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Budget
Gibraltar’s “back to growth” budget 2021
By Stephen Carreras, Manager, Business Tax Advisory, EY Limited
increased from £80,000 to £105,000. The minimum limits of tax payable under this scheme increased from £22,000 to £32,000 per annum, with the maximum tax “cap” for income under such certificate to increase from £27,560 to £37,310.
Going forward, HEPSS individuals will need to earn more than £160,000 per annum (currently £120,000) for them to qualify for such a scheme. Accordingly, the tax payable to be based on this new threshold would increase from £29,940 to £39,940 per annum). Transitional rules will apply for existing HEPSS employees earning between £120,000 and £160,000.
Social Insurance
As previously announced, increases to social insurance came into effect as from 1st July 2021.
The rates of 20% and 10% remain unchanged. However, the monthly minimum and maximum amounts for employees and employers increased from £131.08 to £157.30 and from £173.98 to £216.67 respectively. Despite this, the amounts still remain relatively low – for example, the amount for employer and employee contributions combined is capped at £4,488 per annum.
The Electricity Tariff
Commercial electricity tariffs including all other incidental tariffs to increase by 20%. The domestic consumer tariff is to be matched to the new, lower, increased commercial tariff. This would result in a commercial consumer tariff increase of some 16%.
Duty
Import duty increases was limited to a reduction on rebates by one third for the supply of fuels from land or otherwise to Superyachts, jet-skis or pleasure craft of any type. The duty on cigarettes was increased by £0.50 to £15.50 per carton.
In summary, the Budget was a conservative one, with no substantial “give- aways” and one that you would expect as Gibraltar starts its recovery from the damaging effects of the pandemic.
After a year that saw unique and significant fiscal policies driven by the need to support the economy
throughout the COVID-19 pandemic, the Chief Minister, Fabian Picardo
described this year’s budget as the hardest in our history, since the closure of the frontier. ‘A budget for Covid times’ and one in which it was not safe for the community to indulge in ‘Budget give-aways.’ Alternating between sombre references to the pandemic and the optimism in his economic platform for growth, the Chief Minister set out his budget for the coming year.
Corporate Tax
Corporation tax increased from 10% to 12.5%. This will apply to financial periods commencing after 20th July 2021. This increase comes after Gibraltar’s intention to form part of the international Tax Reform framework embarked upon by the OECD. The framework aims to update key elements of the international tax system.
Additionally, a series of measures was also announced to encourage investment by companies: l Initial capital allowances for plant and machinery (P&M) and computer equipment were increased from the current limits of £30,000 and £50,000 respectively. The initial allowances will now be the higher of;
(a) Expenditure up to £60,000 for P&M or £100,000 for computer equipment or; (b) 50% of the expenditure incurred
l The annual allowance for the remaining pool of assets increased from 15% to 25% per annum (or from 20% to 30% in the case of companies whose profits are taxed at 20%). l A new wear and tear allowance was introduced of 1% of the acquisition cost of property from where business is conducted (not applicable to industrial buildings which already attract an allowance).
l In keeping with the Government’s green agenda P&M is to include private vehicles that are partly used for the production of income, if the vehicle is fully electric.
l An additional allowance of 50% of the fixed salary cost of new employees employed after 20th July 2021 was introduced with the aim of stimulating employment to Gibraltar. This is in addition to the existing deduction that already exists for such costs.
l The additional allowance for qualifying training costs was increased from 50% to 60%. This additional allowance of 10% would however only apply to the cost of training and excludes ancillary costs, such as travel and accommodation.
l For businesses that invest in marketing, an additional 50% allowance on such costs was introduced (subject to the agreement by the Income Tax Office that it has been validly incurred in marketing for purposes of the business).
Personal Tax
Personal Tax revenue fell by £4.3m from £189.4m in 2019/20 to £185.6m in 2020/21. This is unsurprising due to the support by government for businesses to survive during the Covid outbreak. Employee jobs also decreased by 3.6% during the year. Despite this, unemployment levels remained stable and so have personal tax rates, with no increases to these announced. Overall, the effective tax rate for residents should never exceed 25%. There was some cost of living increases to various allowances under Gibraltar’s Allowance Based System. 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 applies to a taxpayer is the one that results in the lowest tax payable. It is of course worth remembering that there is no tax on capital gains or savings income, and there is no wealth tax or inheritance tax.
There were however changes announced to the Category 2 (Cat 2) and High Executive Possessing Specialised Skills (HEPSS) schemes, with changes applicable as from August 2021. The cap beyond which no further tax is due in Gibraltar under Cat 2
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