Gibraltar Government Proposes Zero Corporate Tax And Payroll Tax To Fend Off EU Threats

Iberia News

11 September 2001

This story has been reproduced by kind permission of Iberia News at: http://www.iberianews.com

After days of discussion between the Chief Minister and finance industry players from all sectors it has been indicated that amongst the plans being proposed is an alleged zero corporate tax regime. The government of Gibraltar is seeking a way of fending off EU threats to tax exempt companies which could wreck the Finance Centre, threatening the stability of Gibraltar.

Although the Government has threatened the EU with legal action it has also been looking for a solution to the present crisis. Industry sources have reported during the past few days that amongst the main proposals being considered is a zero corporate tax rate.

The Government proposal is said to be looking at the possibility of dropping corporate taxes altogether leaving all companies in Gibraltar and those operating as offshore companies without having to pay corporate taxes as is now presently being implemented. This would allow for the offshore companies to continue operating without the pressures of a tax being levied on them

This would however leave the Government with the burden of having to find a way of replacing revenue which would be lost by not taxing local companies.

This has led to proposed plans to implement further changes to the tax system. Amongst one of the areas being looked at, say industry sources close to sectors which have discussed the issue with the government, is the possibility of levying a fee on public utilities such as water, telephone and electricity suppliers. This fee would not be a direct tax, but an amount based on the proportion of revenue being collected. This, although seen as a way of creating an exemption, would not be considered as a tax and would be able to bypass the EU's threats on State Aid.

A further change would also see the addition of what is known as the "Payroll Tax." This system is used in other territories such as Bermuda, according to experts, and would be based on levying a tax on companies for each employee they have. This would see local companies having to pay some form of indirect taxation, but would not affect offshore companies who do not employ personnel in Gibraltar, thus bypassing the tax exemptions threat and maintaining the zero offshore status.

Companies based in Gibraltar would however be faced with a tax regime which taxes them on employment. This, say experts, would be balanced out by a structured system which could cap the amounts without breaking EU laws and therefore allowing for investing into Gibraltar, with companies being able to base themselves in Gibraltar without fearing heavy taxes if they employ personnel in Gibraltar.

The government would also introduce a company registration fee which would be a basic fee for all companies and which would allow for offshore companies to pay something towards registering in Gibraltar. The zero tax rates and the eradication of tax exemptions and capping of taxes would require to be addressed by the government who would be faced with a zero revenue rate from offshore companies under such a system. The implementation of charges on companies registering in Gibraltar would balance this out, although the government would be faced with levying charges on all companies including local ones.

The alleged proposals revealed to www.iberianew.com by finance industry sources close to the discussions set out a new tax system which could transform the economy whilst rescuing the Finance Centre from possible collapse. Other proposals have also been tabled, with certain areas having discussed a 5% corporate tax rate. This has however been rejected by various industry players who claim that offshore clients would leave Gibraltar if any tax was levied as the charges would be too high for them to continue operating.

The latest revelations have never before been publicly mentioned and comes as a surprise to various sectors who have been left out of talks over the Finance Centre crisis.

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