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Gibraltar: Program of grant payments to businesses (COVID-19)

Gibraltar: Program of grant payments to businesses

The Chief Minister announced a grant program as support for businesses in further response to the coronavirus (COVID-19) pandemic. The effective date of the measures for these COVID-19 grants is 1 July 2020.

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COVID-19 grants

Payments will continue throughout the third quarter of 2020, but in the form of a grant to provide support for businesses in meeting their ordinary course-of-business expenses. These grant payments are no longer required to be paid to designated employees as COVID-19-related salaries. The new grant payments will only be paid to businesses that are operating in accordance with the guidelines set out in the government’s “Unlock the Rock” document.

Any business that received COVID-19-related salaries and any self-employed person who received COVID-19-related payments will automatically qualify for the new grant payments program. However, there will be some exceptions—such as businesses that are deemed by the government to have been in “substantive operation” throughout the COVID-19 period. Businesses in relevant sectors that did not previously receive payments will be considered for the new grants on a case-by-case basis.

The grant payment will be calculated as an average of payments that each business or self-employed person previously received over the months of April and May 2020 and paid using a sliding scale: 

  • July 2020                                        60%
  • August 2020                                   40%
  • September 2020                            20%

For example, a business that received £12,000 in April and £8,000 in May would have had an average over both months of £10,000.  This business would then receive £6,000 for July, £4,000 for August and £2,000 for September.

The COVID-19 grant payment will follow an automated system whereby the government will contact the businesses and self-employed persons by email and ask them to confirm whether they agree to comply with the new COVID-19 grant payment terms. An email response will then enable the monthly payments to be made to the same bank account into which businesses received their original payments.


COVID-19 grant conditions

  • The grant is solely and exclusively to be used for meeting the necessary costs and expenses incurred in the ordinary course of business. Declaring or charging a bonus or dividend for a period of at least six months from 1 July 2020 will not be allowed.
  • Businesses can terminate employment contracts with effect from 1 July 2020, but not more than 30% of the total number of employees for the third quarter (any business that terminates more than 30% of its workforce at any time during the next six months from 1 July 2020 will automatically have their new “business and employee assistance terms” grant converted into a loan). Seven days of prior notice, in writing, to the Director of Employment of the employment terminations is required. The government will also retain the ability and discretion to adjust pro-rata subsequent payments, having regard to the number of terminations, and this may apply even if these terminations are within the 30% threshold.
  • No unregistered labour is allowed (further grant payments will also be suspended). The government announced a one-month amnesty for the month of July to enable all firms to determine that their employees are properly registered.

The breach of any of these conditions will automatically convert the grant payments into an interest-bearing loan to be repaid over   a five-year period (repayable in equal monthly instalments to cover capital and interest on a reducing balance basis). In an insolvency proceeding, any COVID-19 grant payment will be a preferential debt due to government for the purposes of the Insolvency Act.


Discounts for rates on commercial property

The government will offer a further 25% discount on its early repayment discount scheme for rates on commercial property across all sectors (except supermarkets and pharmacies) for the third quarter of 2020. This discount will apply to all businesses that did not have rates in arrears as of 31 March 2020 and that pay their rates on time.


Rents

The government will apply a 50% discount to all commercial tenants in relevant sectors for the third quarter of 2020.

The government is again encouraging private landlords to give businesses in relevant sectors that enjoyed a commercial rent reduction for the second quarter of 2020, a rent discount of 25% for the whole of the third quarter of 2020. If the rent discount is not offered, the government will apply a tax of three times to that part of the rent that the landlord has refused to discount and the tenants will be allowed a three-times reduction from their tax assessment of that unreduced element of rent.

Any rental increases due in any commercial premises for the period 1 July 2020 to 31 March 2021 are suspended and this applies to government commercial tenancies as well as private landlords and their commercial tenants.

In order to avail themselves of these rent measures, the tenant must not have rent arrears as of 31 March 2020.


Terminations

As from 1 July 2020, all businesses that have not benefited from the COVID-19 payments will be able to process terminations in the normal manner.   


PAYE and social insurance

All sectors will be subject to the usual “pay as your earn” (PAYE) and social insurance obligations with effect from 1 July 2020.

Any PAYE and social insurance deferred during the second quarter of 2020 will need to be repaid before 31 March 2021. Firms will therefore be able to gradually repay the deferred taxes over this period, and arrangements for these repayments will need to be coordinated by the Central Arrears Unit in collaboration with the Income Tax Office (ITO).


Tax repayments and penalties for late filing

The ITO will be expediting refunds due to both individual (personal) and corporate taxpayers.

The Commissioner of Income Tax confirmed that the waiver of penalties in relation to the late filing of corporate tax returns is expected to continue until 31 August 2020. The waiver applies to filing deadlines arising on or after 15 March 2020. This is expected to be confirmed in due course, with notice to be provided by the ITO if the waiver is extended. This waiver does not apply to the surcharge regime for late payments; thus, tax payments must be made in accordance with the existing due dates to avoid any surcharges.


Import duty

The import duty waiver will continue for the entirety of the third quarter of 2020 for all commercial imports, with this waiver not applying to fuel, building materials, alcohol, tobacco, and disposable single-use plastic products when there is a higher duty regime in place (for instance, plastic plates and straws).

The import duty on vehicles is to remain at zero (0%) only for the month of July 2020 and then to revert to the  pre-March 2020 rate in August 2020.

However, in order to support a "buy local" program, a new import duty at a flat rate of 10% is introduced for all personal imports (excluding foodstuffs). In respect of fuel, building materials, tobacco and wines, spirits and malts, and disposable single-use products such as plastic plates and straws, the existing regime will continue. This import duty will be levied on all importations through the land frontier, as well as all online purchases delivered to Gibraltar by courier or by post. 

For more information, contact a KPMG tax professional in Gibraltar:

Darren Anton | +350 200 48600 | darrenanton@kpmg.gi

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