Corporate tax in Gibraltar

Summary

Corporate Income Tax Rate (%) 10 (a)
Capital Gains Tax Rate (%) 0
Branch Tax Rate (%) 10 (a)
Withholding Tax (%)
Dividends 0
Interest 0
Royalties 0
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward Unlimited (b)

a) A tax rate of 20% applies to utility, energy and fuel supply companies and companies abusing a dominant market position.

b) In general, the carryforward is unlimited. However, if both a change in own­ership and a major change in the nature or conduct of a trade carried on by the company occurs within a three-year period, losses incurred before the change in ownership cannot be offset against losses incurred subsequent to the change in ownership.

Taxes on corporate income and gains

Corporate income tax. Companies are taxed on profits “accrued in or derived from” Gibraltar. “Accrued in or derived from” is defined by reference to the activities that generate the profits. If a company’s income results from an underlying activity that re­quires a license and regulation under any law of Gibraltar, the income is deemed to accrue in and derive from Gibraltar, except for income from activities carried on outside Gibraltar by a branch or permanent establishment.

The above rule applies regardless of whether a company is regis­tered in Gibraltar or whether it is ordinarily resident in Gibraltar. A company is ordinarily resident in Gibraltar if central manage­ment and control is exercised there.

Rates of corporation tax. All companies are chargeable on taxable profits at a rate of 10%, except for utility, energy and fuel supply companies and companies deemed to be abusing a dominant mar­ket position, which are subject to tax at a rate of 20%.

Capital gains. Capital gains are not taxed in Gibraltar. Capital losses are not deductible.

Administration. For financial periods beginning on or after 1 Jan­uary 2016, all companies that are registered in Gibraltar or that have income assessable to tax in Gibraltar are required to file a return. At the time of writing, it is uncertain whether companies with no assessable income will be required to submit accounts with their return. For prior financial periods, only companies with income assessable to tax in Gibraltar are required to file a return. Returns, accounts and computations must be filed within nine months after the end of the month in which the financial period ends.

Companies must make payments on account of their corporation tax by 28 February and 30 September each year. Each payment is made toward the tax liability for the financial period in which the payment on account is due. The amount of payment on account due is based on the tax payable for the last relevant financial pe­riod. An application can be made for a reduced or zero payment if basing the payment on a prior year would result in an excessive payment. The final payment with respect to a financial period is due within nine months after the end of the month in which that financial period ends.

Companies not complying with filing and payment deadlines are subject to penalties and surcharges.

A self-assessment system requires companies to assess correctly their tax liabilities or face significant penalties.

Companies may request advance tax rulings.

Dividends. Dividends paid by Gibraltar companies are not subject to withholding tax. Tax credits are attached to dividends paid by companies incorporated in Gibraltar. This tax credit equals the tax paid by the company on the profits out of which the dividend is paid. Restrictions may apply to how such tax credits may be utilized.

Dividend income is not taxable in the following circumstances:

  • The dividend is received by a company from another company.
  • The dividend is received by a person who is not ordinarily resi­dent in Gibraltar.
  • The dividend is received from a company that has its shares listed on a recognized stock exchange.
  • The dividend represents the distribution of profits or gains on which no tax has been charged in accordance with the provi­sions of the Income Tax Act 2010 (the act contains rules gov­erning the allocation of dividends to specific profits or gains).

Interest. Withholding tax is not imposed on the payment of inter­est. Interest income is not taxable, except for the following:

  • Interest on loans or advances by one company to another com­pany if the interest from an individual company is GIP100,000 or more per year. Under an anti-avoidance measure, interest received or receivable from different companies is considered to be from the same company for the purposes of the GIP100,000 threshold if those companies are “connected persons.” For this purpose, interest is deemed to be accrued and derived in Gibraltar if the company in receipt of the interest is a Gibraltar-registered company.
  • Interest income of a company that lends to, or takes deposits from, the general public or engages in similar activities.

Royalties. Royalty income received or receivable by a company is taxable. Such income is deemed to be accrued and derived in Gibraltar if the company receiving the royalties is a Gibraltar-registered company.

Foreign tax relief. Unilateral tax relief is granted with respect to tax paid or payable in another jurisdiction on income from that jurisdiction. This is restricted to the tax that would otherwise have been payable in Gibraltar on that income.

Determination of trading income

General. Taxable profits are determined based on financial state­ments prepared in accordance with Gibraltar generally accept­ed accounting practice (GAAP), or UK GAAP or International Financial Reporting Standards, subject to certain adjustments and provisions.

In general, expenses must be incurred wholly and exclusively for the purposes of the trade, business, profession or vocation. How­ever, specific reliefs and prohibitions exist for certain expenses.

Certain expenses are either not deductible or are subject to re­strictions, including the following:

  • Interest paid or payable to a person not resident in Gibraltar is not deductible to the extent that the interest is charged at a rate greater than a reasonable commercial rate.
  • Depreciation and amortization of assets are not deductible (in­stead capital allowances are given; see Tax depreciation [capital allowances]).
  • Contributions to a provident, pension or other fund for the ben­efit of employees are not deductible if the fund has not been approved by the Commissioner of Income Tax.
  • The cost of entertaining existing and potential clients and per­sons introducing business, are deductible, but detailed rules re­strict deductibility.
  • For a branch or a company with a branch, the deduction for certain head office expenses or certain expenses incurred by a branch for the common purpose of the company is restricted to 5% of gross income of the branch.
  • “General” expenses are apportioned between chargeable and non-chargeable income on a pro-rata basis. The part of such ex­penses attributable to non-chargeable income is not deductible.

Tax depreciation (capital allowances). The first GIP30,000 of plant and machinery (including, among other items, fixtures, fitting and equipment, but not motor vehicles) acquired in a financial period is fully deductible in that period. In addition, the first GIP50,000 of qualifying capital expenditure on information tech­nology investment in a financial period is also fully deductible.

All such assets, as well as motor vehicles, are pooled for tax purposes. The pool is increased with respect to any additions in excess of initial allowances given, and reduced by the proceeds of any disposals in the period. The allowance for the year is then calculated at 15% of the value of the pool. The pool value is then reduced by that allowance and the remaining balance carried for­ward to the next period. For companies taxed at 20% (see Rates of corporate tax), the annual allowance is given at 20% instead of 15%.

Groups of companies. Gibraltar law does not provide for tax con­solidation. It does not have any provision for group relief (that is, the use of tax losses of one group company by another group company).

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate
Stamp duty
On the issuance or increase of authorized
share capital, or on the issuance of loan
capital; fixed amount per transaction
GIP10
On the purchase of real estate in Gibraltar
First- and second-time buyers
First GIP260,000 of purchase price 0.00%
Balance above GIP260,000 to
GIP350,000
5.50%
Balance above GIP350,000 3.50%
Other buyers
Purchase price not exceeding
GIP200,000
0.00%
Purchase price between GIP200,001
and GIP350,000
2% on first GIP250,000,
and 5.5% on balance
Purchase price of over
GIP350,000
3% on first GIP350,000,
and 3.5% on balance
Social insurance contributions, on
employees’ wages and salaries;
payable on weekly wages by
Employer 20% (subject to minimum
of GIP15 per employee per week and maximum of GIP32.97 per employee per week)
Employee (under 60) 10% (subject to minimum
of GIP5 per week and maximum of GIP25.16 per week)

Miscellaneous matters

Foreign-exchange controls. Restrictions are not imposed on for­eign exchange or on inward or outward investments. The transfer of profits and dividends, loan principal and interest, royalties and fees is unlimited, subject to company law.

Anti-avoidance legislation. Gibraltar tax law contains several anti-avoidance provisions.

The Commissioner of Income Tax may disregard part or all of arrangements that are deemed to be artificial and/or fictitious and whose purpose is to reduce or eliminate tax payable.

Any “notifiable arrangement” or “notifiable proposal” must be disclosed to the Commissioner of Income Tax. Detailed pro­cedures exist for seeking clearance in advance of proposals. A timetable is provided for the Commissioner to request further information, to notify the applicant that anti-avoidance provisions will or will not apply, or to notify the applicant that the Commis­sioner requires a further 21 days to make a decision.

In certain circumstances, the deduction for expenses incurred in favor of a connected party or parties may be restricted to the lower of 5% of turnover or 75% of profit before taking into account the expenses in question.

Debt-to-equity ratios. Thin-capitalization rules apply to interest paid by a company in the following circumstances:

  • The interest is paid to a connected party that is not a company.
  • The loan is secured by assets belonging to a connected party that is not a company.

In the above circumstances, if the loan is not considered to be on arm’s-length terms and if the loan capital to equity ratio is greater than 5:1, interest paid by the company may be treated as a divi­dend instead of a deductible expense.

Interest paid to a connected party in excess of the amount that would have been charged on an arm’s-length basis may be deem­ed to be a dividend instead of a deductible expense.

Interest may be disallowed as a deductible expense if both of the following circumstances exist:

  • The loan is secured by a cash deposit made with the lender (or party connected to the lender) or secured by certain investments.
  • The income from the cash deposit or investment is not assess­able to tax.

Tax treaties

Gibraltar has no tax treaties in force. Gibraltar has implemented the European Union (EU) Parent Subsidiary Directive and the EU Directive on Interest and Royalties. Notwithstanding the legisla­tion arising from these EU directives, Gibraltar does not impose withholding tax on dividends, interest or royalties.