Overview of Tax Compliance, Accounting, and Audit in Gibraltar
Gibraltar follows a territorial taxation system. Companies and non-residents do not pay income tax unless the source of income accrues or arises in Gibraltar. Residents pay taxes on their global income from employment or self-employment. No tax is levied on capital income. There is no capital gains tax, sales tax, value-added tax, or wealth tax. Import duty is levied at the rate of 10%. Gibraltar has Corporate Tax for companies. Further, it also has stamp duty and property taxes. Gibraltar is free from Value Added Tax (VAT).
In Gibraltar, there is a requirement to file the financial statements annually. The financial statements should be as per the accounting principles. The financial statements also required to be filed with the Registrar depends on the company's size.
In Gibraltar, income tax is payable on Income from activities carried out in Gibraltar only. However, permanent residents of Gibraltar pay taxes on certain types of income from foreign sources. The income tax paid is the lower of the following two alternative methods:
- If the income is up to £11,450, no tax is payable. For the first £4000, a 14% rate applies. On the next £12,000, a 17% tax rate applies. On any amount in excess, a 38% tax rate applies; or
- On the gross income without benefits but with certain deductions, the following rates apply progressively: For income up to £25,000, 6% tax on the initial £10,000, 20% tax on the next £7000, 28% tax on the excess; or for income over £25,000, calculation of tax is done at different progressive rates ranging from 5 to 28%.
In Gibraltar, companies pay tax on the income generated in Gibraltar only. The rate of corporate tax applicable is 12.5%. Companies providing utilities, energy supply companies, or companies abusing their dominant position in the market pay a tax rate of 20%. Further, telecommunication companies apply a 12.5% tax rate for profits arising from non-telecommunication activities. There is no capital gains tax or dividend tax.
Control of Foreign Company (CFC) Rules
CFC arises when a foreign company has ownership of 50% or more of the capital, voting rights, or rights to distribute profits. If CFC pays income tax at the rate of > 50% then it would be payable out of profits arising in Gibraltar. In such cases, the use of the foreign company is presumed to be for evasion of tax and the undistributed profits of CFC should be taxed with the shareholder company in Gibraltar.
Social contributions are required to be made by employees. It is subject to tax at the rate of 10% of the amount of remuneration but it should be more than £605 and less than £3225 per week. Employers have to make a social contribution at the rate of 20% on the amount of remuneration but it should be more than £18.15 and less than £40.15 per week.
Property tax is levied on commercial property at various rates applicable depending upon the type of property.
Real estate transactions with shares of companies with real estate in Gibraltar are subject to stamp duty. The tax rates for Stamp Duty is different depending on the market value of the property.
Every company in Gibraltar or company having income taxable in Gibraltar has to prepare and file tax accounts with the state authorities. Even a company having no taxable income has to file a zero-tax return. Companies have to file tax returns as per the CT1 along with additional documents such as financial statements, tax calculations where there is a taxable income, and collation of form P8 for employers if the financial year does not end by 30th June. Tax returns must be filed and must be paid within 9 months from the end of the financial year.
Accounting and Auditing Requirements
The main laws regulating the accounting requirement in Gibraltar are the Companies Act 2014, the Companies (Accounts) Act 1999, and the Companies (Consolidated Accounts) Act 1999. As per the Companies Act, every company has to file financial statements with the Registrar (Companies House) annually. The financial statements should be prepared following either the International Financial Reporting Standards (IFRS) or the above laws along with the Generally Accepted Accounting Principle (GAAP) of Gibraltar and Financial Reporting Standard FRS102. FRS102 is the financial reporting standard applicable in Great Britain and Ireland. The same has been adopted by Gibraltar and followed since 2016. FRS102 can be considered a "copy" of IFRS for small and medium-sized enterprises. The requirement to file a financial statement with the Registrar depends upon the company's classification. A company can be classified into large, medium, micro, or small companies based on its Revenue, assets, and number of employees.
Financial Statements Required to be filed
The documents required to be filed with the Registrar based on the size of the company are as follows:
Size of the Company
Documents to be filed
l Balance Sheet
l Profit and Loss Statement
l Director’s report
l Auditor’s opinion
Medium Sized Company
Same as above only the Profit and Loss Statement can be condensed.
Micro and Small Companies
Time Frame for filing the documents with the Registrar
The reporting of accounts with the Registrar should be done 12 months after the reporting date for all companies and 10 months from the date of reporting for public companies. Irrespective of the size, a public company has to file the same set of financial statements as a large company. The currency in which the accounts should be filed with the Registrar can be Gibraltar Pound, USD, EUR, JPY, or CHF. Further, if the currency of accounts differ from the currency in which the share capital is issued then the company has to disclose in the notes the currency of the share capital and rate of conversion.
Consolidated Financial Statements
Companies having subsidiaries have to prepare consolidated financial statements such as consolidated profit and loss statements, consolidated balance sheets, and notes. The requirement of compulsory audit of consolidated financial statements is only for large companies. Small groups of companies are exempt from audits of consolidated financial statements.