New tax legislation nears completion

The Gibraltar Government has published the long-awaited text of a new tax regime designed to ensure the continued international competitiveness of Gibraltar’s finance centre.

The reforms also introduce tougher measures to ensure compliance and allow for lower personal taxation, but the key element of the new Income Tax Act is a reduction in company tax from 22% to 10% as from January, 2011.

The new framework replaces the tax exempt regime, which Gibraltar has phased out following pressure from the European Union.

In a briefing paper issued alongside the text of the Act, the government said that the new company tax rate had been set at a level that would generate that required by the public purse. It would also stimulate and sustain quality economic activity in a fiscal climate that is conventional in structure and content, but competitive in terms of taxation rates.

“Thousands of local jobs, much Government revenue and thus our public services, depend on Gibraltar having an internationally competitive tax system,” said Chief Minister Peter Caruana. “Many previously tax exempt banks, insurance, investment, gaming and other companies will begin to pay profit tax in Gibraltar for the first time on the same basis as all other companies.

These companies are vital to our economy and to the social prosperity of all of us in Gibraltar”.

The new Income Tax Act is the product of a year of intensive work by the government and a group of advisors drawn from the legal and accountancy communities. The government has now published the text of the legislation as well as a detailed briefing document, inviting any feedback by July 23. The Act is expected to be approved by Parliament in October.

The new legislation ends all distinction between ‘onshore’ and ‘offshore’ business. Together with the tax information exchange agreements being entered into by the government – coupled to Gibraltar’s full integration in the EU and compliance with EU financial services regulation, money laundering and co-operation rules – the new Tax Act completes Gibraltar’s 14-year transition from ‘tax haven’ to mainstream European financial services centre.

The lower rates of taxation are accompanied by an improved culture of compliance and also by strong anti-avoidance provisions to ensure that all chargeable economic activity is effectively captured, thus producing the intended revenue yield to the government.Compliance is essential in order to ensure the success of the low company taxes, as well as the further lowering of personal taxes. The new Act therefore introduces tough anti-avoidance measures and default financial and legal penalties to help ensure that all pay the taxes that are due.

The legislation also introduces severe criminal consequences, as well as personal liability, for directors and managers of companies that withhold tax from workers’ pay and then fail to pay it over to the government promptly.

To level the playing field between PAYE payers on the one hand and companies and self employed people on the other, the latter will, in future, have to pay tax during the tax year on account of that year’s tax bill. The legislation also introduces a system of self assessment and
hefty financial penalties for defaulting on payment or returns.

“Tax is very important, but Gibraltar is more than about just tax: it is also about political and economic stability, good regulation and high standards and a safe business environment, high quality of personal lifestyle, good professional services and communications, and availability of well educated staff,”

Mr Caruana said.“The climate of compliance sought to be created by the new Act is also intended to enable the government to continue and proceed further with its long established programme of tax cutting for individuals as well.

Low tax must come hand in hand with an end to our historically benign tax administration and enforcement system.

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