What Does the Tax Agreement between Spain and Gibraltar Mean for You?

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On the 4th March 2019 a new tax treaty was agreed between the UK and Spain regarding Gibraltar and this could have serious implications for anyone with connections to Spain. The Treaty came into force in March this year with the intention of improving cooperation between Gibraltar and Spain in the field of taxation and the expected removal of Gibraltar from the Spanish blacklist. 

It will also eliminate uncertainty around the tax position of people who are treated as tax resident in both Gibraltar and Spain and will clarify a number of important issues in relation to taxation, however you should be aware that this treaty will not only impact individuals but companies, trusts, foundations and other legal structures and entities resident in, or established and managed in, Gibraltar with connections to Spain. 

The new international treaty establishes objective criteria to determine who is a tax resident in Gibraltar and who is not. You will be considered tax resident in Spain if you meet any of the following conditions: if you spend more than 183 days out of the year in Spain; if your spouse or partner is a Spanish resident; if you own a regular home in Spain;  or if you keep two-thirds of your assets on Spanish territory. This rule affects some people who are currently considered tax residents in Gibraltar.

According to the new regulations that Spain hopes to implement, unfair business practices would be curbed by forcing companies to pay taxes in Spain if most of their assets are located on Spanish territory, if their revenue comes from Spain, if the company managers are tax residents in Spain, or if most of the capital rights are held by Spanish citizens. A few exceptions are made to accommodate businesses whose activities truly take place outside Spain, such as those registered in Gibraltar before November 16, 2018 and which can prove that 75% of their revenue comes from activities in Gibraltar.

The plan’s success will depend on the exchange of information. Gibraltar authorities will share tax data with their Spanish counterparts, and some exchanges will be automatic, such as those concerning cross-border workers and vehicles, ships and aircraft registered on either side of the border.

In a statement in March 2019, Chief Minister Fabian Picardo explained:

“Frontier workers will continue to pay tax in Gibraltar, at least those frontier workers that are individuals who are resident in Spain and work in Gibraltar. Gibraltar taxes on the basis of source of income. So, if you work in Gibraltar we tax your income at source in Gibraltar. Many of those frontier workers, who come into Gibraltar every day to work, go back to Spain and are also taxed on their income in Spain. This agreement […] says that both states will give unilateral tax relief against the tax paid already in a particular state. For example, if you are a Spanish cross- frontier worker you will continue to pay your tax in Gibraltar, it will be deducted from your salary. When in Spain, you will have to pay only the difference between the higher rate of tax in Spain and the amount of tax you paid in Gibraltar if there is a higher difference.” [HM Government of Gibraltar]

 Other important effects of the treaty include the following:

  • Greater exchange of information between Spanish and Gibraltarian tax authorities
  • Elimination of double taxation for cross-frontier workers – approximately 14,000 people live in Spain and commute to work in Gibraltar every day
  • Spain will recognise Gibraltar’s rates of corporation tax

The article above is meant for information purposes only and should not be taken as tax advice.ç

By Leon Fernando del Canto , Head of Chambers, Barrister and Abogado


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