Feature

The development of new skills for the economy of Gibraltar is incentivised by a special tax regime for those who come to reside in Gibraltar with new skills. Their taxation is limited to the first £ 120,000 of their income.

The Government of Gibraltar has also made the decision to reward investment by reducing significantly the burden of taxation on passive income. Pensions for the over sixties are tax free, as is interest and all forms of investment income( including royalties) other than dividends generated from Gibraltar activities for all taxpayers. As a consequence, there are no withholding taxes on income paid from Gibraltar. On an individual level, Gibraltar is a great place to be for those who have retired with savings!

Gibraltar, as a dependent territory, although it is able to design and implement its own tax system, is not in the position to join the double taxation treaty network and its participation in arrangements and other international agreements is limited to the areas of regulation and exchange of information. The original Income Tax Ordinance of Gibraltar, handed down by the UK Government in the early 1950s held the solution to this. Gibraltar taxes on the source basis. Only income which is derived from activities which take place within the jurisdiction is liable to tax. This basis of taxation has been around for some time but in recent years has become more popular internationally as the ability of treaties to manipulate liability to taxation away from-the jurisdiction where the economic activity has taken place becomes more evident. Such a basis of taxation can be a significant disincentive where the place of the economic activity takes place has a high tax rate but has the reverse effect where the home of the economic activity can rely on a low tax rate.

There are three main legs on which a jurisdiction with a low tax rate has to be judged when considering its suitability as a base is considered.

Firstly, the tax structure and compliance of the jurisdiction must be internationally acceptable. Being a member of the EU means that Gibraltar must not only be OECD compliant, but also meet the requirements of the EU as to structural suitability and international compliance. The EU has put Gibraltar and its Tax Act to the test and has only come up with a minor suggestion which is being dealt with. Gibraltar has long been off the OECD black list and continues to enter into agreements with major territories in respect of transparency through information exchange.

Secondly, there must be a sufficient infrastructure to promote the housing of international business. Gibraltar for many years now has made the education of its youth a major priority and there is a strong graduate pool available to any business relocating to Gibraltar. The contiguity with Spain ensures that the size of the Rock does not inhibit the growth of the size of the workforce employed in Gibraltar. The experience of the online gaming companies is testament to Gibraltar’ s ability to take on and provide resources for large projects.

Thirdly, there must be an ability to maintain the tax rates at the low levels. As mentioned

before, the Gibraltar economy is small but strong. Growth is healthy and consistently at rates above the European norm. The net debt to GDP ration is in the area of 20 % to 30 %, an area most jurisdictions can only dream about. The jurisdiction has created so many jobs that it has to borrow large numbers of its workers from its neighbour. The Gibraltar tax rates are not driven by the need to create a low tax base but the low tax base is enabled by the strength of the economy.

As a jurisdiction Gibraltar has a lot to offer potential investors or those looking to base an international business.

Gibraltar’ s aim over the last decade has been to change it positioning from being an off shore regime to being an on shore regime. The change has not been painless but the results are rewarding. There is no illusion in Gibraltar that the process has been completed. It is well understood that international acceptability will be a continuing challenge but Gibraltar is ready to meet that challenge.

Gibraltar is happy to play by the rules. It is understood that tax planning must be based on reality and that the opportunities made available by, in particular, the EU Treaty, are only available when that reality is present. What is not understood is the attitude of Governments which allege immorality when businesses use the freedoms provided to them by a Treaty to which those Governments are signatories. www. gibraltarlaw. com