Although businesses in Gibraltar generally adopt a corporate form, they could be set up as a company, a sole trader or a partnership.

Company

Companies in Gibraltar may take various forms:

• companies limited by guarantee (with or without a share capital);
• companies limited by shares;
• protected cell companies; and
• unlimited companies.

Companies limited by shares are by far the most common form of corporate vehicle in use in Gibraltar. These may be set up as a private company (in which case the company’s shares or debentures are not allowed to be offered to the general public) or as a public company (in which case the company’s shares or debentures are allowed to be offered to the general public).

Every type of company will have separate legal personality and will be taxable as a separate legal entity.

Protected cell company

For the purposes of taxation, the protected cell company and each of its cells shall be considered as if each cell were a separate company.

Sole Trader

Becoming a sole trader is the simplest way to start a business, as it is an individual who owns and runs their own business as an individual on their account. A sole trader business does not have any legal identity separate to its owner.

Sole traders would need to be registered as self-employed persons with the relevant authorities.

Sole traders are taxed as individuals.

Partnership

There are three types of partnerships:

• general partnerships;
• limited partnerships (LPs); and
• limited liability partnerships (LLPs) (see 1.2 Transparent Entities).

Partnerships are transparent for tax purposes. As a result, every partner (whether a company or individual) would be taxed on their share of the taxable income generated by the partnership.

Other Structures

Gibraltar law also provides a framework for the establishment of trusts and foundations.

Trusts

Trust legislation in Gibraltar is generally based on the UK’s trust law. The Trustees Act of Gibraltar is the main governing act, which applies the provisions of the Convention on the Law Applicable to Trusts and on their Recognition, with various additions, such as the establishment of asset protection trusts.

The trustees of a trust resident in Gibraltar shall be charged tax at the prescribed rate in respect of any assessable income.

Foundations

The Private Foundations Act came into force in 2017 and provides a framework for the establishment, registration and operation of a foundation.

A foundation is a legal entity separate from its founder, its councillors and its beneficiaries (if any), and is able to hold assets in its own name as absolute legal and beneficial owner. The foundation’s constitution is comprised of a charter and rules setting out the information that governs the management and administration of the foundation, as well as the provisions governing the guardian and beneficiaries (if any).

Beneficiaries of a foundation who are ordinarily resident in Gibraltar shall be charged tax at the prescribed rate in respect of any assessable income.

Unlike a trust, it is the foundation itself that is subject to tax.

General Partnership

General partnerships are established under the Partnership Act 1895, and are also referred to as “traditional” partnerships. In general partnerships, each partner can act on behalf of the partnership in the conduct of its business, with binding effect on the other partners, and all partners have unlimited liability for the debts of the partnership. A general partnership is not a legal person.

Limited Partnership

The concept of a “limited partnership” was introduced by the Limited Partnerships Act 1927. It allows a person to be a “limited partner”, whose liability for the partnership’s debts is limited to their capital contribution to the partnership. A limited partnership must consist of at least one general partner, whose liability is unlimited, and one limited partner; limited partners must not be involved in the management of the partnership’s business.

The Limited Partnerships Act 2021 (which repealed the Limited Partnerships Act 1927) and the Protected Cell Limited Partnerships Act 2021 came into effect in 2021, modernising and adapting the existing legislation.

The Limited Partnerships Act has been meticulously designed to provide a framework for, inter alia:

• the partnership interests of limited partnerships being represented by shares, bonds, notes, loans or other debt securities or instruments;
• limited partners being able to undertake a more active role in the affairs of the limited partnership without forfeiting their limited liability; and
• the general partners of a limited partnership being able to elect whether or not the limited partnership is to have legal personality.

The act also ensures that the voting rights of each partner will be in proportion to their partnership interest, unless otherwise varied.

The Protected Cell Limited Partnerships Act allows limited partnerships that are set up as funds to create one or more cells to protect and segregate cellular assets from non-cellular assets, and to keep each cell separate and separately identifiable from other cells.

Limited Liability Partnerships

Limited liability partnerships are established under the Limited Liability Partnerships Act 2009 as a “body corporate” with legal personality separate from its members. This enables each member to limit their liability for the partnership’s debts to an amount agreed with the other members of the LLP (usually the capital they have invested in the LLP).

A company is considered “ordinarily resident” in Gibraltar when it is:

• managed and controlled from Gibraltar; or
• managed and controlled outside Gibraltar by persons who are ordinarily resident in Gibraltar.

An individual is considered ordinarily resident in Gibraltar when (regardless of whether such individual is domiciled in Gibraltar or not) in any year of assessment they are:

• present in Gibraltar for a period of at least 183 days, or periods together amounting to at least 183 days; or
• present in Gibraltar for more than 300 days in aggregate over three consecutive years of assessment.

There is no statutory definition of “management and control” under Gibraltar law. Instead, what constitutes management and control is governed by English case law, which usually refers to the highest level of oversight.

There is no separate concept of “residence” as opposed to ordinarily resident.

Companies

The standard rate of taxation for a company is 12.5%. Utility and energy provider companies are liable to a higher rate of 20%.

Generally, companies are taxed on a territorial basis of taxation (see 2.1 Calculation for Taxable Profits).

Transparent Entities

Due to the fact that partnerships are transparent entities for tax purposes, the profits or gains from the partnership are deemed to be the share to which the partner was entitled.

The rate to which the partner would be subject would depend on the type of partner (ie, a company or individual).

Individuals

Individual taxpayers have the choice of being taxed under either an Allowance Based System (ABS) or a Gross Income Based System (GIBS). Regardless of the system opted for, upon final assessment the Income Tax Office will apply the system that is most beneficial to the taxpayer.

Allowance Based System

This system enables an individual to claim certain allowances against assessable income, including:

• personal;
• spouse;
• child;
• medical insurance premiums paid;
• life assurance premiums paid;
• pension contributions paid;
• first-time home purchase;
• mortgage interest;
• social insurance contributions paid; and
• pensioner.

Where assessable income is less than GBP100,000, the tax rates under the ABS are as follows:

• 15% on the first GBP4,000;
• 18% on the next GBP12,000; and
• 40% on the balance.

Where assessable income is more than GBP100,000, the tax rates under the ABS are as follows:

• 16% on the first GBP4,000;
• 19% on the next GBP12,000; and
• 41% on the balance.

Gross Income Based System

Under the GIBS, a taxpayer is entitled to very few allowances/reliefs, but the applicable rates are lower. The allowances/reliefs available under the GIBS include:

• first-time home purchase;
• mortgage interest;
• pension contributions paid; and
• medical insurance premiums paid.

The tax rates under the GIBS are as follows.

• Individuals with gross income of up to GBP25,000:
1. 7% on the first GBP10,000;
2. 21% on GBP10,001 to GBP17,000; and
3. 29% on the balance.
• Individuals with gross income of more than GBP25,000 but less than GBP100,000:
1. 17% on the first GBP17,000;
2. 20% on the next GBP8,000;
3. 26% on the next GBP15,000; and
4. 29% on the next GBP65,000.
• Individuals with gross income of more than GBP100,000:
1. 18% on the first GBP17,000;
2. 21% on the next GBP8,000;
3. 27% on the next GBP15,000;
4. 30% on the next GBP65,000; and
5. 27% on the balance.

Any taxpayer with income of GBP11,450 or less is not liable to income tax in Gibraltar.

An individual whose annual assessable income is between GBP11,451 and GBP19,500 will be entitled to claim a low income earner's allowance, as follows:

• GBP1,300 for income between GBP11,451 and GBP17,500;
• GBP920 for income between GBP17,501 and GBP18,500; and
• GBP500 for income between GBP18,501 and GBP19,500.

Other Rates of Tax, Duties and Contributions

Stamp duty

There is a fixed charge of GBP10 per share or loan transaction. Stamp duty is applicable for companies and transparent entities that purchase residential real estate in Gibraltar, and is payable at the following rates:

• 0% where the value of the property does not exceed GBP200,000;
• 2% on the first GBP250,000 and 5.5% on the balance where the value of the property exceeds GBP200,000 but is less than GBP350,000; and
• 3% on the first GBP350,000 and 3.5% on the balance where the value of the property exceeds GBP350,000.

First or second-time buyers in Gibraltar are exempt from paying stamp duty where the value of the purchase price does not exceed GBP300,000 (this excludes companies). For the purposes of clarification:

• 0% on properties up to GBP300,000;
• 5.5% on properties valued between GBP300,001 and GBP350,000 (0% on the first GBP300,000 and 5.5% on the balance up to GBP350,000); and
• 3.5% on properties valued over GBP350,001 (0% on the first GBP300,000, 5.5% on GBP50,000 and 3.5% on the balance).

Stamp duty is also payable on mortgages or further advances secured in Gibraltar, at the following rates:

• mortgage of GBP200,000 or less at 0.13%;
• mortgage of over GBP200,000 at 0.20%; and
• releases of mortgage at 0.03% of the amount borrowed.

Tax on sale of shares of companies

In general, tax is not payable on the sale of shares in a Gibraltar company, unless that company owns real estate in Gibraltar.

Import duty

Goods that are imported into Gibraltar are subject to import duty at varying rates (with some exemptions).

Social insurance

Social insurance contributions are payable by every employee or self-employed person in any week in which they work.

Employee contributions are based on 10% of gross earnings, subject to a minimum of GBP13.00 per week or GBP56.34 per month and a maximum of GBP37.00 per week or GBP160.33 per month.

Employer contributions are 18% of gross earnings, subject to a minimum of GBP29.00 per week or GBP125.67 per month and a maximum of GBP51.00 per week or GBP221.00 per month.

Self-employed contributions are 20% of gross earnings, subject to a minimum of GBP29.00 per week or GBP125.67 per month and a maximum of GBP51.00 per week or GBP221.00 per month.

Individuals aged 60 and over and those whose statutory occupational retirement age is earlier than 60 are exempt from paying the employee’s share of social insurance contributions.

Companies are taxed on a territorial basis, meaning that only income accrued in or derived from Gibraltar will be subject to taxation in Gibraltar. “Accrued in or derived from” refers to the location of the activities that give rise to the profits of the company.

The income of a business whose income arises from an underlying activity that requires a licence and regulation under any law of Gibraltar (such as a business licence or a licence issued by the Gibraltar Financial Services Commission), or that is licensed in another jurisdiction but enjoys passporting rights into Gibraltar, shall be deemed to accrue in and derive from Gibraltar.

Intercompany loan interest (which exceeds GBP100,000 per annum) and royalty income shall be deemed to accrue in and derive from Gibraltar if it is received by a company that is registered in Gibraltar.

The Income Tax Act 2010 prescribes the rules for ascertaining profits or gains in Gibraltar, which shall be computed in accordance with Gibraltar Generally Accepted Accounting Practice. In addition, UK or international accounting standards may apply.

Profits are taxed on an accruals basis.

Deductions

Generally, any expense wholly and exclusively incurred for the production of income shall be allowable as a tax-deductible expense.

No deduction shall be allowed in respect of:

• expenses not incurred for the production of income;
• domestic or private expenses;
• any expenses of a capital nature (although capital allowances are available – see below);
• any sum recoverable under an insurance contract or contract of indemnity;
• any tax charged in Gibraltar under the Income Tax Act;
• the depreciation of assets (although capital allowances are available – see below);
• contributions paid to non-approved pension schemes;
• interest paid other than on borrowing for the purposes of the trade or business; and
• certain other expenses, under relevant anti-avoidance provisions.

Capital Allowances

The capital allowances for accounting periods ending between 1 July 2021 and 30 June 2023 will be based on the higher of the following:

• the first year allowance for plant and machinery of up to GBP60,000 of purchase or 50% of expenditure in the period is fully deductible, with the balance going into a pool (see below);
• the first year allowance for computer equipment of up to GBP100,000 of purchase or 50% of the expenditure in the period is fully deductible, with the balance going into a pool; or
• a pool allowance of 25% annually on a reducing balance basis.

Where the balance of qualifying expenditure is less than GBP1,000, the full amount is allowed as a deduction in that year.

Incentives

There are also a number of incentives available to companies, which may be taken as deductions. These include deductions for approved expenditure on premises, for improvement in EPC rating, for training costs towards qualifying qualifications and for property investment.

No special incentives exist for technology investments in Gibraltar.

No special incentives apply to particular industries.

A company is able to carry forward any losses against future profits indefinitely, provided that there is no change in ownership nor any major change in the nature and conduct of the business within a period of three years. There is no provision for the carrying back of losses.

The Gibraltar Parliament has introduced a Bill to amend the Income Tax Act to include a provision to allow for the carrying forward of losses when an intra-group transfer occurs. Please note that this has not yet been commenced.

General Provisions

Any interest incurred for the production of income shall be deductible. Any interest paid or payable to a person not resident in Gibraltar that is charged at more than a reasonable commercial rate shall not be deductible.

A deduction is not allowed for any interest paid or payable on money borrowed other than for the purposes of the trade or profession that generates the income, or for acquiring the capital employed in acquiring the trade or profession that generates the income.

Specific Anti-avoidance Provisions

Thin capitalisation

Interest paid on a loan by a company to related parties (which are not themselves companies), or on loans where security is provided by related parties, where the ratio of the value of the loan capital to the equity of the company exceeds 5:1 is considered as a dividend payment and is therefore not a deductible expense for tax purposes.

Payments to connected parties

The amount of interest paid to connected persons that is in excess of that payable at “arm’s length” is deemed a dividend payment and is therefore not a deductible expense for tax purposes.

Interest limitation rule

The interest limitation rule provides that exceeding interest expenses are deductible up to either 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA) or EUR3 million, whichever is higher.

There are no rules in Gibraltar for consolidated tax groupings.

There is no capital gains taxation in Gibraltar.

On a transaction involving Gibraltar property, there may be property rates payable as well as any possible charge by a landlord for the consent for an assignment. Stamp duty may also be payable (see 1.4 Tax Rates).

Exit Tax applies in the following circumstances:

• when a taxpayer transfers assets from its head office to its permanent establishment outside Gibraltar, and Gibraltar, as the head office, no longer has the right to tax the transferred assets due to the transfer;
• when an entity transfers assets from its permanent establishment in Gibraltar to its head office or another permanent establishment outside Gibraltar, and Gibraltar no longer has the right to tax the transferred assets due to the transfer;
• when a taxpayer transfers its tax residence from Gibraltar to another jurisdiction, except for those assets that remain effectively connected with a permanent establishment in Gibraltar; and
• when a taxpayer transfers the business carried on by its permanent establishment from Gibraltar to another jurisdiction, and Gibraltar no longer has the right to tax the transferred assets due to the transfer.

A “transfer of business” is defined as when the entity ceases to have a taxable presence in Gibraltar and acquires a taxable presence in another jurisdiction, without becoming tax resident in that other jurisdiction. A “transfer of assets” is defined as when Gibraltar loses the right to tax the transferred assets, while the assets remain under the ownership of the same taxpayer.

For the purposes of the above, a “taxpayer” means an ordinarily resident company that has assessable income under the provisions of the Income Tax Act 2010 or a permanent establishment of such company resident outside Gibraltar.

Tax would be applied at the applicable corporate rate on the difference between the market value of the transferred assets at the time of exit of the assets, minus their value for tax purposes.

Most closely held local businesses operate in corporate form through a company. However, a growing number of local businesses are operating as sole traders.

There are no rules that prevent individual professionals from earning income in a corporate form.

Whilst corporate rates (generally 12.5%) are lower than individual rates (effective rate of 25%), if the individual then draws any income out of the corporation then this income would be taxable in the hands of the individual at the individual rates (either under the PAYE system, in relation to a salary, or as a dividend payment).

Gibraltar also has specific legislation regarding benefits in kind, which are treated as gains from employment and include:

• expense payments;
• vouchers and credit tokens;
• living accommodation;
• cars, vans and related expenditure;
• loans to employees, directors and shareholders; and
• removal benefits and expenses.

There is also a catch-all provision for other benefits that are not specifically listed above.

The employer may opt to pay the tax on the benefits on behalf of an employee at the following rates:

• 0% where the total annual value is less than GBP250;
• 20% where the value is between GBP250 and GBP15,000; and
• 29% where the value is over GBP15,000.

There are no rules in place to prevent closely held corporations from accumulating earnings for investment purposes. It is important to note that there are anti-avoidance provisions under Gibraltar tax legislation, which the Commissioner of Income Tax may apply to transactions or arrangements he or she deems to be “artificial or fictitious”.

In Gibraltar, there is no specific regulation for the sales of shares by individuals in closely held corporations. Individuals would be taxed in Gibraltar at normal individual rates on the receipt of dividends (minus the tax credit given for any Gibraltar tax incurred by a company) unless:

• the individual is not ordinarily resident in Gibraltar; or
• the dividends are paid out of profits on which no tax has been charged in Gibraltar to the extent that the amount of the dividend represents the distribution of such profits.

Dividends are not taxed in Gibraltar if they are paid by a company whose shares are listed on a recognised stock exchange.

Gibraltar does not apply any withholding tax to interest, dividends and royalties.

Gibraltar and the UK signed a tax treaty (based on the OECD model) in October 2019, which came into force in April 2020.

An international tax agreement between the UK and Spain concerning Gibraltar (with the UK acting in its position as the recognised state responsible for Gibraltar’s external relations) was signed in March 2019, and came into force in March 2021.

It is too early to comment on whether local tax authorities will challenge the use of treaty country entities by non-treaty country residents, as the two agreements listed in 4.2 Primary Tax Treaty Countries have only recently come into force.

The general anti-avoidance rule in the Income Tax Act should be interpreted in the manner that best secures consistency with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and other documents designated as comprising part of the transfer pricing guidelines.

At present, there is no legislation in Gibraltar that governs the use of related-party limited risk distribution arrangements for the sale of goods or provision of services.

The general anti-avoidance rule in the Income Tax Act should be interpreted in the manner that best secures consistency with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and other documents designated as comprising part of the transfer pricing guidelines.

At this moment in time, it is too early to tell whether any international transfer pricing disputes will be resolved through double tax treaties and mutual agreement procedures, as Gibraltar’s tax treaties have only been entered into recently (see 4.2 Primary Tax Treaty Countries).

Gibraltar has limited application of specific transfer pricing mechanisms, so the compensating adjustments allowed/made when a transfer pricing claim is settled are unclear.

Local branches of non-local corporations are not taxed differently to local subsidiaries of non-local corporations – the local branch or subsidiary would be liable to tax in Gibraltar on any assessable income that is accrued in and derived from Gibraltar (see 2.1 Calculation for Taxable Profits).

Gibraltar does not have any capital gains tax.

A change of control of a local entity that owns Gibraltar real estate would trigger stamp duty and property fees (see 2.8 Other Taxes Payable by an Incorporated Business).

A change in control could result in tax losses not being available for set-off against future profits, provided there is also a major change in the nature and conduct of the business (see 2.4 Basic Rules on Loss Relief).

This is not applicable in Gibraltar.

The Commissioner of Income Tax does not apply a specific standard in allowing a deduction for payments by local affiliates for management and administrative expenses by a non-local affiliate. However, if the Commissioner regards a company’s expenses with a connected party as a means to reduce the company’s tax liability, they may apply restrictions on the deduction of said expenses. This restriction may be imposed against 5% of the gross turnover of the company or 75% of the pre-expenses profit, whichever is lower.

There is also a restriction on head office expenses incurred for the common purpose of a branch, at 5% of the branch turnover.

There are no specific rules regarding financing operations between related parties, but limits on interest payments could be made (see 2.5 Imposed Limits on Deduction of Interest).

Subject to the CFC rules (see 6.5 Taxation of Income of Non-local Subsidiaries Under Controlled Foreign Corporation-Type Rules), Gibraltar follows the territoriality principle, meaning that only Gibraltar sourced income is subject to taxation in Gibraltar (see 2.1 Calculation for Taxable Profits).

Local expenses attributable to exempt foreign income would not be deductible for tax purposes.

Dividends received by a company from another company are exempt from tax.

Generally, intangibles developed by local companies can be used by non-local subsidiaries in their business without incurring corporate tax in Gibraltar. However, if the Gibraltar company is in receipt of income in respect of the non-local subsidiaries' use of such intangibles, it may be deemed royalty income and would be subject to taxation in Gibraltar.

CFC rules have been introduced, under which the non-distributed income of a company or permanent establishment arising from non-genuine arrangements that have been put in place for the essential purpose of obtaining a tax advantage must be included as income of the taxpayer for that tax period.

In order for an entity or permanent establishment to be considered a CFC under the Regulations, two conditions must be satisfied:

• firstly, in the case of an entity, the taxpayer must by itself or together with its associated enterprises hold a direct or indirect participation of more than 50% of the voting rights or capital, or must be entitled to receive more than 50% of the profits of that entity; and
• secondly, the actual tax paid on its profits by that entity or permanent establishment is lower than the difference between the tax that would have been charged on the entity or permanent establishment in accordance with the Income Tax Act and the actual tax paid on its profits.

An arrangement or a series thereof is regarded as non-genuine under the Regulations to the extent that the entity or permanent establishment would not own the assets or would not have undertaken the risk that generates all or part of its income if it were not controlled by a company where the significant people functions that are relevant to those assets and risks are carried out and are instrumental in generating the CFC’s income. Where there is such a non-genuine arrangement, the income to be included will be calculated in accordance with the arm’s length principle.

In order to ensure that there is no double deduction, the following applies:

• where the entity distributes profits to the taxpayer, and those distributed profits are included in the assessable income of the taxpayer, the amounts of income previously included as income of the taxpayer shall be deducted from the income of the taxpayer when calculating the amount of tax due on the distributed profits;
• where the taxpayer disposes of its participation in the entity of the business carried out by the permanent establishment, and of any part of the proceeds from the disposal previously having been included in the income of the taxpayer, that amount shall be deducted from the income of the taxpayer when calculating the amount of tax due on those proceeds; and
• the Commissioner of Income Tax shall also allow a deduction of the tax paid by the entity or permanent establishment in its state of residence or location from the tax liability of the taxpayer in accordance with Section 37 of the Income Tax Act.

Entities or permanent establishments with accounting profits of no more than EUR750,000 and non-trading income of no more than EUR75,000, or those whose accounting profits amount to no more than 10% of their operating costs for the tax period, will not be considered CFCs under the Regulations.

There are no rules applicable to the substance of non-local affiliates.

There is no capital gains taxation in Gibraltar.

The overarching anti-avoidance provision in place in Gibraltar relates to the principle of “artificial and fictitious”, as defined in the Income Tax Act, in relation to transactions that are seen as inauthentic and not real. The Income Tax Act also refers to transactions that are not consistent with the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Gibraltar does not have a regular routine audit cycle. It is possible for the Income Tax Office to raise queries, but this normally occurs on an informal basis.

Gibraltar joined the OECD inclusive framework on BEPS as a full member in 2019. As a result, various BEPS recommended changes have already been implemented, including country-by-country reporting and mandatory disclosure regimes.

Gibraltar is committed to transposing further measures against BEPS as they are co-ordinated, as well as further measures against double non-taxation.

In July 2019, HM Government of Gibraltar announced that the OECD has welcomed and agreed to Gibraltar becoming a full member of the Inclusive Framework on BEPS. As a member of the Inclusive Framework, Gibraltar is committed to implementing Pillar One (framework to see the reallocation of some taxing rights to market jurisdictions) and Pillar Two (introduction of a global minimum effective taxation rate).

Although Gibraltar is a small country, tax has a high public profile in the jurisdiction. This is a result of certain sectors of Gibraltar’s economy having a global reach, such as the gaming sector and the growing fintech and distributed ledger technology framework.

This is likely to influence the implementation of BEPS recommendations as Gibraltar looks to remain fully compliant with international tax obligations to ensure equivalent standards with the UK and the EU.

The policy of successive Gibraltar governments has been to provide a competitive tax environment that is fully compliant with international best practice. Gibraltar has always been an early complier with OECD and other international initiatives, and that policy is expected to continue.

Gibraltar has a competitive tax system in place that includes the following:

• a partial territorial tax system – companies are only taxed on activities located in Gibraltar;
• a low corporate tax rate of 12.5%;
• no VAT or sales tax;
• no capital gains tax;
• no withholding tax; and
• tax treaties and agreements with only the UK and Spain.

This is likely to continue to be balanced against any implementation of BEPS recommendations.

Gibraltar’s implementation of hybrid instruments relating to the BEPS recommendations has focused primarily on the implementation of EU Directives focused on anti-tax avoidance.

Under Gibraltar law, payments under hybrid instruments and payments to associated hybrid entities will be disregarded where the deduction or payment benefits from a tax deduction in the payer's jurisdiction and is not taxed in the jurisdiction where the payment is received.

Gibraltar’s tax system is territorial in nature (see 2.1 Calculation for Taxable Profits). Gibraltar has interest deductibility restrictions in place (see 2.5 Imposed Limits on Deduction of Interest).

The OECD’s Action Plan in respect of CFCs builds on the existing fundamental principles of residence-based taxation, which would not align with a traditional territorial basis of taxation. However, Gibraltar has transposed the Anti-Tax Avoidance Directive (ATAD), which includes CFC rules (see 6.5 Taxation of Income of Non-local Subsidiaries Under Controlled Foreign Corporation-Type Rules). Therefore, while Gibraltar’s tax system is largely territorial, it is more hybrid in nature to accommodate domestic goals and international standards. Gibraltar is expected to take a similar approach to any future CFC proposals.

It is highly unlikely that any double tax convention limitation of benefit or anti-avoidance rules will have any impact in Gibraltar, at least for the foreseeable future.

Gibraltar has not yet implemented the transfer pricing changes introduced by BEPS.

In terms of intellectual property taxation, royalties received/receivable by Gibraltar companies are taxed at 12.5%.

Gibraltar has introduced legislation on country-by-country reporting and the automatic exchange of information, indicating the country's approval of enhancing transparency in combatting BEPS.

Gibraltar has not implemented any changes in relation to the taxation of transactions effected or profits generated by digital economy businesses operating largely outside of Gibraltar, nor have any been discussed or proposed.

Gibraltar has not yet stated its position in relation to digital taxation, and no proposals have been put forward.

Gibraltar does not have any specific provisions dealing with the taxation of offshore intellectual property that is deployed within Gibraltar. As a result, it does not impose any withholding tax or tax by direct assessment on the IP owner. It is important to stress the Commissioner’s powers regarding expenses incurred with a connected party (see 5.6 Deductions for Payments by Local Affiliates).