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Tax
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The location of central management and control is the place of the highest form of control and direction over a company’s affairs, as opposed to decisions on the day-to-day running of the business.
If board or other strategic company meetings no longer take place in Gibraltar as a result of Covid-19 restrictions or directors working from home outside of Gibraltar, this may increase the risk of the company becoming resident for tax and therefore potentially taxable in another jurisdiction or vice-versa.
What about tax residence for individuals? Remote working arrangements may also impact on the tax residence of individuals. An individual will be considered to be ordinarily resident in Gibraltar when they are present in Gibraltar for at least 183 days in a tax year
(1 July – 30 June), or over 300 days in aggregate over three consecutive years of
assessment. Similar residency tests exist in other countries.
Individuals working remotely outside of their usual country of tax residence could become tax resident in their “host” country based on the number of days spent there. For example, an individual ordinarily tax resident in Gibraltar choosing to work from a second home in Spain or the UK could become tax resident there. This may trigger additional tax filing obligations or result in additional tax to pay. Some tax authorities may show flexibility in applying the residency test and disregard days where travel was not possible as a result of Covid-19 restrictions. However, there is no “one-size fits all” approach and the facts and circumstances of each individual case would need to be considered to determine if tax residency has been triggered.
What should employers do?
The tax rules relating to permanent establishment, corporate and individual tax
residency are complex and the Covid-19 pandemic and unprecedented increase in remote working present novel tax issues. Employers of cross-border workers should review and monitor the potential tax risks associated with staff working from home and obtain specialist tax advice if required. This applies both to arrangements put in place in response to the Covid-19 pandemic, but perhaps more importantly, to remote working policies being considered for the post pandemic world, if staff will continue to be provided with the flexibility to work from home.
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28 Gibraltar International
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