Gibraltar Introduces Zero Corporate Tax Rate

by Ulrika Lomas, Tax-News.com, Brussels

15 July 2002

Gibraltar's Chief Minister, Peter Caruana announced the territory's new corporate taxation policy in a speech to the House of Assembly on Friday, setting a zero rate of corporation tax for all companies but introducing new taxes on company personnel and property occupation which will be capped at 15% of profits.

The existing corporate forms which allowed zero taxation, the Exempt and Qualifying companies, will be abolished, although there is no news yet about the possible grandfathering of existing companies.

Reform has been forced on Gibraltar by its commitment to transparency under the OECD's harmful tax initiative (ending 'ring-fencing') and even more by the EU's State Aid rules, which the Commission has begun to use to attack practices listed by the Code of Conduct Committee chaired by Britain's Dawn primarolo - these included Exempt and Qualifying companies.

In fact, Gibraltar had halted the Commission's action in its tracks at the European Court of Justice on a technicality, but has evidently accepted that sooner or later the overtly 'offshore' corporate forms would have to go.

The new taxes, which will come into force from 1st January 2003, says the Government, are:

• A“Company Payroll Tax” (similar to what exists in Bermuda and elsewhere) will be introduced in respect of employees in Gibraltar. This will be charged at a sum per annum per employee. This payroll tax is a tax on the company and is payable by the company only.
• A new Business Property Occupation Tax will be introduced in respect of property occupied in Gibraltar by companies for business purposes.
• In addition, all companies will pay an annual companies registration fee of £300 p.a. (if the company has income) or £150 (if the company has no income) inclusive of current annual return fees.
• In addition, and subject to EU clearance under State Aid Rules, two sectors of the economy only will pay a new tax on profit. The sectors are financial services providers and utility companies. The intended rate of profits tax for financial services providers is 8%, and will be subject, aggregated to the other taxes, to a maximum cap of 15% of profit.

Since the taxes are capped at 15%, local companies which currently pay 20% or 35% profits tax will be better off, while 'offshore' companies will be worse off only if they employ staff or occupy premises locally. Many companies, particularly those used to hold Spanish property interests, do neither.

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