GIBRALTAR COMPANY TAX REFORMS - A spur to investment in Europe.

An article by Serge Garcia on behalf of Cruz & Co - Gibraltar


With effect from July 2003 Gibraltar will abolish the "tax exempt” and "qualifying company” regime which has been operative on the Rock for some forty years. These tax laws will be substituted by a combination of "zero tax” on profits and a ”payroll tax" capped at a certain level. In many instances a zero tax on profits will ensure that the Rock maintains its attraction for inward investment in Europe. The Government believes that the new structure, which has the tacit approval of the British Treasury, will act as a spur to the economy. In this regard Gibraltar is the first EU member to notify a reform of its entire corporate tax system to the European Commission for approval under State Aid rules. Approval may delay implementation but our legal advisers believe that approval is inevitable sooner rather than later.

In broad terms the measures will place local firms on the same tax footing as non-Gibraltarian companies and will also see the disappearance of "exempt” and "qualifying” companies which risked contravening EU law. Further local industry is encouraged by the Chief Minister’s assurance that any company’s overall tax burden – from all taxes – will be capped at a maximum of 15 percent.

The payroll tax will affect employers employing large number and while they have indicated to the Government their acceptance, in principle, of the new tax structures, anything that seemed unduly high could prompt a change of tune. However the DTI Minister has said that whatever the levels at which the payroll tax is eventually set they will not be punitive. Careful analysis should ensure that the new tax is negligible or does not bite at all. In essence, although the benefits enjoyed by some non- Gibraltarian companies under "qualified” or "tax exempt” status will disappear, this should be more than compensated for by the zero tax on profits which some will enjoy. In real terms the implications are that no company, whether local or non- Gibraltarian, will pay more than 15 per cent in tax and in most instances, they will pay substantially less.

It is expected that, in spite of the disappearance of the tax exempt and qualifying companies, the measures will be welcomed by international investors and will encourage clients to continue to use Gibraltar’s Financial Services. In spite of these changes, no other well regulated financial centres offer clients a more competitive structure. In fact, the reforms have taken the need for Gibraltar to remain competitive into account and followed a lengthy and intense process of consultation with EU lawyers and other advisers.

We believe Gibraltar will offer a EU, OECD compliant tax regime that will be very exciting in all areas of trade including passporting (selling into Europe) of insurance, banking and financial services.


THE NEW TAXES AT A GLANCE:

The main features of the proposed new measures are:

• The abolition of tax on profits for all companies (except financial services providers and utility companies).
• Subject to agreement with the European Union, the introduction of an 8 per cent profits tax rate for financial service providers.
• The introduction of payroll tax that will be charged on a fee per employee.
• The introduction of a business property occupational tax similar to the property rates system.
• Capping the total liability to the payroll tax and business occupational tax to a sum equal to 15 per cent of profits. Companies will pay eit
  her the assessed liability or the sum equal to 15 per cent of profits – whichever is the lower.
• The introduction of a small annual companies registration fee of £300 (if the company has income) or £150 (if the company has no income) inclusive of current annual return fees.

For further information, please contact:


Serge Garcia
Cruz & Co.
Barristers-At-Law
Trust & Company
International House
Bell Lane
Gibraltar, P.O. Box 883

Telephone: 00350 7 6552
eMail: cruzacqu@gibnet.gi
www.cruzacquarius.gi