Offshore Resident: Gibraltar

Residents of Gibraltar have a reasonably favourable tax regime, although income tax rates are on the high side unless an individual can take advantage of Qualifying status.

Nationals of EU member states have the right to enter, live and work in Gibraltar. Initially a six-month visa is given, and then a 5-year renewable residence permit, provided that they have found suitable employment or have started a business. Work permits cannot be denied to EU citizens.

Other nationals have to apply for residency under the Immigration Control Ordinance and permission is issued by the Governor. Government guidelines indicate that an applicant for residency must be ready and able to purchase a property of sufficient size to accommodate himself and his family, must be in good health, and must have adequate financial resources. The Government looks more favourably on those applicants who purchase luxury property in Gibraltar.

The holder of a residence permit need not live in Gibraltar and is not automatically entitled to social security or citizenship. However, the resident's children may attend local schools and are entitled to the same benefits as other local residents.

If a non-EU national wishes to stay in Gibraltar other than through the property 'doorway', he must usually try to find employment, for which he will receive a work permit only if there are no Gibraltarians able and willing to perform it. Such individuals will be given residence permits for shorter or longer periods depending on the nature of the work for which they have a permit. The government can deny a non-EU national the possibility of buying residential property.

Non-Gibraltarians need work permits, issued under the Control of Employment Ordinance. A work permit cannot be refused to an EU national.

In the June 2007 budget, passport Issue and renewal fees were abolished for persons aged 65 and over.

Unless Qualifying Individual status is applied for (see below), an individual may be liable for taxation on his worldwide income if he resides in Gibraltar for more than 183 days a year.

As from 2008, every taxpayer is able to choose for each tax year between two systems to pay tax, and to choose the one that results in the lower tax payment, either of which can be paid through the PAYE system. The first system is the pre-existing Allowance Based System; the alternative system is a new Gross Income Based system, in which the taxpayer receives no allowances, but pays tax on gross income at the following rates: 20% on the first GBP25,000; 30% on the next GBP75,000; 40% above GBP100,000.

Under the Allowance Based System, the first GBP7,500 of income is free of tax; rates of 10% and 20% apply to the next two tranches of taxable income; a standard rate of 30% applies to income between GBP4,000 and GBP16,000, and a higher rate of 38% applies above that level.

Qualifying Individuals

This regime sets limits on the tax that has to be paid by particular types of individuals. Qualifying (Category Two) Individuals are High Net Worth Individuals; Qualifying (Category 3) and (Category 4) Individuals are expatriate employees of Exempt or Qualifying companies.

Qualifying (Category Two) Individuals must have available for their exclusive use approved residential accommodation in Gibraltar. The Government would also be looking to ensure that the individual has sufficient means to maintain himself and his family. They will therefore be looking for evidence of wealth although it is not necessary for the individual to declare his worldwide wealth or earnings. The Government would also be looking to ensure that the individual has private medical insurance to cover both him and his family whilst residing in Gibraltar. Income over GBP60,000 is not taxed; therefore the maximum tax payable by an HNWI is GBP27,000. There is no capital gains tax in Gibraltar, and an HNWI is also exempt from Estate Duty. The minimum amount of tax payable by an HNWI is GBP18,000.

Qualifying (Category 3 and 4) Individuals (until 2007) were expatriate individuals who possess specialist skills not available in Gibraltar. The company applied on the individual's behalf to the Financial Centre Directory and obtained a certificate which set the tax payable by the individual at GBP15,000, irrespective of their taxable income. Given current rates of tax and allowances in Gibraltar, this meant that all income earned in excess of GBP27,000 (approx) would be tax free.

Category 3 Status was abolished in 2007, and a new category called ‘High Executive Possessing Specialist Skills’ (HEPSS) was established for existing Category Three holders who earn more than GBP100,000 per annum and for new applicants who possess skills not available in Gibraltar and, in the Government’s opinion, are of particular economic value to Gibraltar, who will occupy a high executive or senior management position, and who will earn more than GBP100,000 per annum of income in Gibraltar. Tax would be payable only on the first GBP100,000 per annum of income under the dual choice tax system. New applicants may not have been resident in Gibraltar for any part of the period of three years immediately preceding the application.

Category 4 Status was abolished for new entrants with effect from 1 July 2007. Existing holders could retain the status until the end of their current certificate or 30 June 2009, whichever is the longer. However, minimum tax payable was to increase with effect from 1 July 2007 from GBP5,000 per annum to GBP7,500 per annum.

NB: Gibraltar tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is advisable.

Gibraltar does not have specific anti-avoidance provisions, CFC rules or transfer pricing rules. It is clear that an resident expatriate working in or from Gibraltar is in a good position to acquire and maintain offshore assets, including assets in Gibraltar, especially if taking advantage of qualifying status.

American citizens, and nationals of the very few other countries that tax world-wide income on the basis of citizenship, won't be able to take advantage of the low-tax environment in Gibraltar, but for all other nationals, it is available.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.