As part of the UK, Gibraltar now finds itself outside the EU after Brexit. In the light of this change in Gibraltar’s status, a new tax agreement with Spain has been negotiated. In this blog piece, we highlight the most important aspects of this agreement.
Legislation on Money Laundering
After Brexit, EU legislation is no longer applicable in Gibraltar. However, when it comes to preventative measures against money laundering, a guiding principle remains: Gibraltar is committed to maintaining legislation equivalent to that of the EU.
Tax Residence
Residence forms a fundamental part of taxation and the agreement lays out the following rules for individuals and companies.
Individuals
Tax residence is according to legislation in Spain and Gibraltar. In case of persons with residency in Spain and Gibraltar, the following rules apply:
Tax residency in Spain
The agreement rules that individuals are tax residents in Spain if:
A. If they spend more than 183 overnight stays in a calendar year in Spain. When determining the number of overnight stays, occasional absences from Spain and Gibraltar will be added to the period corresponding to the place where they spend the majority of their overnight stays.
B. The spouse (from whom they are not legally separated) or partner as well as the dependent children or relatives, have their usual residence in Spain.
C. The only permanent home at their disposal is in Spain.
D. Two thirds of the net assets that they own (directly or indirectly) are in Spain.
If there is any doubt in the application of the above four cases, individuals will be considered tax residents in Spain.
Tax residency in Gibraltar
To demonstrate tax residency in Gibraltar, individuals must prove beyond reasonable doubt that they have a permanent home in Gibraltar for their exclusive use. And that they spend more than 183 overnight stays in Gibraltar in a calendar year.
Any disputes over residency in either territory will be resolved by the Joint Coordination Committee.
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Companies and other legal entities
Companies and other legal entities, incorporated and managed in Gibraltar, or governed by its legislation, have tax residence exclusively in Spain in any of the following circumstances:
A. Most assets (owned directly or indirectly) are in Spain or consist of rights that can or should be exercised in Spain.
B. Most income earned in a calendar year comes from sources in Spain.
C. The majority of individuals in charge of management are tax residents in Spain.
D. Most rights to capital or equity, voting rights or participation in profits are under the direct or indirect control, either by individuals who are tax residents in Spain or by legal persons, entities or other instruments or legal forms linked to tax residents in Spain.
Note that clauses C and D do not apply if the company or entity was incorporated prior to November 16th 2018, the conditions in these clauses were met by December 31st 2018 and:
A. The company or entity has a fixed place of business through which the activity is carried out totally or partially in Gibraltar, with a sufficient number of employees, with the appropriate qualifications and sufficient ratio of operating expenses to its main income streams.
B. If it is subject to corporation tax in Gibraltar and pays said tax on profits at the approved rate (currently 10 or 20%).
C. If between incorporation and December 31st 2018 the company or entity carried out its activity in or from Gibraltar and has done so with no interruption or change of sector since January 1st 2011.
D. More than 75% of income for the financial year immediately prior to December 31, 2018 accrues and derives from sources in Gibraltar with its subsequent modifications.
E. Less than the percentage of income indicated below, with respect to the financial year immediately prior to December 31, 2018, comes from sources in Spain in the following cases:
- 5% if annual turnover is over €6 million.
- 10% if annual turnover is between €3 million and €6 million.
- 15% if annual turnover is less than €3 million.
Note that the Gibraltar tax authorities will provide their Spanish counterparts with the list of companies and entities meeting these conditions as of December 31st, 2018.
This list will contain information on the legal ownership and beneficial owners, as well as on the individuals responsible for the effective management of such companies or entities.
Relocation to Gibraltar After the Agreement
Companies and entities that transfer their residence to Gibraltar after this agreement will, in all cases, maintain tax residence exclusively in Spain.
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Elimination of Double Taxation
The Spanish and Gibraltar tax authorities will eliminate, where appropriate, double taxation in accordance with the provisions in their internal legislation.
Administrative Cooperation in Tax Matters
The agreement lays out the terms for cooperation between Gibraltar and Spain in tax matters for individuals, companies, cross-border workers and employees.
Definition of employee
For the purposes of the agreement, information exchange for employees applies to employed people residing in Gibraltar or individuals who carry out business or professional activities in Spain in municipalities located within a radius of 80 km from Gibraltar.
Information exchanged
The type of information liable to be exchanged includes execution and collection of taxes of all kinds, required on behalf of the Parties and their territorial or administrative subdivisions, including local councils.
This cooperation includes:
- The exchange of information, automatic, spontaneous or on request, including simultaneous tax inspections or joint controls and participation in tax inspections abroad.
- Assistance in tax collection.
- The delivery or transfer of documents.
Type of Information from Gibraltar to Spain
The tax authorities in Gibraltar will inform their Spanish counterparts of the following:
A. Annual information on workers registered in Gibraltar as residents in Spain, specifically detailing all the extremes of their underlying employment relationship or of any business or professional activity carried out by said workers, including details regarding the duration, economic terms and the employer.
B. Semiannual information on ships, aircraft and vehicles registered in Gibraltar and belonging to Spanish tax residents.
C. Free and direct access to entries in the Gibraltar Company Registry and the Gibraltar Land Registry.
D. Direct access to public information about beneficial owners or companies, legal persons, partnerships and foundations.
E. Direct access to public information trustees, beneficiaries and assets of all types of trusts, as well as other instruments or legal forms established or administered in Gibraltar when the trustees, protectors or beneficiaries are tax residents in Spain or the assets of any type of trust are located in Spain.
Timeline for Information Exchange
Gibraltar employees residing in Spain – within four months of the date of the validity of the agreement.
Ships, aircraft and vehicles registered in Gibraltar by Spanish tax residents – twice a year on March 31st and September 30th. Information exchanged in March is for the period July-December of the previous calendar year and the information exchanged in September for January-June of the current year. The information dates from January 1st 2014.
Get Expert Help
Tax matters are complicated, particularly when it comes to tax residency. To avoid problems and expensive mistakes, use the services of the experts to ensure you comply with all tax regulations.
The team at Costaluz Lawyers know everything there is to know about Spanish and international tax rules and regulations – get in touch for your free consultation now.
Maria Luisa Castro
