With Gibraltar having to dismantle its dual corporate tax system for local and foreign companies, Caruana said that the government's only choice is to introduce a single low rate of corporate tax that would apply to all companies. He added that this would be introduced by mid-2010 and will most probably be set at 10% "but in any event not higher than 12%".

"The Tax Exempt Company has been the backbone of the development and growth of both our finance centre and the online gambling industry, and thus of a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue," Caruana told parliament. He continued:

"However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model. Since it is no longer legally acceptable to have one tax model for ‘local’ companies and a different one for ‘foreign’ companies it is necessary to have a low tax system for all companies because without a low tax system for overseas companies they will leave, and our economy will suffer hugely. Thousands of jobs would be lost, as well as significant Government revenue. I have therefore already said, and I reaffirm now, that the Gibraltar Government is irrevocably committed to the principle of ‘low tax’ for our economic operators."

In the interim, corporate tax rates in Gibraltar will be reduced by 2% for the year of assessment 2007/08 from 35% to 33%, and with effect from the year of assessment 2008/09 by a further 3% from 33% to 30%. A further reduction to 27% will be brought about the following year in anticipation of the new 10% flat tax, Caruana stated.

In order to comply with EU law Gibraltar must phase out the tax exempt company in 2010.