In December I was lucky enough to visit Gibraltar, and while there I popped in to talk to the Tax Commissioner, Frank Carreras, and his deputy Susan Borge. We had a discussion about taxation in this British overseas territory on the edge of Europe. Gibraltar has its own laws and tax system. The Tax Justice Network says it’s a tax haven but Washington DC has just removed it from its Tax Haven list.
Looking around the marina there is certainly plenty of wealth here. Unfortunately I didn’t stay at the sumptuous-looking Sunborn Hotel moored there. Mr Carreras was keen to point out that he did not agree that Gibraltar is a tax haven, but rather it’s a highly regulated financial centre. It is EU Treaty compliant and is only on a small number of country blacklists e.g. Spain, Portugal and Greece (although Gibraltar exchanges tax information with them). Gibraltar has over 130 agreements to exchange tax information with some 80 EU/OECD/G20 and other states. It is also signed up to the EU Savings Directive, FATCA with the USA, UK FATCA and was an early adopter of the Common Reporting Standard. The favourable tax regime for qualifying offshore companies was abolished in Gibraltar in 2010. The highest income tax rate is 28% under the Gross Income Based System (marginal rate not exceeding 25%) and the CT rate is 10% for most companies; there are some companies such as utilities which pay CT at 20%. So compared to the UK it’s certainly a low tax territory, with our income tax rates up to 45%, although our CT rate is getting lower each year too!
There’s no VAT but there is import duty on certain goods – not on food or IT, construction materials or certain sized motor boats though! Perhaps that’s why there is so much building work going on, with some impressive-looking government projects to update tenements and public facilities. And of course those nice boats in the marina!
Gibraltar isn’t a member state of the EU, but it is part of the EU, having joined the European Economic Community under the United Kingdom in 1973. Its location and connection with the UK mean it can act as a ‘passport to Europe’, in particular for financial services. I asked Mr Carreras what this meant and it turns out that Gibraltar has much the same regulation as the UK but can get things moving to establish a presence in a much faster time scale than here. The regulators are also receptive to business needs. The Treaties establishing the European Union apply to Gibraltar with only certain exceptions such as the Common Customs Union. As such Gibraltar has to transpose all relevant EU Directives via its Parliament. With the EU ‘passport regime’, once established in Gibraltar a company can gain access to UK and European markets. And with the CT rate of 10%, it’s an attractive option.
The financial sector is big in Gib. It is the one of the top four employers (with e-Gaming, tourism and bunkering being the other three pillars of the economy). The financial sector is highly regulated and I was told that all the same capitalisation rules that apply in Europe apply in Gibraltar too. The financial crash hasn’t affected the country as much as other places, and certainly not as much as its neighbour, Spain. There has been a decrease in the spending power of tourists and trade to Spain has suffered somewhat: one bank, Barclays, closed its Main Street premises after over 100 years in the territory. Despite this, Gibraltar still enjoys a significant surplus in Government revenue versus expenditure year on year and GDP growth of around 10%. Mr Carreras said Gibraltar’s experience is that the reduction in personal and corporation tax rates (over time) has significantly boosted revenue and encouraged a culture of compliance by taxpayers. Of course there are all the usual services that go with wealth – trusts, wealth advisors and private banks. For very wealthy individuals there is a process to apply for a special income tax too; similar to our remittance basis. These Category 2 individuals must own residential property there, have a minimum net wealth and not work in Gibraltar. They apply to the finance centre director to be taxed only on income remitted to Gibraltar and their tax is minimum £22,000 to a maximum £29,000. The tax office plays no part in the process other than to raise the assessments as directed.
No discussion on Gibraltar would be complete without talking about online gaming. Mr Carreras told me this sector employs about 3,000 people and Gibraltar has one of the strictest and best regulated regimes for this trade. CT is paid at 10% on all their profits, and there are no CT tax breaks. Of course an attraction is the very low level of gaming tax. This is administered by the Gambling Commissioner which also licenses and regulates the industry. There are currently around 35 licensed operators (all with a bricks and mortar presence), and gaming tax is paid at 1% of turnover (capped at £425,000). On a hike I was on the lookout for evidence of the servers said to be housed in some of the old WW2 tunnels and whilst I came across transmitters on top of the Rock, I didn’t hear the rattle of the roulette wheel!
Recently Gibraltar introduced a tax amnesty for anyone with undeclared income. The amnesty allows anyone to repatriate their undeclared overseas income and pay 5% on it to ‘wipe the slate clean’. Any amounts found after the amnesty will be subject to a penalty of up to 100%. One reason for this amnesty is that Swiss banks are freezing accounts where the holder cannot show that he has declared the income in another country. I couldn’t help thinking this was a generous way to help those wealthy citizens out of a bit of a hole, while taking a small cut for the trouble. But at least it brings the avoiders in to the tax net! Mr Carreras didn’t want to say how many people had taken advantage of the amnesty (“some”) – in contrast to HMRC’s passion for hyping up the numbers we get when we do similar activities. Perhaps that is due to the difference in our respective population numbers though?
So what’s it like to work in the tax office in Gibraltar? There are 70 people working on Income Tax, PAYE, CT, self-employment, debt and compliance. There is no inheritance, wealth or capital gains tax to worry about, and customs is still a separate department. As a civil servant you can belong to a trade union, the Gibraltar General & Clerical Association which has relatively good relations with the employer. Almost all of the clerical and secretarial staff belongs to the union – an enviable statistic! The staff turnover is quite high with a career that can span many different government departments. The tax code is 1″ thick and Susan looked shocked when I told her how many inches we have in the UK if you stack up the Tolley’s volumes! The government is working towards online pay and file for businesses and individuals. At the moment you can only download and print off forms. The tax office will be busy this time of year because the Gibraltar income tax year runs from July to June with returns due in by 30 November. And everyone who might need to pay tax gets a return, even if they are simple PAYE payers. This includes the 10,000 so-called frontier workers who come daily from Spain too.
For residents there are two ways of working out your individual tax – allowance basis or gross income basis. You can choose which is most beneficial. With the allowance basis you claim any of the myriad of allowances and are taxed at different rate bands on the remainder. On the gross
income basis you simply pay lower rates of tax on your gross income (after a few allowances). If you’ve got over £700,000 income, the tax rate is 5% for those on
the gross basis. And here’s a thing to make you green with envy – there is no tax on pensions once you are over 60!
Talking of pensions, Mr Carreras and Ms Borge are both retiring soon and we got to discussing public sector pensions. The previous scheme, which closed in 2011, was a non-contributory final salary scheme. Retirement age was 55 and the maximum pension was two thirds final salary after 33.3 years’ service. Up to 100% could be commuted to a tax free lump sum. The new scheme is a money purchase scheme into which can be contributed 20-25% per year by both employer and employee. Again retirement age is 55 after 33.3 years.
So when are we all moving to Gibraltar then?