Gibraltar: Tax measures in budget 2022

The Chief Minister on 28 June 2022 delivered the budget that includes certain tax provisions.

The following discussion provides a summary of the main tax measures in the budget for 2022.

• No changes were proposed to the rate of income tax for companies.
• The computation of the company income tax liability in the transitional accounting period containing the change in the company income tax rate (from 10% to 12.5% from 1 August 2021) is to be clarified. The amending legislation has been published and states that the tax liability in relation to the transitional accounting period can be calculated either by a time apportionment of profits or by apportioning profits by reference to the date they accrue (i.e., an actual basis).  An election must be made for the actual basis and must be accompanied by an explanatory statement setting out the facts and circumstances as to the purpose of the election and appropriate evidence demonstrating:
  • that the application of a straight-line apportionment gives a materially disproportionate result, and
  • the allocation of accrued profits or losses on an actual basis.

The Income Tax Office is to issue explanatory notes supplementing this legislative amendment.

• The threshold of assessable income above which corporate tax returns must be accompanied by audited accounts is to be increased to £1.5 million (from £1.25 million) for a 12-month accounting period and is to apply to accounting periods ending on or after 1 July 2022.
• An additional marketing deduction (50%) was announced in the 2021 budget and was intended to be available for a period of two years. However, this incentive has been terminated with immediate effect and so will only apply for the first year as set out in the legislation. In addition, the qualifying marketing “must be of Gibraltar as a destination and jurisdiction with the aim of attracting, conventions, events, visitors and tourists or new business to set up here.” The additional deduction cannot be used on general marketing to customers of the company’s products, and guidance is to be issued by the Income Tax Office to define marketing.
• All companies that have filed accounts during the “COVID period” (i.e., the last two financial years) and were to have filed accounts up to December 2022 have been invited to voluntarily review their tax returns. If they consider that they have under-declared, then they have until 31 December 2022 to resubmit these returns and pay the corresponding taxation without penalty or interest. After the end of this amnesty period, the Commissioner of Income Tax (Commissioner) will then issue estimated assessments on those companies when the Commissioner believes there has been an under-declaration for the years in question; the assessed tax will be a multiple to be determined of the tax that ought to have been paid; and there will also be penalties and interest imposed. The Commissioner is conducting a review of those companies that are considered to be “over creative” and under-declaring tax. Additional resource is being sought from the UK to assist with this process.
• All companies are liable to pay a “COVID recovery charge” of £25 per week (£1,300 per annum) over the next two years. This charge is to be levied as part of the company’s annual return collected by Companies House as from 1 August 2022.
  
  KPMG observation
  The government has since received representations on the COVID recovery charge and has agreed to engage with taxpayers in an effort to address concerns. Further announcements are expected. 

• For the next two tax years of assessments only, all rates in all bands under the “allowance based system” (ABS) and “gross income based system” (GIBS) are to increase by 2%.   Under these new bandings, individuals paying tax under GIBS with income above £25,000 are to be taxed at an average rate of 27%. This will also affect the amount of tax payable under the “high executive possessing specialist skills” (HEPSS) regime.
• Under the GIBS, the tax rate for income above £105,000 will be 25% (subject to the increase mentioned above). This is not a temporary measure and removes the decreasing rates that previously applied to income over £500,000.
• Any non-Gibraltar national who claims residency in Gibraltar or is resident in Gibraltar and who is not in possession of a Category 2 or HEPSS certificate and is not under “true third party employment” will be taxed on the full amount of savings income including pension income, interest income, dividend income, and income from other passive sources. Tax will be payable on this income at the maximum rate with no adjustment for lower rates of income. Alternatively, these individuals will be given the opportunity to apply for Category 2 status retrospectively, but only if they meet the eligibility criteria and pay any outstanding amount of tax
  
  KPMG observation
  Following the budget, concerns have been raised about how and to whom this treatment is to apply. The legislation that will set out the details of those who will be subject to this new measure is expected to be published in the coming days.

• The maximum capped assessable income for a Category 2 Individual is now capped at £118,000 per year of assessment and this amounts to tax of £44,470 per year of assessment under the allowance based system (taking into account the temporary increase in the tax rates). Certain income (e.g., rental income from Gibraltar property) falls outside of the maximum capped assessable income.
• The minimum tax payable by a Category 2 Individual has increased to £37,000 per year of assessment.
  
• The Gibraltar government requires a one-off payment to be made by new and existing Category 2 individuals so that when a Category 2 individual leaves Gibraltar that any tax owed can be deducted from this payment. For existing Category 2 individuals, the amount is the current maximum Category 2 tax payable (i.e., £44,470) and this is due for payment by 30 November 2022. This will be repaid only after the deduction of any balance of tax due at the time that the Category 2 certificate is surrendered or relinquished. This payment is in addition to any final balance of tax that may be due in relation to the year of assessment ended 30 June 2022 but it has been confirmed that Category 2 individuals are not required to make a recurring advance payment of tax in each year of assessment. For new applicants, the maximum Category 2 tax must be paid with the application but this will be refundable if the application is not successful, together with the existing non-refundable application fee of £1,000. 
  

• The import duty waiver that was introduced for all commercial imports (other than for certain commodities such as excise goods) and the 10% flat rate of import duty to be levied on all personal imports over £25 in value (with this measure again not applying to key commodities) have been revoked, effective from 29 June 2022.
• Private importations will now be charged at the import duty rates in place prior to the introduction of the above measures subject to a £25 de minimis rule.  

• The existing penalty regime is under review, and revised sanctions will be shortly introduced based on the size of the defaulter as well as the level and frequency of the default.
• With effect from 1 September 2022, the Income Tax Office will impose administrative fees for the provision of certain services (such as, providing certificates confirming ordinarily residence) and a tariff sheet of these fees is to be made publicly available by the Income Tax Office.
• Effective from 1 August 2022, visitors staying at hotels and vacation rental homestays will pay £3 per person per night for a stay in Gibraltar.
• Additionally, effective from 1 April 2023, cruise ship passengers will pay a £1 passenger environmental levy based on the number of passengers on the vessel calling at a port in Gibraltar. 

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

Darren Anton | darrenanton@kpmg.gi