Gibraltar is conveniently located at the southern tip of the Iberian Peninsula and combines the Mediterranean climate and lifestyle with a leading international finance centre. This advanced, diverse economy, which at its core ensures legal and regulatory certainty, offers many benefits to businesses and high net worth individuals alike, alongside the following headline fiscal advantages:
- corporate tax is levied at a flat rate of 12.5%
- personal income tax is charged at a maximum effective rate of 27% on the first £500,000 of income
- Gibraltar does not levy any capital gains tax, inheritance tax or tax on passive income, subject to conditions as regards non-Gibraltarian Gibraltar residents.
- specific programmes designed to meet the needs of high net worth individuals and their families as well as high executives possessing specialist skills (HEPSS).
One such specific programme is “Category 2”. High net worth individuals from around the globe have access to a status which is achieved by fulfilling a series of requirements under the Qualifying (Category 2) Individual Rules 2004 and which we will summarise here.
Most key to note at the outset is that it is not a requirement for “Cat 2s” to physically reside in Gibraltar. Many do however choose to do so in order to benefit from the full range of fiscal benefits mentioned previously as well as the benefits that the framework agreement reached on 31.12.20 will provide in terms of Gibraltar’s inclusion in the Schengen Acquis.
- What is a Category 2 individual?
- A Category 2 Individual is an individual qualifying for a special tax status designed for high net worth individuals as a means of limiting their potential taxable liability.
- As a Category 2 Individual, you will only be taxed on the first £118,000 of your worldwide taxable income, irrespective of how much your income actually is.
- A Category 2 Individual’s minimum annual tax payable is £37,000, or £3,083.33 for each complete month or part month for which the certificate is in force.
- Being in possession of a Category 2 Individual certificate does not shield any individual from becoming tax resident in a different country.
- What are the requirements and/or restrictions to obtaining Category 2 status?
- In order to qualify as a Category 2 Individual, potential applicants must have at least an estimated total net worth in excess of £2million. Potential applicants will then need to produce evidence of this during their application.
- Category 2 Individuals must not have been resident in Gibraltar during the five years immediately preceding the year of assessment. Previous residency includes 183 days in any tax year during the previous 5 years or an average of 90 days in any three of the previous 5 years.
- Category 2 individuals must have, for the exclusive use of him/herself and his/her family, approved residential accommodation in Gibraltar for the whole year of assessment (the accommodation can be either purchased or rented). “Exclusive use” includes family and friends and occasional non-paying guests. Individuals must not however rent or lease the property to any third party.
- Details of the property acquired or rented must be forwarded to the Finance Centre Director within two months of the issue of the Qualifying Certificate. The Finance Centre Director may decide whether or not a property is an approved property. This usually consists of verifying that the size and type of property is consistent with the size and makeup of the Applicant’s family and the Applicant’s status as a Qualifying Individual.
- There is no specific legal requirement as regards to the length of stay in any particular year and the spouse or child of a Category 2 Individual may elect to benefit from the terms of the same certificate. With this being said, tax residence is a complex matter and advice should be taken in all relevant jurisdictions.
- Category 2 Individuals may engage in any trade, business or employment in Gibraltar where the Finance Centre Director is satisfied that the exercise of such trade, business of employment would be of benefit to the economic development of Gibraltar.
- What is the process to obtaining Category 2 status?
The process for obtaining residency differs depending on whether the CAT2 individual is an EU National or not. Applications, which carry a non-refundable fee of £1000, should be made, usually via your legal representative, to the Gibraltar Finance Centre Director and must include:
- A copy of your CV
- A certified copy of your passport
- Evidence that you have an estimated total net worth in excess of £2million
- Evidence that you hold suitable private medical insurance cover
- Two character references – one must be from a banker certifying your good character
- Proof that you have (or are in the process of obtaining) “approved residential accommodation.
Applicants will usually be informed that the application has been successful within one or two weeks of the application being made.
- Is there a wealth tax in Gibraltar?
How can Hassans help?
International tax law can be extremely complex. Hassans can assist any individuals in a number of ways, including but not limited to:
- assisting with the Category 2 Individual certificate application
- incorporating companies and corporate structuring
- establishing trusts
- providing holistic tax advice for high net worth individuals.
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