UK and Spain set to review Gibraltar tax residency agreement

June 17, 2021

The UK and Spain are set to review how residents and companies based in Gibraltar are treated for tax purposes in a bid to tackle tax avoidance, it has been announced.

It comes after the Joint Coordinating Committee and Liaison Body met last month to discuss tax co-operation between the authorities of Spain and Gibraltar, resulting in the International Agreement on Taxation and the Protection of Financial Interests regarding Gibraltar.

If you or your company has interests in either territory, here’s what you need to know.

What will the review look at?

According to reports, the review will largely look at tax co-operation between the authorities of Spain and Gibraltar, the tax residence criteria for people and companies, and new procedures for administrative cooperation.

Who will the new rules affect?

The new rules will affect taxpayers who have interests in both jurisdictions, such as those registered in Spain but have property or work in Gibraltar, or vice versa. This could have significant tax implications for those living in Gibraltar but are determined to be a tax resident in Spain.

According to the International Agreement, conflicts may arise when persons meet any of the following criteria:

  • The person spends more than 183 overnight stays in Spanish territory;
  • The spouse – or partner in a similar relationship – and/or economically dependent ascendants and descendants, have their habitual residence in Spain;
  • The individual’s only permanent home is in Spain; or
  • At least two-thirds of the individual’s net assets are located in Spain.

In addition, Spanish nationals who transferred their residence to Gibraltar after 4 March 2019 will only be considered a tax resident in Spain.

Rules for companies

The review will also affect companies incorporated and managed in Gibraltar, where any of the following apply:

  • Most of their assets are located, or most of their rights are enforceable, in Spanish territory;
  • Most of their income is Spanish-sourced;
  • Most of the people in charge of effective management are tax residents in Spain; or
  • Residents of Spain politically or financially control the company, entity, or other legal form.

Provisions to take effect from the start of the next tax year

The provisions agreed in the international agreement will not come into effect until the next tax year. This means 1 July 2021 for Gibraltar and 1 January 2022 for Spain.

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