Gibraltar is famous for many special features. This is the only wild monkey population in Europe. In addition, the British crown colony has long been regarded as a tax haven in the EU. That only changed with Brexit. In the meantime, other changes have also occurred, which are related to taxes in Gibraltar and scratch its previous status as a tax haven. Spain is always involved in such negotiations, which continues to lay claim to this strategically important rock.

1. The Rock of Gibraltar – Introduction

For a long time Gibraltar was the gateway to the Mediterranean. More specifically, it has been the gateway to the open ocean, the Atlantic Ocean, for much longer. Beyond this rock, which protruded into the constriction between Africa and Europe, there was terror lurking after an old sailor's yarn. Next to Leviathan and Giant Octopus lay beyond this passage the edge of the world, from where one would fall into the groundless if one approached it. But Gibraltar was also a retreat, a springboard, a safe haven.

Today it is a bone of contention, an unchanged state for many centuries. And Gibraltar has become famous, even notorious, as a tax haven. For this reason, we dedicate our article to this rock on the threshold between Atlantic and Mediterranean, Africa and Europe, tax privileges and Brexit consequences.

2. History of Gibraltar

Gibraltar was already in the Stone Age a place where people settled. To be precise, these were initially Neanderthals. Indeed, in Gibraltar, the most recent testimonies of their kind were found in Europe. This in turn suggests that this was the Neanderthal’s last retreat in Europe (to which the reference in the previous chapter alluded).

Later Phoenicians, Greeks, Romans, Goths came by here. But the name Gibraltar goes back to the Moors. They recognized the strategic importance of this tip of the strait and therefore named it after their leader Tariq Ibn Ziyad. The rock was originally called Djebel (Arabic for mountain) Tariq, from which the word clump Gibraltar finally emerged over the centuries.

But in the late Middle Ages, around the time of Christopher Columbus, the Spaniards also recaptured this outpost of the Moors. They even kept it for several centuries until Gibraltar in the early 18th century. Due to the Spanish War of Succession, it was conquered jointly by the Netherlands and the English and then fell to England by treaty (Treaty of Utrecht). Spain then made three military attempts to regain Gibraltar by siege – in vain. Later, the dominance of Britain’s naval power prevented further reconquest attempts.

Since the Second World War at the latest, however, the question of Gibraltar's belonging has increasingly come to the fore in British-Spanish bilateral relations. At the same time, Gibraltar developed into a tax haven. Since Brexit, efforts to improve the practical handling of Gibraltar’s particular situation have also been intensified. Various cooperations were agreed, such as the integration of Gibraltar into the Schengen area. Nevertheless, the inhabitants of Gibraltar, who are largely self-governing, see themselves as Britons, although their belonging to Europe is hardly of lesser importance for many locals.

The Tax Regime in Gibraltar

Speaking of self-government, it is time to talk about the tax regime in Gibraltar. Generally speaking, first of all, Gibraltar is also pursuing its own path in the field of tax law. Although it is independent of the UK in this respect, many elements of Gibraltar’s tax law are based on its tax law.

3.1. Tax liability in Gibraltar

Unlike in Germany or many other countries, Gibraltar has a two-part taxation principle. Natural persons are subject to world income taxation in Gibraltar. Legal persons, on the other hand, are happy about a taxation according to the territoriality principle. Taxation is only applied to persons resident in Gibraltar. To determine residency, it is necessary to determine whether a person lived in Gibraltar for at least 183 consecutive days within an assessment period. As an alternative, a stay of at least 300 days in the previous three assessment periods is considered.

3.2. Income tax

Natural persons pay income tax on their worldwide income from self-employed and non-self-employed activities. A distinction is made between two taxation procedures for which one can choose freely. One is called the Allowances Based System (abbreviated ABS) and the other is called the Gross Income Based System (GIBS). The former grants a basic allowance, while the latter covers gross income in total.

Exceptions also apply to highly paid executives with special expertise. Of course, corresponding proofs are required here.

In addition, there is also another tax regime in Gibraltar, which is entitled to high-net-worth-individuals (HNWI) under certain conditions. In Gibraltar tax law, such persons are listed as Qualifying (Category 2) Individuals.

In addition, employers pay monthly wage tax on their employees. This also applies to their social security contributions.

3.2.1. The Allowances Based System

If you choose the Allowances Based System for taxation, you can use a personal allowance of GIP 11.450 (Gibraltar pounds). A distinction is made between income up to a total of GIP 100,000 and those that exceed this amount. In both cases, the tax rates are progressively differentiated. For income up to GIP 100,000, the first GIP 4,000, which exceeds the allowance, are subject to 15% tax. Up to an amount of GIP 12,000, which exceeds a total income of GIP 15.450, must then be paid 18% in taxes. In addition (i.e. income above GIP 27.450), the tax rate is 40%.

In addition, other allowances apply to low incomes, which decrease in importance with increasing income. These allowances for low-income earners only apply up to a maximum income of GIP 19,500. For income between GIP 11,450 and GIP 17,500, a low-income allowance of GIP 1,300 is applied. Between GIP 17.501 and GIP 18.500 you get another low-income allowance of GIP 920. For the next GIP 1,000, i.e. up to an income level of GIP 19,500, you deduct a low-income allowance of GIP 500 from the taxable income.

However, those who have to tax an income of more than GIP 100,000 follow a different tax calculation procedure. Logically, the low-income allowances play no role here. For income that exceeds the basic allowance by a maximum of GIP 4,000, an income tax of 16% is charged in Gibraltar. Income that exceeds this income level (GIP 15.450) by a maximum of GIP 12,000 is taxed at 19%. Every additional Gibraltar pound is then subject to a tax rate of 41 %.

3.2.2. The Gross Income Based System

3.2.2.1. Tax deduction options

No basic allowance is provided in this tax investigation procedure. However, you can deduct certain costs for income determination. Specifically, there are several options, of which the deduction of contributions to health insurance up to an annual amount of GIP 3000 is the first. Another option is the deduction of recognised pension contributions up to a level of GIP 1,500 annually. Other possibilities are related to property ownership. When buying a property, you can deduct GIP 7,500 from your income as a grant. If you have taken out a mortgage-protected loan for a real estate purchase, you can deduct interest up to an amount of GIP 1,500 in addition.

3.2.2.2. Taxation of income

The rule of taxation under this Gross Income Based System provides for three conditions, which depend on the amount of income. All three have in common that tax progression is also envisaged here.

Income up to a level of GIP 25,000 leads to a tax of 7% on the first GIP 10,000 in income. Beyond this threshold, the following GIP 7,000 are subject to a tax rate of 21%. The remaining amount up to a level of GIP 25,000 is then taxed at 29%.

If, on the other hand, the income exceeds GIP 25,000, but a maximum of GIP 100,000, the income tax is calculated differently in Gibraltar according to the GIBS. Income up to an amount of GIP 17,000 is associated with a tax rate of 17%. The following GIP 8,000 is taxed at 20%. If the income exceeds the amount of GIP 25,000, you pay taxes on the next GIP 15,000 26%. Every additional Gibraltar pound of income is then subject to a tax rate of 29%.

The third case thus concerns income over GIP 100,000. The first GIP 17,000 leads to a tax of 18%. From GIP 17.001 to GIP 25,000 (a range of GIP 8,000), a tax rate of 21% is applied. The next income level up to GIP 40,000 – the range is thus GIP 15,000 – is taxed at a tax rate of 27%. Then follows a further income level of GIP 65,000, for which 30% tax is due. This is also the top tax rate, because for every additional Gibraltar pound of income, the tax rate is again 27%.

3.2.3 Rules on allowances under Gibraltar tax law

If a person can set less than GIP 4,343 in deductible costs in an assessment period, he can use the difference to that amount.

3.2.4. Tax breaks for senior citizens in Gibraltar

Other special features of tax law in Gibraltar affect persons who have reached the age of 60. Under certain conditions, a deduction on the GIP 4,000 tax is possible. This is only possible if such a person has earned income. If this is a pension or comparable payments that exceed GIP 6,000 annually, this tax credit is excluded. This also applies to people over 60 who do not yet receive a pension, but are entitled to a future pension of at least this amount. The same applies within this limit when capitalizing a pension entitlement. The fourth exception, however, is for all taxpayers over 60 who opt for GIBS taxation.

3.2.5. Tax advantages for professionals in management positions

Persons who become taxable in Gibraltar and find employment there as a specialist with special expertise in management positions can enjoy special tax advantages. On the one hand, this requires that the annual salary is at least GIP 160,000. Furthermore, the employer must demonstrate that the employment of this professional generates sustainable economic added value for Gibraltar. In addition, taxation under GIBS must then be carried out. Logically, an application is required for this particular tax treatment. If you have this tax status, however, you pay as a manager only on GIP 160,000 taxes. The rest can be kept tax-free.

3.2.6. Taxation of category 2 individuals

For people with assets above GIP 2,000,000 who wish to settle as investors in Gibraltar, generous tax relief waves, among other things. Assuming that you move into a property in Gibraltar that corresponds to your assets, either by buying or renting it, and by furnishing it according to your personal circumstances, an important condition is already fulfilled. Of course, this is only the case if an exclusive self-use takes place, whereby family members are also allowed. This must already apply for the entire calendar year in the first assessment period. Furthermore, this taxation is only possible if there was no residence in Gibraltar in the last five years.

If one can meet these conditions and if the tax administration agrees to the application for this special taxation, one pays taxes only on income up to a level of GIP 118,000. Anything that exceeds this amount thus remains tax-free. However, the annual tax is at least GIP 37,000, no matter how high you can actually set potential deductions.

3.3. Corporate tax

Gibraltar levies a corporate tax of 10 %. It doubles or even exceeds 20% if a company occupies a dominant position and makes full use of this circumstance. If a company in the telecommunications industry, or an entrepreneur in the energy, water or fuel industry, makes a profit, there is also a 20% tax. In the case of a telecommunications company, however, only profits from the core business are subject to this higher tax rate.

3.4. No business tax in Gibraltar

A trade tax or equivalent is neither available in Gibraltar nor would it make sense according to the German model.

3.5. Taxes on Capital Income

There are two exceptional cases where Gibraltar taxes income from capital assets. This is the case if it is income from companies that are engaged in credit or finance under the law, or if a company receives interest from another company for a loan of at least GIP 100,000.

3.6. Property and Property Tax

There is no property tax or property tax in Gibraltar. Gibraltar abolished these taxes in 1997.

3.7. Tax on transfers of land

A stamp duty applies when transferring real estate in Gibraltar. At the same time, transfers of ownership up to a market value of GIP 200,000 remain exempt.

For higher-value properties with a market value up to GIP 250,000, on the other hand, the total value is subject to 2% tax. If the property value is up to GIP 350,000, the remaining GIP 100,000 is subject to a tax rate of 5.5%.

However, if the value of the property to be transferred is more than GIP 350,000, other calculation methods are used. The first GIP 350,000 of the property value then leads to a stamp duty of 3%. The additional share generates taxes of 3.5%.

Incidentally, stamp duty also applies to the lending of real estate if it is located in Gibraltar. For a mortgage value up to GIP 200,000, the tax is 0.13%, plus 0.2%.

3.8. VAT, Excise duties

Gibraltar voluntarily waives the collection of VAT or VAT. There are also no excise duties. However, duties on the importation of goods are provided for. Special rules apply here with regard to petrol, tobacco products and spirits. Because the import of these goods Gibraltar occupies flat-rate. Similar rules apply to the importation of motor vehicles. Here the tax depends on the type of motorization and the purpose of the import, distinguishing between the import as a private person and the trader. The applicable tax rate can be between 2% and 35%.

4th Gibraltar – a tax haven?

Now that we have an overview of taxes in Gibraltar, we also answer the exciting question of whether Gibraltar is actually a tax haven. The answer is anything but brief. The reason for this is that you have to differentiate.

4.1. Tax privileges offered by Gibraltar

Although many elements of the regular tax rules show moderate fiscal features, no one will grant Gibraltar the status of a tax haven in the classical sense. The 10 % corporation tax and the largely absent tax on dividends may also be tempting, but they are not unique criteria in favour of a tax haven. This also applies to the tax incentives for locating highly qualified managers; These are also offered in modified form outside Gibraltar.

On the other hand, the special tax privileges granted to high-net-worth investors under category 2 are already much more typical for a tax haven. Similarly, the existence of rules on the application of the territoriality principle is characteristic of a tax haven, although this is limited in Gibraltar. But that is already all that clearly speaks for the status as a tax haven. But even these incentives are known in a similar form from other tax regimes – even within the EU.

4.2 Gibraltar's departure from existence as a tax haven

In any case, Gibraltar has for some time taken measures to strip the image of a tax haven. At the latest since Brexit, thus since its loss of indirect EU membership via the UK, the patch in the Western Mediterranean has been striving for harmony with the EU in general and Spain in particular. After all, a large part of the growing revenue from the tourism business goes to the budget. Most tourists come to Gibraltar as part of a day trip, if only to visit the legendary, because unique monkey population in Europe. Therefore, Gibraltar obviously wants to avoid that Spain, as in the past, closes the land border.

But Gibraltar and Spain are also pursuing common paths when it comes to clarifying issues of tax sovereignty based on a current agreement. This also applies to the exchange of information in fiscal matters between Gibraltar and the EU. Gibraltar has also concluded a double taxation agreement with the United Kingdom on the basis of the OECD model agreement. In this way, however, Gibraltar also avoids being blacklisted on the EU's tax regime, which is uncooperative in the field of taxation.

All this suggests that Gibraltar is in fact no longer a classical tax haven. Nevertheless, it is still interesting as an alternative for other tax regimes. However, you should always check in advance whether a move there is actually useful, because in addition to the amount of taxes, many other factors play an important role.