HM Government of Gibraltar announced in 2025 that a transactions tax would be applied, in place of Gibraltar’s existing import duty regime, as part of the UK-EU Treaty in relation to Gibraltar.
Further details were published earlier this week by the Gibraltar Federation of Small Businesses and the Gibraltar Chamber of Commerce. This was followed by a Treaty Briefing event held for the business community yesterday.
We provide below a summary of our understanding of the planned transaction tax as it stands.
Application
► The tax will apply only to goods, not to services.
► The transactions tax – together with excise duty and in some cases customs duty – will apply as from 10th April 2026. This will replace Gibraltar’s existing import and excise regime.
► Transactions tax and excise duty (where applicable) will only apply where goods are to be placed for sale in the Gibraltar market.
► Gibraltar will join a Customs Union with the EU. It is not joining the EU Customs Territory.
Transaction tax rates
► The tax will be applied initially at a transitional headline rate of 15%. It will then be increased for year two to 16%. For year three onwards, it will be aligned to the lowest standard rate of VAT being applied in the EU, which is currently 17%.
► Reduced and zero rates of tax will apply to a range of essential goods, mirroring the EU VAT framework. These include a zero rate for food, water, non-alcoholic beverages, pharmaceuticals and medical equipment. A rate of 5% would apply to categories including children’s clothing and footwear, bicycles, artwork, antiques and certain agricultural products.
- The Transactions Tax is not a sales tax or VAT, as it will be levied at the point of importation or manufacture, or when goods are brought out of bond, rather than at the point of sale. There are two important aspects which arise from this difference from VAT:
- Unlike VAT, there is no need for businesses at each stage of the product’s journey to the final consumer (importer/wholesalers then retailer) to charge tax and to track input and output tax.
- The transactions tax is levied on importation based on the value for customs purposes at that point (see this Technical Notice for further details). This should work in Gibraltar’s favour – particularly for high margin goods.
- Bunkering fuel, ship supplies and goods which are not to be put up for sale in Gibraltar will be exempt from the transaction tax and from excise duties.
- Electricity (effectively treated as goods for VAT purposes in the EU) and LNG fuel imported to produce electricity will be exempt from transactions tax and excise duty.
- An independent body is to be established to monitor market competitiveness, particularly between Gibraltar and the Campo de Gibraltar (nearby Spain).
Transitional rules
- Goods that left their place of origin prior to the 10th of April 2026 would not be subject to the transaction tax, or to new excise rates, provided they arrive within two months of 10th April 2026.
- Goods covered by a certificate of exemption in connection with projects of social or economic importance will benefit from limited relief for a defined time limit.
VAT on goods from the EU
► Businesses purchasing commercial quantities of goods from the EU for sale in Gibraltar should be able to do so VAT-free. They would pay the relevant transaction tax when they import those goods for sale in Gibraltar (or once the goods leave a bonded warehouse in Gibraltar).
► Individuals buying in Spain (or EU) will pay VAT (IVA) and will not be able to reclaim this. However, they will not pay the transaction tax in Gibraltar on those goods.
Excise and import duty
- EU minimum excise rates will apply to tobacco products and alcoholic drinks. By 10th April 2029, excise duties for fuel, alcohol and tobacco are to be within 6% of the equivalent Spanish excise rates.
- Where goods are imported from the UK which do not meet the rules of (UK) origin contained in the UK-EU Trade and Cooperation Agreement, customs duty at EU Common External Tariff rates will be applied. The transaction tax would still be applied in addition to this if the goods are to be placed on the market in Gibraltar.
- No excise duties will be applied to fuel for the first three years of application of the treaty.
Personal allowances
► For the first three years of the Treaty, allowances will apply to travellers of €430 per person arriving by sea or air, and €300 arriving overland for goods for personal or family use or intended as presents. Some further clarification is awaiting on the application of this.
► After three years, the standard rules that apply to travellers within the EU will apply, whereby any goods for personal use by the traveller are exempt from further tax or duty. We expect that the limits referred to above may still apply to arrivals to Gibraltar flights form the UK.
HM Government yesterday issued a Technical Notice on features of the Customs Union between Gibraltar and the EU.
Further details and clarification on this subject is likely to follow soon.
