Gibraltar Spain Tax Agreement
Companies and entities that transfer their residence to Gibraltar under this Agreement shall in any event retain their tax residence exclusively in Spain. On 4 March 2021, an international agreement to improve tax cooperation between the Spanish and Gibraltar authorities entered into force. The agreement, concluded between Spain and the United Kingdom, was published in the Official Bulletin of the Spanish State on 13 March 2021. This is the first international agreement between the United Kingdom and Spain on Gibraltar since the Treaty of Paris of 1783. The agreement establishes a set of rules to define tax residence, avoid double taxation and introduce transparency between Spain and Gibraltar in tax matters. As part of the UK, Gibraltar is now outside the EU after Brexit. In view of this change in gibraltar`s status, a new tax treaty was negotiated with Spain. In this blog post, we highlight the most important aspects of this agreement. The agreement stipulates that natural persons are tax residents in Spain if: The agreement stipulates that these rules do not apply to legal persons or entities established in Gibraltar before 16 November 2018, as long as several conditions are met. It also emphasizes that all Spanish natural or legal persons domiciled in Gibraltar after the date of entry into force of the Agreement will continue to reside solely in Spain for tax purposes. Spain will remove Gibraltar from its list of tax havens following the entry into force of an agreement with the UK on tax cooperation earlier this month.
While the British Overseas Territory was no longer on the list of non-cooperative jurisdictions of the European Union or the Organisation for Economic Co-operation and Development (OECD), it remained on Spain`s blacklist, established in 1991. For the purposes of the Agreement, the exchange of information applies to employees residing in Gibraltar or to persons carrying out commercial or professional activities in Spain in municipalities located within 80 km of Gibraltar. The agreement entered into force on 4 March, two years after it was signed by the Spanish and UK governments, and it sets out clear rules on when a natural or legal person is considered a tax resident in Spain (read the full text of the agreement here). The agreement was approved by the Spanish Congress on 15 July and by the Spanish Congress on 23 July. It was approved by the Senate in September, despite opposition votes from the conservative People`s Party (PP) and the far-right Vox. Residence is a fundamental element of taxation and the agreement establishes the following rules for individuals and businesses. Spanish diplomatic sources said the deal complements the provisional agreement reached on December 31 to allow Gibraltar to join the Schengen area, and that its intricacies are still being discussed in London and Brussels. The same sources said the ultimate goal is to align Gibraltar`s legislation on import duties, VAT and special taxes (on alcohol, fuel and tobacco products) with those of Spain.
The agreement sets out the conditions for cooperation between Gibraltar and Spain in tax matters for individuals, businesses, cross-border workers and employees. According to the text of the agreement, natural persons are considered to be resident for tax purposes in Spain only in the following cases: if they spend more than 183 nights in Spain during the calendar year; if their spouse (from whom they are not legally separated) or the natural person with whom a similar relationship has been established, as well as dependent parents in ascending or descending line, have their habitual residence in Spain; if the only permanent residence they have is in Spain; or if two-thirds of their net assets held directly or indirectly are located in Spain. Employees of Gibraltar residing in Spain – within four months of the date of validity of the agreement. The aim of the unprecedented treaty, published on Saturday in the Spanish Official Journal, is to ensure that Gibraltar applies legislation equivalent to that of the EU on tax transparency and the fight against money laundering after the UK leaves the EU. The agreement also aims to strengthen cooperation and exchange of information in order to prevent the British Overseas Territory from becoming a magnet for Spanish tax evaders. As a result of this agreement, Spain is expected to remove Gibraltar (in time) from its “blacklist of countries defined as a fissile paradise”. A positive effect of this could be that Spanish residents working in Gibraltar can then benefit from the Spanish tax exemption for foreign income, which allows for exemption of up to €60,100 (current rates) per year from Spanish tax. If the above criteria are not met, natural persons may still be considered tax residents in Spain, unless they can prove that they have permanent residence for their exclusive use in Gibraltar and reside in Gibraltar for more than 183 days a year. .
