International Offshore Jurisdiction Review, Gibraltar as a Tax Haven

Gibraltar A European Business Destination

Gibraltar stands as an intriguing point of reference in the global dialogue on tax jurisdictions and havens. Officially a British Overseas Territory located at the southern tip of Spain, this small yet strategically significant enclave has garnered attention for its favorable tax regime. Primarily, it offers tax benefits for non-resident companies which have positioned it as an attractive destination for businesses seeking advantageous tax conditions. Despite its size, Gibraltar has developed a financial infrastructure that appeals to individuals and corporations alike, leveraging its status to cultivate a business-friendly environment distinct from that of the United Kingdom or the European Union.

Yet, Gibraltar's reputation as a tax haven has undergone evolution and scrutiny, especially concerning its adherence to international tax compliance and transparency standards. Recent years have seen an active effort by Gibraltar to align with the tax information sharing norms put forth by the Organisation for Economic Cooperation and Development (OECD) and the European Union. These measures include entering into tax treaties, such as the one with Spain that aimed to remove Gibraltar from the list of tax havens and to improve cross-border financial transparency. Moreover, these steps have significant implications for Gibraltar's economic relationship with neighboring nations and the wider international community.

Key Takeaways

• Gibraltar's tax regime offers substantial incentives to non-resident companies and individuals.
• Compliance with international tax standards is a focus for Gibraltar, affecting its global financial relations.
• Tax policies contribute to Gibraltar's complex economic interactions with the UK and the EU.

Is Gibraltar a Tax Haven? 

Gibraltar is a small British Overseas Territory and is known as a tax haven due to its tax benefits on non-resident companies. Though it is a relatively small territory it has a number of unique financial benefits for individuals and companies seeking a jurisdiction that is not associated as an offshore tax haven, has little or no corporate tax, a booming international financial center, geographic proximity to Europe, and access to EU trade agreements.

Gibraltar has a long history of international finance that goes back to the passing of the Gibraltar Companies Ordinance in 1967. Gibraltar was the first and is the only British Overseas Territory to be accepted into the European Union (EU) back in 1975. Though part of the EU, Gibraltar can still offer non-resident companies (foreign resident-owned companies) zero corporate taxes.

Taxes are only levied on locally-sourced income, making all other foreign-derived income tax free. Gibraltar-based companies also benefit from not having to pay capital gains tax, dividend, estate tax, or value-added tax. The country also has a strong banking system offering many offshore accounts and investment opportunities open to both resident and non-resident companies.

Gibraltar Companies are used for a variety of different purposes, including E-Commerce, Trade, Investing, and various types of Holding Companies. Gibraltar gives non-resident companies the same benefits and opportunities as local companies, as well as single-member ownership, access to European markets, and minimal financial reporting (for small businesses) all of which make Gibraltar an attractive destination for forming an international company.

See more >> Gibraltar Company Formation.

Tax Rates of Non-Resident Companies

There is no corporate tax for any non-resident-based companies. This is primarily the reason why it can be considered a tax haven. Taxation of 10% is limited to income that is accrued in and derived from Gibraltar.

This means all foreign income that is sourced from outside the jurisdiction is not subject to local corporate taxation. There are also no taxes in:

• no capital gains
• no sales tax
• no VAT
• no estate
• no wealth tax
• no dividends tax
• no withholding tax

Gibraltar has signed onto 27 Tax Information Exchange Agreements is on the OECD and FATF white list as a commitment to tax transparency — strengthening administrative cooperation and information exchange to prevent illegal activity, money laundering, and tax fraud.

Income Tariff

Non-residents do not have to pay income tax

Individuals and businesses pay income tax only on domestic earnings and not on any overseas earnings. As a result, a firm that is based in Gibraltar but obtains all of its profits from outside the jurisdiction will not be required to pay tax 

Corporate Tariff

Gibraltar has a 10% on profits that come from Gibratar (except for utility companies that are taxes at 20%) 

Wealth and Estate Tax Considerations

In terms of personal wealth, Gibraltar does not levy a wealth tax or an estate tax, which can be a significant incentive for high-net-worth individuals. These aspects of its tax system are part of why Gibraltar is often considered a tax haven by individuals and corporations seeking tax-related advantages.

• Wealth Tax: None
• Estate Tax: None

The absence of such taxes means that wealth can be transferred without incurring local taxation, presenting planning opportunities for estate and wealth management.

International Tax Compliance and Transparency

Gibraltar demonstrates a significant commitment to international tax compliance and transparency through adherence to global standards and engagement in comprehensive information exchange agreements.

OECD Standards and Information Exchange Agreements

Gibraltar aligns with OECD standards, emphasizing transparency and information exchange to prevent tax evasion. They've established numerous Tax Information Exchange Agreements (TIEAs), facilitating the sharing of tax information with other countries.

• TIEAs enhance transparency, allowing jurisdictions to request specific financial information relevant to tax investigations.
• As of 2023, Gibraltar has actively participated in these agreements as part of its strategy to enhance cooperation and combat tax non-compliance.

Crackdown on Money Laundering and Tax Evasion

To address concerns related to money laundering and tax evasion, Gibraltar has taken concrete steps in its financial service sector:

• Compliance with EU legislation post-Brexit has been a priority, maintaining measures equivalent to the EU on tax transparency.
• The jurisdiction is not listed as a non-cooperative jurisdiction for tax purposes by the EU, reflecting efforts to adhere to international governance and avoid being blacklisted.

Residency Requirements and Tax Treaties

Gibraltar determines tax liability based on residency status. A tax resident in Gibraltar is subject to tax on worldwide income, whereas non-residents are taxed only on income that is accrued in or derived from the jurisdiction. Tax treaties bolster Gibraltar’s tax system; they facilitate cross-border financial dealings by preventing double taxation and providing clarity on tax matters to foreign investors and residents.

• Tax Resident: Must declare worldwide income.
• Non-Resident: Only taxed on Gibraltar-sourced income.
• Tax Treaty Benefits:
  • Prevents double taxation.
  • Encourages foreign investment.
  • Provides taxation clarity.

Principal Corporate Legislation

The Companies Act that was passed in 1967 that gave special tax concessions to international companies. The Financial Services Commission was established in 1989 to regulate the finance sector. The Gibraltar Companies Act 1967 is based off the UK Companies Act 1929 and the UK Companies Ordinance 1984.

Benefits

• English is the official language
• British Common Law system
• Modernized economy and infrastructure
• British Overseas Territory
• Name of the company may be in any language
• Legislation and offshore finance sector goes back to 1967
• Gibraltar has a long history of financial and offshore products
• Financial and accounting records are not made public
• Access to European Union treaty and trade agreements
• Benefits from being geographically in Europe
• Nominee service availability
• Single-member ownership of a company is possible
• Strong asset protection legislation  

The Economic Effect of Gibraltar's Tax System

Gibraltar's tax system, characterized by its unique features and relationship with major economies like Spain and the UK, has had tangible effects on the economic environment within its jurisdiction, particularly concerning business operations and the labor market.

Impact on Local and Foreign Businesses

Gibraltar's tax system presents a unique allure for both local and foreign businesses, with taxation policies that are quite favorable. Companies, as well as non-residents, do not pay income tax on revenue that is not generated within Gibraltar. This has led to a significant presence of businesses, particularly in the online gaming sector and financial services, attracted by the prospects of lower operational costs.

However, the classification of Gibraltar as a tax haven by Spain has resulted in economic tensions and challenges. The Chief Minister has actively sought to counter the negative implications, emphasizing the legitimacy of Gibraltar's tax system and working to negotiate the removal from Spain's blacklist. Nonetheless, while Gibraltar's tax policies may offer financial secrecy and benefits to businesses, they must also navigate the complexities of international tax regulations and reputational risks.

In-Depth Information

Location

Gibraltar lies on the southern end of the Iberian Peninsula at the beginning of the Mediterranean just south of Spain sharing its northern border with the Spanish province of Andalusia.

Political Structure

Gibraltar is a British Overseas Territory and has been under British rule since the Treaty of Utrecht in 1713 though before then it has changed hands many times between the English, Spanish and the Moors. The Government of the United Kingdom is responsible for such issues such as defense and foreign relations, though Gibraltar retains self-governing in most all other matters. Gibraltar is part of the European Union (EU) being the only British Overseas Territory to have been EU approval.

The country has a Representative Democratic Parliamentary system. There is a unicameral parliament elected to office every four years. The British monarch Queen Elizabeth II is the constitutional head of state, which is represented by the Governor of Gibraltar. The Chief Minister is the head of the government while the legislature consists of a unicameral parliament consisting of seventeen elected members. It is an electoral system that uses partial bloc voting. There are three political parties represented in the Parliament: Social Democrats (52%), Socialist Labor Party (40%) and the Liberal Party (8%). All parties strongly support Gibraltar’s right to self-determination and firmly reject any concessions on the issue of sovereignty. Most recently a referendum was held for shared sovereignty with Spain, which Gibraltarians overwhelmingly rejected.

Economy and Infrastructure

The economy of Gibraltar is dominated by four main sectors: financial services (30%), tourism (30%), shipping (25%), and telecommunications, e-commerce, and online gambling (15%), The British military had traditionally dominated Gibraltar’s economy through its naval dockyard through the past twenty years its significance has greatly diminished.

Online gambling companies first arrived to the state nearly twenty years ago when there was o no corporate taxation. However, since then corporate taxes are levied at 10%, which has leveled off the surge of foreign gambling companies looking to incorporate. Tourism makes up a significant part of the economy, from cruise ships to visitors coming down form Spain, and sightseers coming to see ‘the Rock’.

In 1967 the signing of the Companies Act opened up the country to a number or private banks and insurance companies. Gibraltar has the second most accounting firms per capita and the fifth most banks per capita in the world. In the last several years the state has been going through a major structural change from a public sector economy to one that been mostly privatized.

Gibraltar has a Gross Domestic Product (GDP) of 1.275 billion (2008) at purchasing power parity (PP) with growth rates at 6%. The government derives 43% of its GDP from taxes and maintains a 2.1% budget surplus, with littler public debt 7.5% of GDP (2008)The average income is US$ 43,000 per capita. The composition of the economy is dominated by the services sector, with virtually no industry or agriculture. The country maintains a balance of trade deficit and imports nearly US$3 billion worth of products with export’s at US$271 million (2004)

Gibraltar has a modern infrastructure with a number of public transport systems in place including buses and trams. There are regular flight connections to Spain, UK and Morocco. The Straight of Gibraltar is one of the busiest shipping lanes in the world with many ships that anchor off the coast. There are a number of ferries from Gibraltar to Tangiers and Algeciras. Gibraltar has a modern telecommunications network with a stable connection now that the long-standing dispute with Spain involving telecommunications is over serving a current 3G internet connection with four Internet Service Providers (ISP).

Population, Language and Culture

The name Gibraltar comes from the Arabic name Jabal Tariq meaning “Mountain of Tariq” which refers to its famous Rock of Gibraltar, whose name comes from the Umayyad general Tariq ibn-Ziyad back in 711 A.D.

The culture of Gibraltar reflects its diverse origins, though mainly constitutes Spanish and British influences. The ethnic origins are a mix of Andalusian Spaniards, Genoese, Maltese, Portuguese and British. Most of the people belong to the Roman Catholic Church and the Church of England, with a small Jewish community s well as Hindus and Muslims. Gibraltarians closely identify themselves as being British, seeing themselves as being “more British than the British”. This was exacerbated when communications were severed between Spain and Gibraltar in 1969 and up until 2006, the only flights that were leaving Gibraltar were from the UK.

Gibraltar cuisine is a mix between Spanish and British with some influences from Genoa, Portugal, and Malta.

The official language is English, however Spanish and Llanito are also spoken. Most locals are bilingual speaking English and Spanish, with the local Llanito being used in many households. Llanito is a mix of several Mediterranean languages including English, Andalusian Spanish as well as Maltese, Portuguese, Italian, and Haketia.

Due to its small landmass, the peninsula is one of the most densely populated territories in the world with a population of just under 30,000 (2011) it is equivalent to nearly 5,000 inhabitants per square kilometer. The state has a low unemployment rate of 3%, with inflation at 2.8% (2008).

Exchange Control

There are no exchange controls in Gibraltar. Gibraltar uses the Gibraltar pound, which is issued by the Government and used as legal tender alongside the Bank of England banknotes. The exchange rate is on par with the British Pound

Type of Law

Gibraltar is based on the English Common Law system.

Click below for more information on a Gibraltar-based offshore company formation or other offshore products :

•  Gibraltar Non-Resident Company (NRC)