SOVEREIGN TAX SERVICES – 2021 GIBRALTAR BUDGET

TODAY (20 JULY 2021), GIBRALTAR’S CHIEF MINISTER, FABIAN PICARDO QC, DELIVERED “THE HARDEST BUDGET IN OUR HISTORY AS A PEOPLE SINCE THE CLOSURE OF THE FRONTIER”… “A VERY, VERY PRUDENT BUDGET. A REBUILDING BUDGET. A BUDGET FOR OUR COVID TIMES.”

BACKDROP – BREXIT/COVID-19

• First full budget session since re-election of the GSLP-Libs in 2019 due to Covid pandemic.
• Brexit uncertainty and Covid pandemic government revenue wrecking event continue to affect our economy.
• “Gibraltar has never been luckier to be British”, with reference to the Covid vaccination programme in Gibraltar.
• Gibraltar has left the EU, but arrangements specific to Gibraltar are continuing to be negotiated. When considering the post-EU position, “We will never enter into any arrangements that will impoverish our businesses…We are working to deliver arrangements that will deliver a rocket boost for our businesses in every sector”.
• “Gibraltar is now more British than ever!”
• We must protect our paradise as much as possible. The “public finances are in a very bad cash situation…but we will build back better, sooner and stronger than most others”.

ECONOMIC POSITION

• Exceptionally a budget debate was not held last year (due to the Covid pandemic).
• During lockdown the Government finances suffered a “wartime annihilation”.
• 2020/21 “incredibly challenging and incredibly turbulent”.
• By the end of March 2021 aggregate public debt increased from £438.9m as at March 2019 to £677.7m by 31 March 2021
• At present, revenue estimate for 2021/22 of around £633 million.
• Expenditure cannot match up to estimated revenue, therefore projecting a deficit of £51m.
• Reduction of GDP of 4.9% for 2020/21. GDP 2020/21 forecast £2.44bn (period to March 2021) but the effect of pandemic is not yet over.
• GDP per capita, 2019/20 forecast £79,707, 1st position in global rankings (UK 35th), but not scientific, distorted by frontier workers and pre-pandemic.
• Revenue collection of corporate and personal income taxes consistently comprises approximately between 40 to 50% of recurring Government revenue, therefore a vital part of the economy.
• 2019/20 total tax revenue of £323m (£189.4m in personal tax and £133.6m in corporate tax)
• 2020/2021 total figure for £314m (£185.6m in personal tax and £128.4m in corporate tax).
• Overall reduction of £9.5m in one year.
• Due to Covid, financial forecasting of the 2021/22 tax revenue figure is conservatively projected to a lower sum of £300m (£180m personal tax and £120m corporate tax).

TAX CHANGES

• Increase in corporation tax rate to 12.5% (from 10%) for company financial periods beginning after today.
• If the new global agenda prospers, when we are required by the OECD to move to 15% corporate tax rate, the increase will then be less significant.
• Category 2 individual tax changes. Annual assessable income cap increases from £80,000 to £105,000 (resulting in an expected annual maximum Category 2 tax increase of £9,750 to £37,310, to be confirmed when law is issued later this week).
• Minimum annual Category 2 tax increases from £22,000 to £32,000.
• High Executives Possessing Specialist Skills “HEPSS” tax changes. To qualify as a HEPSS, the individual needs to earn more than £160,000 per annum (currently £120,000).
• Transitional arrangements to be introduced for current HEPSS earning between £120,000 to £160,000. These certificates will remain grandfathered under the HEPSS regime for a period of two years.
• Category 2 and HEPSS tax changes take effect from 1 August 2021. Law to be issued later this week.
• Tax reliefs for employing new staff, training and marketing costs.
• In order to encourage employers to take on and train new staff, there will be an allowance of 50% of the fixed salary cost of every employee employed after today.
• For businesses that invest in training, the allowance for qualifying training will be increased by 10% to 60% of those training costs.
• For businesses that invest in marketing there will be an additional deduction amounting to 50% of marketing costs.
• Capital allowance increases and extensions.
• Continuation of defined strategy of tax transparency and prevention of base erosion and profit shifting. Gibraltar has already indicated its in-principle support for OECD’s consensus on Pillars 1 and 2 relating to the taxation of the digital economy, the allocation of taxing rights and the harmonisation of a minimum global corporate tax rate.
• In September 2020, the Global Forum published that Gibraltar retained its largely compliant rating in accordance with the international standard for the exchange of information on request. This rating puts Gibraltar on a par with many other significantly larger and mainstream jurisdictions such as Spain and the UK.
• Central developments in Gibraltar’s international tax landscape is the entry into force of both the Double Taxation Agreement between the UK and Gibraltar and the International Agreement on Taxation (ITA) between the UK and Spain regarding Gibraltar. Greater clarity for international businesses structuring their tax affairs and allows them to do so in a manner which is wholly transparent.
• Spanish (Andalusian) court recognition that Gibraltar tax can be offset against Spanish tax, to alleviate double taxation.
• Deductions for solar energy systems extended, to any solar system installed by businesses or individuals and no longer to be limited only to water heaters.
• Some tax allowances to increase but others remain unchanged from 2020/21.
• No other changes to personal tax.
• Import duty increases from today.

OTHER BUDGET MEASURES/COMMENTS

• £26m paid out in tax refunds and commitment to continue to bring up to date. Income Tax Office need taxpayer bank account details for payments.
• Income Tax Assessments issued up to tax year 2018/19.
• 25% of tax assessments completed for tax year 2019/20. Remainder in progress.
• Online tax services are being expanded and will shortly also allow taxpayers to submit their income tax return online through a dedicated user portal
• 95% drop in unemployment since election in 2011.
• Average annual gross earnings have increased to £32,625, a record high.
• Minimum wage to be increased to £7,50 per hour and will increase in line with inflation for next 5 years (2020/21 £7.25 ph).

FULL BUDGET SPEECH

The full Budget Speech is available at the following link:
541-2021.pdf (gibraltar.gov.gi)

Sovereign Tax Services, the Gibraltar based tax compliance and advisory firm, specialises in providing personal tax and residency services to Gibraltar private clients and UK tax services to non-UK residents, principally individuals and pension schemes. Our expertise enables the rather unique dual handling of both Gibraltar and UK personal tax compliance and advice. Furthermore, for those looking to relocate to Gibraltar, we can manage residency applications and organise all tax and compliance matters associated with certain residency regimes. As part of The Sovereign Group we also benefit from the Group’s vast array of trust, company, pension, wealth management and insurance services. To find out how we can assist, contact Lynette Chaudhary on +350 200 76173 / tax.gib@Sovereigngroup.com