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Budget
Gibraltar’s budget 2019
By Neil Rumford, Tax Partner, EY Limited
Gibraltar’s 2019 budget address on the 10th of June was the third budget announced in the shadow of Brexit. Alternating between an upbeat mood boosted by buoyant economic data, sombre references back to the challenges of the closed frontier and some digs at the opposition, Gibraltar’s Chief Minister set out his budget for the coming year.
The headline figure was no doubt the £83 million recurrent budget surplus achieved for the year ended 31 March 2019. A record GDP per capita of $111,505 was estimated for 2018/19, reported to be 3rd highest in the world. The Chief Minister conceded that this figure is distorted by the fact that Gibraltar has a large proportion of workers not living in Gibraltar, as well as other factors.
Gibraltar’s economy
More objective figures in the shape of employment statistics were quoted in the budget address. These appear to back up the claim that Gibraltar’s economy has been consistently on an upwards plane in recent years. The number of employees in Gibraltar increased by 7% over the 12 months to October 2018 to a total of 29,995. That compares to a resident population of around 34,000 – made possible by the fact that 46% of workers in Gibraltar live in Spain, crossing the frontier every day to work.
There were few significant changes in terms of tax measures. Some cost of living increases to the allowances given under Gibraltar’s Allowance Based System were announced. This is one of the two alternative tax systems under which an individual can be taxed in Gibraltar, the other being the Gross Income Based System. The system that results in the lower tax payable is the system that applies to an individual taxpayer. No changes were announced to the Gross Income Based System.
To give some examples of how this works out at different employment income levels:
The above shows the tax payable under whichever system would apply, given the income level and allowances available. For simplicity, it assumes the taxpayer is entitled to minimal allowances. Additional allowances may be claimed – most notably under the Allowance Based System for the first-time purchase of a home in Gibraltar, mortgage interest, nursery school fees, life insurance and medical insurance.
In summary, income tax should never exceed 25% overall, with very few exceptions (certain types income of non-residents is taxableatupto39%-ifyouareanon- resident thinking of purchasing a buy-to-let in Gibraltar, get some tax advice first). On the positive side, savings income and capital gains are not taxable, and there is no VAT, wealth tax or inheritance tax.
Individuals relocating to Gibraltar to take up employment – and their employers – should be aware of some exceptions from the general rule that benefits-in-kind are taxable. For example, accommodation provided by an employer to such a relocated employee may be tax free for up to seven years from the date of relocation. This can in some circumstances be extended to an accommodation allowance.
Given the cost of accommodation in Gibraltar combined with the tax consequences of living in Spain, the provision of accommodation can be a useful and tax efficient part of a package, particularly for
senior executives. Reimbursements for relocation expenses – and the legislation provides a fairly expansive list of what those could include - is another exception.
Category 2
For senior executives with specialist skills there is a special tax status available (subject to conditions) which limits tax on earnings to £29,940 per annum. The Category 2 status available to High Net Worth Individuals can also provide a cap on tax in Gibraltar of between £22,000 and £27,560. Note that this cap does not apply to some income derived from Gibraltar. Under both of these initiatives the taxpayer must have accommodation of a certain standard available for their use in Gibraltar.
On the corporate side, there were very few changes. Tax continues at a rate of 10% of taxable income, this being income from activities located in Gibraltar. Capital gains are not subject to tax, dividend income is almost always exempt and bank interest is not taxable (other than for banks and similar institutions).
Of interest to those working in international tax was an announcement of a Government consultation on the possibility of a notional interest deduction. This is a deduction that would be given to companies that are funded by equity, for example, by share capital and accumulated profits, to replicate the interest deduction that a company funded by loans may be able to claim. A small number of countries have adopted this in recent years – for example, Belgium, Cyprus and Malta. No doubt the Government will be treading very carefully here in case the EU State Aid machine is pointed in the direction of such initiatives.
Employment income
Tax
Overall tax rate
20,000 30,000 40,000 60,000 100,000 200,000 500,000
2,382 5,490 7,990
13,590 24,790 49,940 124,940
12% 18% 20% 23% 25% 25% 25%
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