Thinking beyond borders
An individual’s liability to tax in Gibraltar is determined by residency for tax purposes and the source of the individual’s income. Income tax is levied at progressive rates on the individual’s taxable income for each year of assessment.
Business travellers could be liable to tax on income relating to their Gibraltar work days and duties unless an exemption applies e.g. for income from occasional presence in Gibraltar.
From 1 January 2011, individuals are taxed in accordance with the Income Tax Act 2010 (“ITA”). Under the ITA, an individual’s liability to Gibraltar income tax is determined by his or her residence status. An individual can be ordinarily resident or non-ordinarily resident for Gibraltar tax purposes.
An individual is ordinarily resident in Gibraltar if they are present in Gibraltar in any year of assessment for a period of, or periods together amounting to, at least 183 days; or present in Gibraltar in any year of assessment which is one of three consecutive years in which the total of the days for which the individual has been present in Gibraltar exceeds 300.
For the purposes of the above, presence in Gibraltar for any part of a 24 hour period commencing at midnight shall be counted as a day of presence whether or not any accommodation is used in Gibraltar.
An ordinarily resident individual is taxed on specified income, including employment income, that is “accruing in or derived from” Gibraltar and also certain types of income that are accruing in, derived from or received in any place other than Gibraltar, including employment income.
An individual who is not ordinarily resident in Gibraltar is only taxable on specified income that is accruing in or derived from Gibraltar, including employment income.
Extended business travellers are likely to be considered non-ordinarily resident in Gibraltar unless they meet the above residency criteria but income, wherever received, from any employment exercised in Gibraltar, is treated as having been derived from Gibraltar.
Generally, there is no threshold or minimum number of days that exempts an employee from the requirement to pay tax in Gibraltar in relation to an employment exercised in Gibraltar. However, a non-ordinarily resident individual who is present in Gibraltar on less than 30 days in aggregate in any year of assessment will not be subject to tax on:
For extended business travellers, the types of income that are generally taxable are employment income, benefits-in-kind paid to or on behalf of the individual, whether by the employer or a third party, and any other Gibraltar source income. Most passive investment income, e.g. bank interest, dividends from companies list on a recognised stock exchange, dividends paid to non-residents, etc. is not taxable in Gibraltar. There is no tax in Gibraltar on capital gains.
In some cases, the cost of relocation and travel to, as well as accommodation in Gibraltar, can be exempt from tax. Each case needs to be considered separately based on the facts and circumstances.
Individuals may choose between two tax systems, the Gross Income Based System (GIBS) and the Allowance Based System (ABS) and are generally taxable by reference to whichever results in the lower tax liability.
The tax rates vary under each system and are progressive, but under the Allowance Based System deductions and reliefs are available depending upon an individual’s personal circumstances (such as marital status, number of dependents, child care costs, etc.) There are also limited deductions available under the GIBS for mortgage interest, pension contributions, first time home purchase and medical insurance contributions.
Currently, an ordinarily resident individual whose gross income does not exceed GBP 11,000 pays no tax in Gibraltar.
Employees, including non-ordinarily resident individuals, performing work in Gibraltar are required to make social security contributions, unless they are exempt due to their age.
An exemption from the Gibraltar social security scheme may also be obtained, if the employee/assignee can satisfy the Gibraltar Tax Authorities that they are paying contributions into their EU member state scheme and this scheme is equivalent to the Gibraltar social security system. For an EU national this is based on EU rules, and therefore, requires the production of the required documentation and completion of the appropriate forms.
If no exemption is available, then an extended business traveller and his employer could be subject to Gibraltar social security; employers are liable to pay 20 percent of the employee’s gross earnings (subject to a minimum of GBP 15 per week and a maximum of GBP 32.97 per week) and employees are required to pay 10 percent of their gross earnings (subject to a minimum of GBP 5 per week and a maximum of GBP 25.16 per week).
The Gibraltar year of assessment is from 1 July to 30 June and both ordinarily resident and non-ordinarily resident individuals with assessable income or income liable to tax must submit tax returns by 30 November following the end of each year of assessment.
Employers are required to withhold tax and social security from an individual’s income earned while performing work in Gibraltar and pay this over to the Gibraltar Income Tax Office, by the 15th day of every month.
At the end of each year of assessment, the employer must make a return for each employee and in aggregate for all employees, specifying the emoluments paid, benefits provided and the amount of tax/social security deducted.
EEA nationals may enter and remain in Gibraltar and do not require a work permit. This is for an initial period after which they will be granted a residence permit for 5 years. Other nationals may require both a resident and/or work permit before entering Gibraltar.
These could include pension contributions by an employer to a pension scheme which has not been formally approved by the Commissioner of Income Tax.
There are no double tax treaties in force between Gibraltar and any other country. However, in certain circumstances and subject to conditions, relief may be available for income tax paid in another country, territory or jurisdiction. Where the Commissioner of Income Tax is satisfied that given the circumstances of an individual and the fact that tax due on any income accrued and derived outside Gibraltar will be reduced to nil through the granting of unilateral relief, he may agree that there is no requirement for the individual to make a return of that income. Given the above explanations, this is likely to be relevant for an ordinarily resident individual.
It is possible that a permanent establishment of an overseas company could be created in Gibraltar as a result of an extended business traveller working in Gibraltar but this would depend on the facts.
There is no VAT in Gibraltar.
Gibraltar has introduced a transfer pricing regime through transactions with connected persons provisions contained within the ITA. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, i.e. a cross-border benefit is being provided. The implications of this would be dependent on the nature and complexity of the services performed.
Gibraltar has data privacy laws.
The official currency of Gibraltar is Sterling and there are no exchange controls.