Tax Considerations to Make When Running a Business in Gibraltar

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For British business owners, the familiarity of various systems – as Gibraltar is a British Overseas Territory – is appealing. The property market here has a high level of demand and a relatively limited supply, which is one of the reasons why it’s such a popular proposition for owners seeking properties to rent out. Likewise, the economy is diverse, and the favourable tax regime and great quality of life makes it a popular choice for those looking to relocate. Although positive news for companies trading here, it’s always a good idea to do your research into the local tax laws and what these regulations mean for your business. Here’s an overview of the key tax considerations you need to bear in mind if you’re looking to grow your business in Gibraltar.



How is Corporate Tax Charged?


A business is considered a resident if their activity is carried out in or from Gibraltar. Corporate tax is charged on the income accrued in or derived from the territory, on any profits or gains that the company has earned.


Gibraltar has a set corporate tax rate of 10%, which is subject to exceptions which apply to utility companies and/or those who enjoy a dominant position in the local market, where the income tax is set at 20%. There are start-up incentive schemes to enable companies to make savings in their first three years of operation too. Dividends aren’t subject to taxation here, and taxes on royalties are capped at 10%. Gibraltar residents also don’t have to deal with capital gains tax, and there is Foreign Tax Credit, for income subject to tax in another jurisdiction.



Corporate Tax Residency


Gibraltar provides entrepreneurs taking up residency a great opportunity to make the most of a privileged tax regime, and the same benefits apply to companies and their employees. The corporate tax rate of 10% for companies is met with an appealing set of personal tax rates for employees too. This is one of the primary arguments for relocating to Gibraltar for businesses seeking a trading base abroad.


As a location that’s already highly established in terms of business, tourism and financial services, the government is keen to encourage more office premises to be built in the coming years to meet the demand. The low rate of business tax, compared to other destinations, makes this territory an attractive proposition, particularly when combined with the skilled workers who are drawn here by the proximity to the UK and the rest of Europe and personal taxation rates.



How are Employees Taxed?


There is a dual tax system in Gibraltar where employees can choose between an allowance-based system and a gross income-based system. With the gross income-based system, there is a 6% rate for low earners and the rate of tax on the initial £25,000 in earnings is just under 17%. This then rises to a maximum rate of less than 25%, followed by a decreasing rate for earnings over £500,000.


For employees who choose an allowance-based system, there’s a reduced rate of 17%, a standard rate of 30% and a higher rate of 40% for earnings over £16,000. Allowances don’t only include the individual and their partner where applicable, but also mortgage interest, life insurance and health insurance relief. Overall, 85% of people who pay tax in Gibraltar are on a rate of less than 20%.



What About Commercial Property?


A lack of readily available properties, both residential and commercial, has meant that there’s huge demand for space in Gibraltar. While this has been somewhat alleviated by the construction of the World Trade Centre, which was approved to provide more commercial space for businesses, it does mean that residents in a position to buy property can rent it out for higher prices. Both international and local investors have confidence in the property market and the steady rise in rental prices means a shortage of properties is actually in the favour of landlords.



Conclusion


The benefits of the Gibraltar tax regime, from the lack of inheritance tax to no Capital Gains Tax and no VAT, means it’s no surprise that so many people wish to relocate here. Both for businesses categorised as resident companies and those registered in Gibraltar but physically trading elsewhere, the low rate of corporation tax is a huge advantage.