the tax due and the surcharge mentioned that remains unpaid shall become immediately due and payable. A surcharge imposed shall be deemed to be part of the taxation payable.

· Failure to file a return by the due date will result in a penalty of GBP 50, with a further penalty of GBP 300 if the return is not submitted within three months after the due date. If the failure to file continues beyond six months, an additional penalty of GBP 500 is payable.

· Failure to respond to a notice or request to submit information or documentation will result in a fine of GBP 200 on the day the failure occurs and a further penalty of GBP 1,000 if the failure to comply continues one month after the applicable day for delivery of the accounts as referred to in the notice. Failure to comply beyond a three month period, if convicted, can result in imprisonment.

 · For fraudulently, recklessly, or negligently delivering to the Commissioner an incorrect return, accounts, or information, there is a fine of up to 150% of the difference between the actual tax due and the tax due as per the original declaration. The amount of the penalty will depend on:

o   the amount of the tax lost and/or delayed

o   the gravity of the offence (i.e. if deliberate or an honest mistake), and

o   the level of cooperation in the investigation.

·        The Commissioner of Income Tax may publish details of a person who has failed to pay tax due under the Income Tax Act or under the PAYE regulations in the Gibraltar Gazette if:

o   the Commissioner has notified the person of the Commissioner’s intention to do so 30 days prior to the publication

o   the person has failed to pay tax due to an amount of GBP 5,000, and

o   the tax due to be collected or paid has not been collected or paid for a period of at least three months after the due date.

·        Failure to notify the Commissioner of an arrangement, the main benefit of which is to avoid the payment of tax, will result in a fine of GBP 200 on the day the failure occurs and a further penalty of GBP 1,000 if the failure to comply continues one month after the applicable day for providing the information.

Tax audit process:

The Gibraltar tax system is based on self-assessment. However, the Income Tax Office has powers to make an enquiry into the tax return of a company within a period of 12 months from the date when the return is due to be filed or, if filed later than the deadline, 12 months from the date it was filed. If the Commissioner of Income Tax believes a return to be fraudulent, the above time limits will not apply.

A taxpayer may appeal against a disputed assessment by notice in writing addressed to the Commissioner within 28 days of the date of service of the notice of the assessment.

Statute of limitations:

The Commissioner has up to six years following the date of assessment to revise any incorrect assessments. There is no limit where the incorrect assessment is as a result of fraud, willful default, or neglect.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.