Tax requirements in Gibraltar are….

In Gibraltar, the main emphasis of the current tax regime for trading companies is on a single low rate of tax [1]

Corporate Tax [1]

Conditions for corporation tax in Gibraltar: income tax is charged on income accruing in or derived from Gibraltar

• A company will be considered resident in Gibraltar for tax purposes if:
  • The management and control of its business is exercised from Gibraltar
    • The location of management and control is 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 distinct from decisions on the day-to-day running of the business.Net turnover is less than £10.2 million
• A company may not be considered resident in Gibraltar for tax purposes if:
  • A company is ordinarily resident in Gibraltar but earns profits outside Gibraltar.
    • The overarching mandate established by the Commissioner of Income Tax is the profit of a company will have accrued in or derived from the location where the service was provided or where the activity”—or the majority of activities—which produced profits took place.
    • If this is outside Gibraltar, then the corporation is not subject to tax in Gibraltar.
    • If the activities which give rise to the profit relates to a business whose underlying activity requires a license, the business shall be deemed to take place in Gibraltar.
• Once it is established that a company is subject to Gibraltar taxation, the standard Corporate income rate is 10%, as of December 18, 2017.
• Taxable trading profits are calculated relative to widely accepted accounting principles, with certain legal adjustments, details can be found here
• Unlike in the UK, there is no capital gains tax in Gibraltar.
• Gibraltar’s access to EU directives has eliminated the retention tax on dividends received in Gibraltar and “enables mergers and corporate reorganizations to be undertaken on a tax-efficient basis.” Details on the latest information on outcomes of the Brexit negotiations can be found here.

Capital allowances: details can be found on page 7, here

Losses: a trading loss incurred during an accounting period may be offset by a trading income. There is no provision for carrying back losses

Group relief: there is no group relief in Gibraltar

Capital gains tax: there is no capital gains tax in Gibraltar

Capital duty: a capital duty of £10 is payable on the initial authorization of share capital or further increase thereafter

Profits: repatriation of profits from a Gibraltar company is normally achieved through dividend payments but can also be repatriated through interest charges, royalties, central cost re-charges or other methods

Dividends:

• Based on an imputation system
• “Tax paid by a company is deducted from the personal liability of a shareholder who receives dividends paid for by the company’s profits”
• “There is no tax payable by a company on dividends paid to either another company, including another Gibraltar company, or a non-resident individual.”
• There is no withholding tax on the payment of the dividends.

Royalties and licensing: both royalty income and license fees are exempt from tax in Gibraltar. There is no withholding tax on the payment of royalties in respect of registered patents.

Interest:

• Unless the income forms a subset of a company’s trading, interest is not taxable in Gibraltar
• Interest on borrowings, for the purposes of a trade or business, is tax-deductible based on accruals and subject to some anti-avoidance provisions
• There is no withholding tax on the payment of interest

Central cost re-charges: there is no withdrawal tax on central cost recharges, subject to judgement of the Commissioner of Income Tax

For more information on the international tax initiatives of Gibraltar please see page 55 to 57 here.

Auditing [2]

Companies are required to file returns and calculate their tax liability for the year. The return, estimated liability—more specifically, the balance of tax, the actual liability less payments on account—are due nine months after the date of the company’s financial year end. Companies are required to make payments on account of future liabilities on February 28th and September 30th of each calendar year. The payments should amount to 50% of the tax based on the previous annum’s assessable income. The accounting reference period is generally 12-months, except for the first accounting reference period which must not be more than 18-months after the company has been launched as an incorporation [1]. Subject to limitations, a company may alter its accounting reference date. A public company must file its accounts at Companies House within ten months of its accounting reference date, while a private company has 13-months [1].

• Companies with table income of more than £1.25 million must file audited accounts with the tax return
• Companies with a taxable turnover less than £1.25 million must file an Independent Accountant’s Report
• Companies with no taxable turnover must still file tax returns, which depends on the size of the company, determined by the Companies Act. If a company is small and has no taxable turnover, only an abridged balance sheet needs to be filed. According to the Companies Act, a company is considered small if;
  • Net turnover is less than £10.2 million
  • Total assets are less than £5.1 million
  • Average employees are less than 50 Appeals: if a taxpayer disputes an assessment, he can appeal against the decision in writing within 28-days within the notice of the assessment Fines and penalties: these are imposed if tax is not paid or if returns are not filed by the due dates
  • For a late tax payment, there is a penalty of 10% of the tax due for the day immediately following the day the payment was due.
  • If unpaid for 90 days, the amount accrues, and 20% of the tax due is charged
  • Failure to file a return by the due date results in a fine of £50 with further penalties of £300 - £500 if the return is not submitted within three - six months after the initial due date
  • Failure to file a return or filing a fraudulent or incorrect return may result in a penalty 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 depends on:
    • The amount of tax lost/delayed
    • The severity and intention (deliberate or honest) of the offence
    • The level of cooperation during the investigation
  • Failure to respond to a notice to submit documentation within 30-days results in a fine of £200 on the day the failure occurs, and a penalty of up to £500 per day thereafter. Failure to comply beyond a three-month period, can result in imprisonment
  • Failure to pay to the Commissioner PAYE or social insurance which should have been withheld or has been withheld is a criminal offence and can lead to imprisonment or a fine. If an amount of PAYE and/or social insurance which exceeds £5000 is outstanding for over three months the Commissioner will, after giving 14 days’ notice, publish the name(s) of the person who has/have failed to comply in the Gibraltar Gazette
  • More details of other offences can be found here Deduction on the Erection, Procurement, and Construction (EPC): a deduction is available for the investment made by an individual, company, or business that, according to the Commissioner of Income Tax, makes a significant improvement to the EPC rating Development aid: promoters and developers of select projects are offered certain incentives including tax relief, import duty relief, and rate relief. Details can be found on page 17 here

Start-up Businesses and Tax Incentives: new businesses which have set up in Gibraltar between July 5 2016 and June 30 2017 are eligible to a tax credit equal to the amount due up to a maximum of £50,000 per year for the first three financial years. This is subject to the following:

• The business must be new. It may not be the transfer of a business already existing in Gibraltar
• There must be at least five employees

• The business must be a company or limited partnership. It may not be an individual trading in his/her own name

• Tax returns for individuals, partnerships, sole traders, and trusts are due by the 30th of November the following the year in which the income is assessed.

( The public filing of financial statements, audit requirements, and directors’ report are covered in the Companies (Accounts) Act which can be viewed here

SOURCES
[1] PWC Doing Business in Gibraltar
[2] PWC Tax Facts