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New double tax treaty between Gibraltar and the UK

Monday, 21st October 2019

New double tax treaty between Gibraltar and the UK Image
Gibraltar has agreed a Double Taxation Treaty with the UK.
Whilst most of us were voting in the Gibraltar general election, on 17 October 2019 it was announced that the Gibraltar and UK governments had entered into a Double Taxation Treaty (“DTT”). The agreement will come into force in Gibraltar from the first Gibraltar tax year (commencing 1st July) once administrative and legislative formalities have been completed, most likely by 1st July 2020.
A DTT with the UK has long been on the wish list of finance professionals and businesses in Gibraltar and in light of the fact that the UK is Gibraltar’s main trading partner, accounting for some 90% of financial services activity. Unlike the recently negotiation tax agreement between Gibraltar and Spain (yet to be ratified), the treaty with the UK follows the OECD Model Tax Convention which is especially helpful given the extensive explanatory notes concerning the interpretation of such styled treaties.
Individuals and businesses will now have clearly defined rules as to various matters including:
• Determining the jurisdiction of residency where a situation of dual residency exists;
• The extent to which businesses in one territory can do business with the other territory without creating a taxable presence;
• Providing employees and self-employed persons with rules to determine the threshold when they are required to pay tax on their earnings in the other territory;
• Deciding the method of taxation for passive income such as dividends, interest and royalties where it is earned in a different territory to the place where the recipient is resident. Importantly, several nuances that existed in UK taxation concerning the receipt of Gibraltar sourced income for UK taxpayers have been eliminated;
• Procedures for the elimination of double taxation, generally dealt with by allowing a tax credit for any taxes paid in the other territories;
This completes a period of good news as regards Gibraltar’s relationship with the UK. The explanatory notes accompanying the recent Queen’ Speech demonstrated that the UK is committed to long term market access for financial services firms in Gibraltar as part of the UK family. Gibraltar is uniquely positioned in this respect as Gibraltar and the UK will maintain reciprocal market access for financial services when they both leave the EU.
In terms of UK residents owning Gibraltar property and Gibraltar residents owning UK property, nothing really changes other than certainty for UK residents of a tax credit in the UK if any Gibraltar tax has been paid.
It is often said that uncertainty is the enemy of business.  This DTT provides certainty and is good for Gibraltar.
Read the full text of the Double Taxation Treaty.
If you believe that you may be affected by the new treaty please do not hesitate to contact us or our colleagues at Buckingham Corporate Services (info@bcs.gi)

Contributed by Mike Nicholls