Gibraltar Given Until 2010 To Phase Out Tax Regime

by Jason Gorringe, Tax-News.com, London

20 January 2005

Gibraltar has been given until 2010 to phase out its exempt company tax regime after the European Commission ruled yesterday that the scheme violates EU state aid rules.

The decision means that existing firms will be continue to benefit from exempt company status until the end of the decade, although it remains unclear what tax incentives the jurisdiction will be able to offer new firms seeking to establish there.

However, reports suggest that a limited number of new firms may be able to take up tax exempt company status should some existing firms leave the jurisdiction in the interim.

Meanwhile, Gibraltar must wait at least two more years for a European Court of Justice decision regarding the replacement to the exempt company regime, which has also been rejected by the Commission on state aid grounds.

The Gibraltar government is challenging the commission’s position that for tax purposes, Gibraltar effectively constitutes part of the UK and is therefore not entitled to its own tax system.

It was reported by the Financial Times yesterday that the United Kingdom has accepted the Commission’s decision on the exempt company phase-out in order to bring closure on the dispute, which has raged for more than five years.

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