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On 17 October, it was confirmed that a double taxation agreement will enter into force between the United Kingdom and Gibraltar. This will be the first interim tax agreement between the two countries. Gibraltar included in its 2010 Income Tax Act the main provisions to avoid double taxation, which also specify how businesses and individuals with their administrative headquarters or residence in Gibraltar and the United Kingdom are taxed. The main effect of the treaty is to eliminate double taxation between residents of Gibraltar and/or the United Kingdom on income and profit taxation. The treaty further strengthens economic relations between the two regions before Brexit and, although it is based on the organisation for economic co-operation and development (OECD) model, some major differences appear, which are highlighted in this article. While Gibraltar has been offering a competitive low tax rate, political independence and good relations with the government through the Gibraltar Finance Centre Council in recent years, transactions between a Gibraltar company and a British company in an international group have been problematic from a tax point of view in the past, as there is no double taxation agreement between the two countries. The United Kingdom has included in most of its double taxation agreements, including the Gibraltar Agreement, a reduced tax rate on dividends, interest and royalties. In 2013, Gibraltar amended the provisions on the taxation of interest and royalties, which are introduced at a tax rate of 10%. Section 22 provides for the elimination of double taxation through a tax credit.

In order to avoid double taxation, Gibraltar`s Tax Commissioner agreed to offer a tax deduction to the dual-tax party. The deduction would amount to 5% of gross income, expenses incurred by the party or 75% of the net profit that could be made before any expenditure. The same rules apply to the Gibraltar Convention – Great Britain to avoid double taxation. The aim of the agreement is to eliminate double taxation on income and capital and to prevent tax evasion and evasion. Gibraltar will only levy income tax on income accumulated here, which is why every subsidiary or branch of a company operating in the United Kingdom in Gibraltar will be taxed there. On the other hand, the United Kingdom will use the tax credit or exemption methods to avoid double taxation. It should be noted that Gibraltar does not collect taxes on wealth, capital income or inheritance tax. The 0% interest rate is subject to either the application and obtaining of contractual relief or a double tax passport before the interest is paid. Double taxation agreements (also known as double taxation agreements or conventions) (DBAs) are primarily aimed at reducing double legal taxation.

A double taxation agreement is an agreement between (as a general rule) two jurisdictions that assign tax duties to different income and profit elements between them. As a general rule, the DBA reduces double taxation by removing or limiting taxation in the county where income or profits are generated (tax of the source state) or by requiring that the country in which the taxor is established grant, through a credit or exemption mechanism, an exemption for taxation at source. The new double taxation convention is expected to come into force on July 1, 2020, after all legislative procedures have taken place on both sides. The treaty applies to UK income tax, corporation and capital gains tax, Gibraltar, income and corporate tax. While most countries sign double taxation agreements, Gibraltar has mainly signed tax information exchange agreements, as it is a British territory.

Posted on April 8th, 2021 | filed under Uncategorized |

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