July 30, 2019

Gibraltar - Spain Tax Treaty

A tax treaty between the United Kingdom and the Kingdom of Spain regarding Gibraltar has been agreed on the 4th of March. The agreement is intended to improve cooperation between Gibraltar and Spain in the field of taxation and the expected removal of Gibraltar from the Spanish blacklist.

Cross frontier workers will have the benefit of the elimination of double taxation. The Treaty will allow individuals to be tax resident either in Spain or Gibraltar in accordance with their domestic law. The Chief Minister Fabian Picardo went on to explain,

“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]

A tax residency conflict could arise when an individual  is resident in both Gibraltar  and Spain and cannot be clearly categorised as a tax resident of either  one.  However,  

there are some conditions which need to be satisfied to be considered a Spanish resident such as, the individual’s only permanent home at their disposal is in Spain; the individual spends over 183 overnight stays of the calendar year in Spain; the individual’s spouse or dependants habitually reside in Spain; or two-thirds of the individual’s net assets are located in Spain.

Also, under the Treaty, Gibraltar has agreed to supply Spain with a list of all those Legal Persons that would be deemed resident in Spain. The list supplied to Spain shall be provided by 31 March 2020 and will include beneficial ownership and governance details. Spanish Legal Persons that move their tax residency to Gibraltar after the date of entry into force of the Treaty shall maintain tax residency only in Spain. Legal Persons are considered to be tax resident only in Spain if the majority of assets are located in Spain; the majority of income derives from sources in Spain; or  the majority of natural persons in charge of effective management are tax resident in Spain, etc.

The above is meant for information purposes only and should not be taken as tax advice. Should you require advice please contact us HERE and we will arrange a meeting with a suitably qualified person.