On 4 March 2019, Spain and the UK signed an International Agreement on Taxation regarding Gibraltar, the purpose of which is to improve cooperation in the field of taxation and the protection of financial interests between Spain and Gibraltar.
The Agreement has now been ratified by all parties and its provisions became law on 4 March 2021. The Government of Gibraltar has now also incorporated the text of the Agreement into the Gibraltar Income Tax Act 2010.
The Agreement will improve tax cooperation between the Tax Authorities of Spain and Gibraltar. It provides rules for resolving conflicts over tax residency and enables administrative cooperation through sharing of information and addressing disputes by means of a Joint Coordination Committee.
The Agreement is intended to pave the way for Spain to remove Gibraltar from its list of tax havens (“paraiso fiscal”). There is no timetable fixed for the removal of Gibraltar from Spain’s list but the expectation of being removed from Spain’s list of tax havens underpins the Agreement.
The Agreement contains important changes on taxation for residents of Spain and Gibraltar. We summarise below some of the most relevant aspects of the Agreement.
Key aspects of the Agreement
Tax residency for individuals
Natural persons will be considered to be tax residents in Spain or in Gibraltar in accordance with their domestic law. In the case of conflict, that is to say, where an individual is considered to be a resident of both Gibraltar and Spain, the following rules (“tie-breaker” rules) will apply and an individual will be considered to be a tax resident only in Spain if any one of the following conditions exists:
(i) if the individual person spends over 183 overnight stays of the calendar year in Spain; or
(ii) in the event that an individual’s spouse or similar relationship, or any dependent ascendants or descendants reside habitually in Spain; or
(iii) if the only permanent home at the individual’s disposal is in Spain; or
(iv) if 2/3 of the individual’s net assets determined pursuant to Spanish tax legislation are located in Spain.
Where the above rules are not conclusive, an individual will be considered tax resident only in Spain unless he/she is able to provide reliable evidence that he/she has a permanent home for his/her exclusive use in Gibraltar and remain in Gibraltar over 183 days. The Joint Coordination Committee will resolve any doubts in this respect.
The following special rules for determining residency will apply in all cases in relation to a change of residency to Gibraltar:
(i) Spanish nationals who move their residency to Gibraltar after the date on which this Agreement is signed (4 March 2019), shall in all cases only be considered tax residents of Spain;
(ii) Non-Spanish nationals who have spent at least one complete tax year in Spain, retain their tax residency in Spain during the year in which the change of residency is made and during the four subsequent tax years; and
(iii) Registered Gibraltarians who have spent at least four years in Spain, retain their tax residency in Spain during the year in which the change of residency is made and during the four subsequent tax years.
Significantly, the Agreement provides that “special tax residency schemes” for High-Net-Worth Individuals, Category 2 Individuals and High Executive Possessing Special Skills (“HEPSS”) will not, of itself, constitute proof of tax residency for the purposes of the Agreement.
Tax residency for legal persons
Elimination of double taxation
Administrative cooperation in tax matters
Exchange of information
Access to Companies House and Land Registry
Joint Coordination Committee
Entry into force
Note that in relation to the automatic exchange of information, this will apply as from 4 March 2021, but the first exchange of information is to be from 1 January 2014 and in relation to any other exchange of information, from 1 January 2011.
With regard to Spanish nationals wishing to move their tax residence to Gibraltar, the special rules contained in the Agreement will apply as from 4 March 2019, the date of publication of the Agreement.
We recommend that all clients consider their position carefully and take full advice. Active consideration should be given to the options available: relocation, restructuring or regularisation.
With offices in Gibraltar and Spain and specialist tax advice available, Hassans are uniquely placed to assist you with your questions and queries and appropriate planning.
For more information, please contact one of specialist tax advisers.
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