Tax and pensions
Gibraltar’s favourable tax climate means Gibraltar continues to become an increasingly attractive centre for offshore companies as well as an ideal base for 'High Net Worth Individuals' who wish to take up residence in Gibraltar.
Gibraltar models its tax system on the system in the United Kingdom, however as an offshore centre it enjoys a more liberal regime. Some of the attractive features of Gibraltar’s tax system for residents include no Capital Gains Tax, no Wealth Tax, no Inheritance Tax and no Estate Duty (which was abolished in 1997). For companies, there is a lower rate of corporation tax attracting many companies to relocate headquarters to the jurisdiction.
At Indigo we hold a wealth of general information about the tax, legal and pension system in Gibraltar for individuals and corporations. Please select from the options below to find further information:
The rate of corporation tax is currently 22% but with effect from 1 January 2011 a new reduced rate of 10% will apply to all companies. The only exceptions are energy and utility providers who will pay a 10% surcharge and will thus be taxed at a rate of 20%. These energy and utility companies include electricity, fuel, telephone service and water providers. To help new businesses, a start up rate of 10% will apply to all businesses established in Gibraltar after the 1st July 2009. Tax will be assessed on an actual year basis.
Gibraltar has no sales tax and no VAT. However, depending on the type of business, some Gibraltar firms can obtain a British VAT number. Furthermore there is no capital gains tax, no inheritance tax, no withholding tax on dividends paid to non-residents and no wealth tax.
Corporation tax generates revenues of £25.8 million in 2008-2009, an increase of 6.5% on the previous year.
For latest information visit www.gibraltar.gov.gi
Gibraltar residency is attractive because of its favourable tax climate. For example there is no capital gains tax, estate duty or inheritance tax. There are specific rules and conditions for 'High Net Worth Individuals' who wish to apply for Gibraltar residency. These individuals are labelled as Category 2 residents.
Gibraltar’s Income Tax Act governs the taxation of individuals and companies. In general, it applies to tax on income accruing in, derived from, or received in Gibraltar. The Act describes taxation on gains or profits from any trade, profession or employment including benefits in kind. It also covers taxation on dividends, interest, rents, pensions, annuities, and royalties. Income from investments is tax free.
See below for more information on Gibraltar taxation.
The Gibraltar tax year runs from 1 July to 30 June. Individuals can pay tax under one of two systems in Gibraltar: the Allowance Based System which allows individuals to claim tax relief for a range of activities or alternatively the Gross Income Based System which taxes individuals at a lower rate but without permitting tax relief for these items listed under the Allowance Based System. The individual must choose which system they follow based on their personal circumstances.
The Gross Income Based System
Under this system individuals pay tax on their gross assessable income at the rates shown in the table below. Individuals will receive no other allowances.
|Individuals with gross assessable income not exceeding £16,000|
|The first £10,000 of assessable income - 10%||balance - 20%|
|Individuals with gross assessable income between £16,001 and £25,000|
|income of £16,001 to £17,000, on the first £5,000 - 0%||balance - 20%|
|income of £17,001 to £18,000, on the first £4,000 - 0%||balance - 20%|
|income of £18,001 to £19,000, on the first £3,000 - 0%||balance - 20%|
|income of £19,001 to £20,000, on the first £2,000 - 0%||balance - 20%|
|income of £20,001 to £25,000, on the first £1,000 - 0%||balance - 20%|
|Individuals with gross assessable income exceeding £25,000|
|the first £25,000 of assessable income - 20%|
|the next £75,000 of assessable income - 29%|
|the remainder of the assessable income - 35%|
The Allowance Based System
Under the Allowance Based System, the taxpayer is able to deduct certain allowances from their gross income before their income tax is calculated. The allowances are often generous making this system attractive to many people who are resident in Gibraltar. Individuals taxed under the Allowances Based System pay tax at the rates shown in the table below.
|For every pound of:|
|The first £4,000 of taxable income||17%|
|the next £12,000 of taxable income||30%|
|the remainder of the taxable income||40%|
Gibraltar’s tax system is clearly attractive for a variety of individuals including Category 2 Residency and HEPPS.
Category 2 Residency
Category 2 residency provides low tax limits for 'High Net Worth Individuals' who wish to live in Gibraltar. To qualify for Category 2 residency, a person:
• must have approved exclusive residential accommodation in Gibraltar for the whole of the year of assessment;
• is not resident in Gibraltar and has not been in the previous five years; and
• must have been issued with a Category 2 certificate from the Finance Centre Director.
A Category 2 resident is liable to income tax on the first £70,000 of assessable income only. The tax due annually shall be not less than £20,000.
Seefor more details.
To qualify for Category 2 a person:
• must have a minimum net worth of £2 million and have a sound financial background;
• must own or rent approved residential accommodation in Gibraltar and not rent it out to other parties. In this instance they will not be deemed to have “exclusive use” and would consequently lose their Category 2 residency;
• is not permitted to engage in a trade, business or employment in Gibraltar; and
• must have private medical cover in Gibraltar.
An application for Category 2 residency is made to the Gibraltar Finance Centre Director. An applicant must submit a CV and two references, one of which must be from a banker confirming that the individual has available to them a minimum of £2 million in bank deposits or securities. The applicant must also include a copy of their passport along with proof of the ownership or rental of an approved property. The application fee is £1,000 which is payable on submitting an application and is non-refundable.
A Category 2 resident individual must fulfil all of these conditions, if they do so then the person will retain their Gibraltar residency without the need to spend any time in Gibraltar.
HEPSS tax status
HEPSS stands for High Executive Possessing Specialist Skills. It is a tax status with a capping of tax to attract individuals with specialist skills to come and live and work in Gibraltar. A HEPSS individual must earn more than £100,000 per year, with the advantage being that their taxation is limited to the first £100,000.
In order to obtain HEPPS status, these condtions must be met:
• must possess skills that are not already present in Gibraltar. Their presence must also help promote and sustain economic activity in Gibraltar;
• must earn more than £100,000 per annum;
• cannot have been resident in Gibraltar for the three years preceding the application; and
• must live in a Gibraltar qualifying property, these are similar to those of Category 2 residents.
Seefor more details.
The tax payable by a HEPPS individual is assessed under the normal dual choice system, which means the HEPPS individual can choose either the allowance or gross tax system based on a fixed salary of £100,000. The HEPPS system therefore gives you a maximum tax rate of 27.5%.
Investment income is not usually subject to corporate or individual taxation in Gibraltar, whether the investment is made within Gibraltar or not or whether it is remitted to Gibraltar or not.
In reference to the taxes on dividend payments issued by a Gibraltar company, there is a distinction between Gibraltar residents and non-residents. Dividends received by a Gibraltar resident remain subject to income tax on receipt, whilst a non-resident shareholder incurs no liability.
Gibraltar has no taxes on lifetime gifts and such gifts will not be treated in the hands of the recipient as income. No stamp duty is payable in respect of gifts to charities registered under Gibraltar’s Charities Act.
Capital Gains Tax
There is no capital gains tax applied in Gibraltar.
There is no specific wealth tax applied in Gibraltar.
Estate duties were abolished in Gibraltar on 1 April 1997. Any inter vivos gift is exempt of all taxation other than stamp duty on immovable property in Gibraltar. There is no inheritance tax or estate duty applied in Gibraltar.
If you require further information we would be happy to arrange a meeting for you with our specialist consultant who can review your situation and give you guidance on your options. We can also put you in touch with a wide range of different advisors based in Gibraltar.
Since April 2007, the Government of Gibraltar has introduced measures to reform the social security system so that low-paid, genuine part-time and casual workers pay less social insurance contributions. The Social Insurance contributions system is managed by the Income Tax Office.
Social Insurance contributions are based on a percentage of salary for employees and employers.
Employee social insurance
Contributions will be payable at 10% of gross earnings, with a maximum of £22.83 per week and a minimum of £5.00 per week. Presently the minimum is £10.33 per week; therefore any employee that earns less than £207.50 per week will pay a reduced rate of contribution.
Employer social insurance
Contributions will be payable at 20% of gross earnings, with a maximum of £28.82 per week and a minimum of £15.00 per week. For employees that earn less than £131 per week, a reduced employer contribution will be payable.
Self-employed social insurance
Contributions will be payable at 20% of gross earnings, with a maximum of £26.38 per week and a minimum of £10.00 per week. All self-employed people that earn less than £120 per week will pay a reduced contribution.
Annual reconciliation - Yearly assessment
Any contributor that earns less than approximately £11,000 per annum will pay reduced contributions. After the end-of-year assessment any underpayment will be payable to the Income Tax office by the employee or employer accordingly. The assessment looks at:
• the number of contribution weeks worked;
• total gross earnings;
• the contributions actually payable by the employer and employee.
All employers must pay the earnings-related contribution whether or not an employee is already insured with another employer.
Employee contributions are payable for all employment, at the rate of 10% of earnings, however they are subject to the overall cap as described earlier.
Contributions will continue to be due and payable by both employee and employer during a period of sickness. A woman on paid maternity leave however, is exempt from the payment of weekly contributions as is her employer.
Contribution weeks for entitlement to benefits
The Social Insurance contribution year coincides with the income tax year (from 1 July to 30 June). The annual assessments will include an assessment of the number of contribution weeks that a contributor is eligible to, for the purpose of entitlement to social insurance benefits.
Employees over 60
Employees over 60 do not have to pay contributions. The employer’s contributions however continues to be payable.
Employees with more than one employer
An employee must pay contributions for every employment unless they can prove that they are contributing above the maximum rate of £22.83 through their main employer. The Income Tax Office needs to be notified in these instances so that they can issue an exemption certificate to the second employer.
For more information, contact:
Ministry of Social and Civic Affairs
Department of Social Security (DSS)
14 Governor’s Parade, Gibraltar
T: +350 200 44070
F: +350 200 74941
A pension is arranged to provide people with an income when they are no longer earning a regular income from employment. It is a savings method that allows for the tax-free accumulation of a fund for use as a retirement income.
The basic types of pensions that are or may be available to you are:
Generally whilst in employment a person builds up a Social Insurance record, this results in them having the right to receive an Old Age Pension. Currently the age set is 60 for women and 65 for men.
General occupational pension schemes
There are two types of occupational pension schemes which may be offered by employers.
Occupational salary-related pension schemes
This scheme is offered by employers that provide pensions for their employees based on the employee's salary and years of employment. The employer contributes to the scheme, whose interests are looked after by trustees.
Occupational money purchase schemes
This scheme builds up a pension fund that can be converted into an income once an individual has retired. The individual is able to contribute to the pension fund as well. On retirement, an annuity is bought for you by the trustees to provide income for your retirement. You may also be able to buy the annuity yourself.
Provident trust (No3) pension scheme
This is an occupational money purchase pension scheme set up by the Government of Gibraltar. It is available for private sector employers, whereby both employee and employer contribute to the scheme in a tax efficient manner. The scheme is mobile; if an employee changes jobs, the employee can continue to be a member of the scheme on changing employment and their new employer can make contributions to the scheme.
Retirement annuity contracts
Also known as Personal Pension plans. Retirement annuity contracts are money purchase pensions and are an option for those in Gibraltar who wish to arrange their pensions privately, however they may be funded by an employer, although you cannot make contributions to a retirement annuity contract at the same time as an occupational scheme. You can take your retirement annuity contract with you when you change jobs. If your employer does provide a scheme and is willing to contribute to it, this is likely to be a better way of providing for your retirement than a retirement annuity contract.
The Gibraltar Commissioner of Income Tax must approve any retirement annuity contracts if tax relief is to be obtained on contributions. A retirement annuity contract is usually established under a trust, the form of which must have been agreed by the Gibraltar Commissioner of Income Tax. When you retire all or part of your pension fund may be used to buy an “annuity”, which will pay you a regular income during your retirement.
Occupational pension schemes, retirement annuity contracts and personal pension schemes can apply for approval for tax relief from the Gibraltar Commissioner of Income Tax.
Important changes introduced on 1st July 2006
These changes affect approved occupational pension schemes and retirement annuity contracts:
• Pension income is taxed at 0% for those aged 60 or over. This means that if your pension is your sole source of income it will be tax-free.
• There is no requirement to buy an annuity. Instead you can take 75% of the total amount as a lump sum and as such may be tax free in all cases, at your normal retirement date (occupational money purchase scheme) or 55 (retirement annuity contract).
What types of annuity are there?
An annuity is an investment product which converts your pension fund into pension income. This is usually paid for the rest of your life.
There are different types of annuity to suit your needs and circumstances. The basic types of annuity are:
|Single life||An annuity just for you if you do not have a spouse or partner, or if they do not rely on you for income. %|
|Joint life||An annuity that will pay out to you during your lifetime and to your spouse or partner after your death.|
|You can also choose whether you want your single or joint life annuity to be:|
|A level annuity||This pays out the same pension income throughout your life. You will get more money to start with than you would from an escalating annuity (see below), but it will not increase in line with inflation;|
|An escalating annuity||There are two main types of escalating annuity:
• fixed rate – your income increases each year by a fixed rate (for example, 3%); or
• RPI-linked – your income goes up or down in line with inflation.
An escalating annuity will start at a lower rate than a level annuity and gradually build up.
Gibraltar Pension Annuity Trust Scheme (PATS)
This scheme was set up by the Government of Gibraltar and it permits individuals to buy an immediate or deferred annuity. This scheme allows for the investment and withdrawal of accrued pension fund monies for individuals of approved pension schemes where the purchase of an annuity is required. Only individuals that retire at normal retirement age, whose employment has ended and who are 50 or over or who have retired beacuse of ill health are eligible. Members of the scheme whose employment has ended before they are 50 can buy a deferred annuity.
Individuals that purchase an immediate annuity will receive benefits that consist of a payment each month that is equivalent to the investment earnings on the funds invested and the option to withdraw 2.5% per annum of the original capital invested. Members that purchase a deferred annuity have their investment income reinvested until they reach the pension age. At this time 25% of the accrued funds can be taken out as a lump sum and the rest is used to buy an immediate annuity or can be moved to another approved annuity provider.
PATS permits for a member to nominate any individual over the age of 18 to receive any accrued capital in the event of the member’s death.
Gibraltar enjoys a special status within the European Union. Under article 299(4) of the EC Treaty, Gibraltar is within the Union by virtue of being a European territory for whose external relations the United Kingdom is responsible. However, article 28 of the UK Accession Treaty 1972 specifically excludes Gibraltar from the Common Customs Tariff, the Common Agricultural Policy and the harmonisation of turnover taxes, in particular value added tax (VAT).
Gibraltar is treated as part of a member state (the UK) and must comply with all EU Directives relating to financial services. Gibraltar can take advantage of the single European passport for banking, insurance and investment services that allows Gibraltar-licensed banks, insurance companies and investment services providers to operate in other EU Member States, enabling them to sell their financial products throughout the European Union and the European Economic Area.
- • A UK pension scheme can be transferred to a non UK pension scheme, this is known as a Qualifying Recognised Overseas Pension Scheme (QROPS).
- • A foreign pension scheme must satisfy many conditions before HMRC will allow and acknowledge it. Gibraltar pension schemes are negotiating with HMRC to verify whether they are able to benefit under QROPS. We will keep you informed of any developments.