Gibraltar to tax interest income of Insurers and DLT firms

On 1 February 2024, a Bill was published to extend the taxation of interest income in Gibraltar to Insurers and DLT (Distributed Ledger Technology) firms.

Once the proposed amendment is passed by Parliament and is law, it shall apply to accounting periods beginning on or after 1 February 2024.

Interest income or “similar amounts” received shall be included as trading income, and such profits will be deemed to accrue in or derive from Gibraltar, and therefore will be taxable in Gibraltar.  The standard current rate of income tax in Gibraltar for companies is 12.5%.

This will apply to:

The income of a person, other than an individual –

• which carries on the activity of money lending to members of the general public or which advertises or announces itself or holds itself out in any way as carrying on that business or actually carries on that business whether solely or jointly with any other business, trade or vocation;
• which is in receipt of interest on funds derived from the regulated activity of accepting deposits as set out in paragraph 3 of Schedule 2 to the Financial Services Act 2019 other than with related counterparts or the proceeds of investment of that interest, which has been placed on deposit with, invested with or loaned to any person;
• which has permission under Part 7 of the Financial Services Act 2019 to carry on the regulated activity of effecting or carrying out contracts of insurance; or
• which has permission under Part 7 of the Financial Services Act 2019 to carry on the regulated activity of using distributed ledger technology for the storage or transmission of value belonging to another.

Anti-avoidance provisions are included to bring disposals to connected persons within the scope of this law, unless evidence to the satisfaction of the Commissioner of Income Tax is provided, that the avoidance of tax was not the main purpose or one of the main purposes of the disposal.

The publication of this Bill follows a Ministerial Statement (31.1.pdf (gibraltar.gov.gi)) announced in Parliament on 24 January 2024. The Ministerial Statement noted that the landscape of financial services and related businesses has changed radically since Gibraltar’s Income Tax Act was introduced in 2010. The invention and wide-adoption of crypto has revolutionised the industry and a number of crypto-based financial businesses have evolved globally. In addition, it notes that insurance companies now more frequently utilise and rely on debt instruments to fund their operations and also invest to ensure that claims may be paid from adequate resources and sustainable returns; this being a significant and fundamentally integral part of their trade. This reform is therefore considered as necessary to modernise the tax legislation, providing certainty and clarity, whilst balancing the need to maintain minimal administrative burden or unfair additional tax on the general body of taxpayers.

Previous to this change, only money lenders and deposit taking institutions were taxed on interest income as a trading receipt in Gibraltar, on the basis that the making of loans and the purchase of debt instruments is a principal part of their business model and trade.

Businesses operating in these industries should consider the potential impact on their Gibraltar tax position.

Sovereign Tax Services are a Gibraltar based tax compliance and advisory firm, specialising in providing personal tax and residency services to Gibraltar private clients and UK tax services to non-UK residents.

Sovereign Tax Services are registered with the Gibraltar Financial Services Commission. Sovereign Tax Services is a trading name of Sovereign Fiscalis Limited, Sovereign Place, 117 Main Street, Gibraltar, Company Registration Number 84307.

For more information, please contact Lynette Chaudhary below.