On Saturday 13th March 2021, the Governments and Parliaments of the Kingdom of Spain and the United Kingdom have now taken all steps necessary to ratify the entry into force of the International Agreement on taxation and the protection of financial interests between the United Kingdom and Spain regarding Gibraltar (the "Tax Treaty"). The Tax Treaty entered into force on 4th March 2021. The Tax Treaty seeks to assist the resolution of disputes as to tax residence of individuals and companies as well as improve co-operation between Gibraltar and Spain in the field of taxation.
Although the Tax Treaty came into effect on 4th March 2021, as per the text of the Tax Treaty, Article 2 (Tax residency rules for individual and legal persons – as set out below) shall take effect for taxable periods commencing on or after the date of entry into force of the Tax Treaty. For Gibraltar, the below rules would come into effect as from 1 July 2021. For Spain, the same rules would come into effect as from 1 January 2022.
Tax residency rules for companies (Article 2(2))
Gibraltar companies which are established and managed in Gibraltar, or are governed by Gibraltar law, shall be considered to have residency only in Spain when any of the following circumstances exist:
(i) The majority of the assets, whether directly or indirectly owned, are located in Spain or consist of rights that may or must be exercised in Spain;
(ii) The majority of the income accrued in a calendar year derives from sources in Spain, pursuant to article 13 of the codifying legislation of the Non-resident Income Tax Act of the Spanish tax legislation as may be amended from time to time;
(iii) The majority of the natural persons in charge of effective management are tax resident in Spain;
(iv) The majority of the interests in the capital or equity, voting or profit-sharing rights are under the direct or indirect control of either natural persons who are tax residents in Spain or legal persons, entities and other legal structures or arrangements linked to tax residents in Spain.
Impact on Gibraltar companies which hold Spanish assets
As set out above, as from 1 January 2022, any Gibraltar company which mainly holds Spanish assets shall automatically be considered resident in Spain under the Tax Treaty, and there shall be no mechanism to challenge this.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
