1. Types of Business Entities Commonly Used, Their Residence and Their Basic Tax Treatment

1.1 Corporate Structures and Tax Treatment

Businesses generally adopt a corporate form which has a separate legal personality and is taxable as a separate legal entity. The 2014 Companies Act allows for the incorporation of both private companies and public companies.

A private company under Gibraltar law is a company that restricts the right to transfer its shares and does not offer its shares to the public. Four types of private companies may be incorporated under the 2014 Companies Act s 4(2), namely:

• a company limited by shares;
• a company limited by guarantee and having a share capital;
• a company limited by guarantee and not having a share capital; and
• an unlimited company with or without a share capital.

A public company under Gibraltar law is a company whose certificate of incorporation states that it is a public company, has a share capital and meets the requirements of the 2014 Companies Act in terms of share capital and net assets.

Two types of public companies may be incorporated under the 2014 Companies Act s 4(1), namely:

• a company limited by shares; and
• a company limited by guarantee and having a share capital.

Shares of different classes are permitted, including preference and redeemable shares, and shares with limited or no voting rights. Shares of no par value, however, are not allowed.

Gibraltar companies need only one shareholder. Nominee shareholdings are permitted. The names of registered shareholders must be included in the annual report filed with the Registrar of Companies, which is available for public inspection.

There are no formal minimum capital requirements and it is possible for an entity to have an authorised share capital in most major currencies (including USD, EUR, GBP, etc).

1.2 Transparent Entities

Limited Partnership

Limited partnerships are commonly used and are regulated by the Limited Partnerships Act 1927. Under Gibraltar law, a limited partnership must consist of one or more general persons or ‘general partners’ (who are liable for all debts and obligations of the limited partnership and are responsible for its management) and one or more persons called ‘limited partners’ (the limited partners must at the time of entering such a partnership contribute either a sum or sums as capital, or property valued at a stated amount, and their liability to creditors is limited to the capital that they have introduced). Accordingly, this vehicle is typically used in order to limit the liability of limited partners, and in some tax planning structures.

Limited Liability Partnership

Limited liability partnerships are regulated under the Limited Liability Partnerships Act 2009. All of the partners in a limited liability partnership benefit from limited liability in respect of the partnership. Their liability is limited to funds they have invested in the partnership, undrawn profits and any guarantees they have given to raise finance. All of the partners may participate in the entity’s management.

Trust

A popular vehicle in tax planning is the Gibraltar trust, which is based on the English trust and is mainly regulated by the Trustees Act.

Private Foundations

The Private Foundations Act 2017 provides the legal framework for the establishment and operation of foundations. A foundation has a separate legal personality and as such can hold property in its own right, as the absolute and beneficial owner. The Foundation Charter and Foundation Rules establish the foundation, and set out its purposes and the rules for its administration. They also set out details of the beneficiaries and the guardian. The founder provides the initial assets as an irrevocable endowment, and may reserve powers for themselves, such as the ability to appoint or remove the guardian or councillors, or to amend the constitution.

1.3 Determining Residence

Gibraltar is not a party to any double taxation treaties. However, tax relief is available in respect of foreign income tax paid, deducted from or liable to be paid on income which is similarly chargeable to Gibraltar tax, up to whichever is lower – Gibraltar tax or foreign tax on the income (although this only applies where the jurisdiction imposing the foreign tax is the same jurisdiction in which the income is generated). Gibraltar also transposes European directives into Gibraltar law (including but not limited to the Parent-Subsidiary Directive).

The tax residence of a company is determined by reference to where the company is managed and controlled, and not by reference to its jurisdiction of registration. Ultimately, determining tax residence is a question of fact.

Gibraltar applies a territorial system of taxation whereby companies are taxed only on income that is accrued in or derived from Gibraltar. As a result, income that is not accrued in or derived from Gibraltar is not taxable in Gibraltar. ‘Accrued in or derived from’ is defined in terms of the location of the activities giving rise to the profits or gains.

Specific rules apply to companies carrying out activities that are subject to licensing or regulation in Gibraltar, or that are passporting activities into Gibraltar through a branch or permanent establishment in Gibraltar that would otherwise be subject to licensing or regulation in Gibraltar. Such income is deemed to accrue and derive in Gibraltar.

Royalty income and intercompany interest income of a company registered in Gibraltar is deemed to have accrued in and derived from Gibraltar, regardless of the source of the royalty or interest.

1.4 Tax Rates

Corporate Tax

All companies can be charged a tax rate of 10% on taxable profits, except for utility, energy and fuel supply companies and companies deemed to be abusing a dominant market position, which are subject to tax at a rate of 20%.

Transparent Entities

Partnerships, limited partnerships and limited liability partnerships are treated as transparent entities for the purposes of taxation. As such, their partners – whether corporate entities or individuals – are assessed for tax purposes on any taxable profits that are generated by the partnership.

Trusts and Foundations

Trusts and foundations are treated in a very similar manner to each other for tax purposes. They are both taxable entities in their own right with any taxable profits being taxed at a rate of 10%.

A trust or foundation that is resident in Gibraltar is generally taxed on a worldwide basis. A trust or foundation that is not resident in Gibraltar will only be taxed on income accrued in and derived from Gibraltar, although the income of trusts and foundations is often classed as income that is not subject to tax.

A trust or foundation is treated as resident in Gibraltar if one or more of the beneficiaries is ordinarily resident in Gibraltar, or where the class of beneficiaries (other than those irrevocably excluded from benefit) may include an individual who is ordinarily resident in Gibraltar.

Distributions received by beneficiaries who are ordinarily resident in Gibraltar and who are paid by a trust or foundation out of taxed/taxable profits of the trust or foundation, are assessable for tax on those distributions. Those beneficiaries are, however, entitled to a tax credit in respect of the tax suffered by the trust or foundation. The distribution of profits that are not subject to tax on the part of the trust or foundation, would not be taxable on the beneficiary. Detailed rules apply to how distributions are allocated to taxable or non-taxable profits.

Individual Tax

An individual who is present in Gibraltar for at least 183 days in a tax year, or more than 300 days in total during three consecutive tax years, is deemed to be ordinarily resident in Gibraltar. ‘Present’ means being in Gibraltar at any time during a 24-hour period commencing at midnight and whether or not accommodation is used. An individual who is ordinarily resident is taxable in Gibraltar on their worldwide income (subject to double-tax relief and with the exception of rental income, which is only taxable if the property is located in Gibraltar or is deemed in the nature of a trade). An individual who is not ordinarily resident is only taxable on income from Gibraltar. The tax year runs from July 1st to June 30th and tax is payable on the actual taxable profits for the year. Individuals have the choice of being taxed under either an allowance-based system or under a gross income-based system, and will be assessed for tax under the system that results in lower tax. Where a taxpayer is taxed under the gross income-based system and their spouse is taxed under the allowance-based system, restrictions apply on the allowances available to the spouse under the allowance-based system. Different tax rates apply to income bands under both systems, but the result is that, for resident individuals, the effective (overall) tax rate never exceeds 25%.

Capital Gains Tax

Capital gains are not taxed, either for individuals or companies.

Withholding Tax

Withholding tax is not imposed on the payment of interest or dividends.

Stamp Duty

On share or loan-capital transactions, the fixed amount per transaction is GBP10.

On the purchase of real estate in Gibraltar:

• first GBP260,000 of purchase price: 0%;
• balance from GBP260,001 to GBP350,000: 5.5%;
• balance above GBP350,000: 3.5%.

For other buyers:

• purchase price of up to GBP200,000: 0%;
• purchase price between GBP200,001 and GBP350,000: 2% on first GBP250,000, and balance at 5.5%;
• purchase price over GBP350,000: 3% on first GBP350,000, and balance at 3.5%.

Tax on Receipt of Income from Royalties

Effective from 1 January 2014, royalty income received or receivable by a company registered in Gibraltar (irrespective of the source of the royalty) is taxable.

Tax on Receipt of Interest

Interest income is taxable on companies if:

• the income constitutes trading income: for example, where the company is a bank or carries out similar activities to a bank (as defined in the Income Tax Act 2010); or
• the income falls within the scope of ‘inter-company interest’ as defined in Class 1A of Schedule 1 of the Income Tax Act 2010. This applies to interest paid or payable on a loan or advance from one company to another company. Such income is deemed to accrue in and derive from Gibraltar in the case of a company registered in Gibraltar. It does not apply to interest on a loan to a company where the total interest income from that company (or the total from connected companies) does not exceed GBP100,000 per annum.

Tax on Sale of Shares

Tax is not payable on the transfer of shares in a Gibraltar company unless that company owns Gibraltar real estate (directly or indirectly), in which case stamp duty would generally apply on the underlying real estate.

Dividends

Withholding tax is not imposed on the payment of dividends. Dividends paid to shareholders who are ordinarily resident in Gibraltar have a tax credit equal to the tax paid by the company on the profits from which the dividend is being paid. Dividends received by a company from another company are not taxable.

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