The assessment and collection of income tax is currently governed by the Income Tax Act 2010, Rules and Regulations. The act was enacted in 2010 and came into effect on 1st January 2011.
Tax is charged on income accruing in or derived from Gibraltar on the profits or gains of a company or trust from any trade, business, profession or vocation. This is known as a territorial basis of taxation.
Tax is charged on the income accruing in, derived from or received in Gibraltar (or in any other place) by an individual ordinarily resident in Gibraltar from employment or the exercise of any self-employment activities in connection with a trade, business, profession or vocation.
Tax is charged on income of all individuals and companies in respect of any rents, premiums and any other interest in real property located in Gibraltar. Income arising outside Gibraltar, which although not actually received or transferred, is obtained in Gibraltar by an individual in the form of an equivalent benefit, is treated as having been received in Gibraltar.
Certain sources of income are not subject to tax, notably; capital gains, income or gains from inheritance, rental income from properties located outside of Gibraltar, income from passive investments (bank interest), dividend income from shares quoted on a recognisable stock exchange and several others.
The rate of Corporation Tax is 12.5% on taxable profits.
With effect from 1st August 2021 the rate of 12.5% applies to all companies, except utility companies, such as electricity, fuel and water providers, and companies enjoying and abusing a dominant market position. These companies will pay a higher rate of 20%.
Telecommunication companies will be taxed at 20% on only their telecommunication services, with other taxable income being taxed at the standard rate of 12.5%.
Consideration must be given to multiple aspects of the tax legislation that can modify the taxable profits of a company. These include (but is not limited to); income that is not subject to tax, special deductions allowed, tax treatment of assets, capital allowances, non-deductible expenses and others.
The Income Tax Act 2010 allows for losses to be carried forward to offset against future taxable profits but it is not permissible to carry back tax losses.
Companies are required to file a tax return within nine months of the month end of their accounting period end. The accounting period end date can be selected, with certain parameters, by the company directors.
In addition, companies with an assessable income of £1.5m or greater are required to file audited accounts with their tax return. Companies with assessable income less than £1.5m must file their tax return with accounts accompanied by an Independent Accountants Report.
Tax resident individuals can choose to be taxed under one of two taxations systems; the Allowance Based System (ABS) or the Gross Income Based system (GIB).
Generally speaking, the Allowance Based System has a higher top tax rate but allows for numerous deductions by way of allowances depending on the circumstances of the individual and spouse. These allowances reduce the amount that is subject to tax.
The Gross Income Based system only has a few allowances available to the individual but a more favourable set of tax bands and lower top tax rate. It is also notable that that at higher rates of income the tax rate gradually reduces.
The application of this unique dual system means that the individual can elect to be taxed under the method that is most favourable to him.
In addition, special tax statuses exist in Gibraltar that are available by application to the Finance Centre Director and under strict terms & conditions. These special statuses cap the amount of tax payable by the individual.
The special tax statuses are:
- High Executive Possessing Specialist Skills (HEPSS)
- Category 2 Individual (CAT2)
Both individuals and self-employed individuals are required to submit their tax returns for the year up to the 30th June by the 30th November of every year.
Self employed individuals are required to support their tax return with accounts drafted up to the period ended 30th June of the relevant tax year.