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Taxation
the construction of office accommodation commencing between 1 July 2013 and 31 March 2015. The available deduction is 30% of construction costs, in the first year of assessment following completion, with a further 10% deduction per annum available in each of the second to eighth years.
The Bill also formalises, in law, the 2014 budget announcement in respect of the construction of high value accommodation whereby property developers are entitled to similar deductions as to those above. Removal of 10 % compound surcharge Other amendments do away with the additional 10% surcharge at a rate compound- ed on a daily basis on late payments of tax and revises the penalties for non-compliance with the tax office. Category 2 rules The Bill introduces changes to the Category 2 rules. Over the years, much like Gibraltar itself, the profile of the Category 2 individual has changed. When the status was first introduced the typical Category 2 individual was a wealthy individual who had chosen to relocate to Gibraltar to enjoy the Mediterranean lifestyle as well as the tax free
returns from their pension or investment the jurisdiction will benefit from the portfolio. In 2005, when taxation on invest- additional inward investment and from having
ment income was abolished for all Gibraltar residents, followed shortly after by the exemption from taxation of pension income, the Category 2 status was no longer necessary, or relevant for many of these individuals.
However, Gibraltar continued to attract a younger Category 2 individual, one who was not relocating to Gibraltar to retire here but was alternatively a much more entrepreneurial individual with active business interests. The Gibraltar Government recognising this trend in 2008, issued guidance to the industry clarifying what activities Category 2 individuals could, in principle, carry out locally. The guidance was welcomed by the industry as it provided a number of clear examples of what a Category 2 individual could do. Unfortunately though, there were still restrictions with what could be done physically from Gibraltar.
The Bill now allows Category 2 individuals who have the necessary approval from the Finance Centre Director, to carry out or exercise any trade, business, profession or employment in Gibraltar. The intention is that
these entrepreneurs using their business skills and expertise locally. Perhaps more importantly, from a tax perspective, the income from these activities will be taxed locally to the extent that the income is accrued and derived in Gibraltar.
An additional benefit of this new “opening of the doors” approach is the additional substance that it provides to the individual’s residency position. Substance is high on the global tax agenda and the weight and therefore benefit of having an individual’s economic interests physically located in the jurisdiction gives to their residency position should not be underestimated. Many high net worth individuals, travel and have business interests in other jurisdictions therefore potentially there is a risk that another country may claim that the Category 2 individual is resident in their country. The more established the individual is in Gibraltar the better their defence against a claim for residency from another country will be.
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