Corporate Tax News Issue 63 - August 2022

Highlights of measures in 2022 budget

On 28 June 2022, the Chief Minister of Gibraltar gave his annual budget address, which focused on new measures to assist in the post-pandemic recovery of the local economy. This article highlights the main changes that will impact businesses. The transitional provisions, marketing expense deduction, tax penalties, amnesty and audit threshold increase were enacted on 7 July and the import duty and tourism tax measures were enacted on 28 July. 

Transitional provisions on increased corporation tax rate  

Following on from the corporate tax rate increase from 10% to 12.5% in the 2021 budget, the government has brought in an amendment to the Rates of Tax Rules 1989 to clarify how the rate change is to be computed. Companies will have the option of apportioning profits and losses on a pro-rata basis or on an actual basis. If the latter is selected, it will need to be accompanied by an explanatory statement setting out the facts and circumstances as to why this option was chosen, as well as evidence to demonstrate the allocation of profits and losses on an actual basis. 

Marketing expense deduction  

The 2021 budget introduced an incentive for marketing and promotional expenses, which resulted in an additional deduction of 50% of marketing costs incurred by a company in two financial years. The intention of the incentive was for these marketing and promotional costs to relate solely and exclusively to the marketing of Gibraltar as a destination jurisdiction, but this was not appropriately conveyed in the 2021 budget address or clarified by the legislation enacted. Although the measure was initially set to apply for two years, the incentive has been terminated with immediate effect. To ensure fair treatment, the incentive will apply for the initial year as set out in the legislation, but only in the way it was originally intended. Guidance defining marketing in the context of legislation is expected to be issued by the Income Tax Office. 

Fees for tax certificates and information requests  

As from 1 September 2022, the Income Tax Office will charge administrative fees for the provision of information requests, including ordinarily resident certificates, subcontractor retention certificates, payment transaction printouts and printouts/copies of previous filings and associated documents. A tariff sheet will be made public in due course. 

Tax penalties 

The current tax penalty regime has been reviewed with the aim of implementing stricter but fairer penalties that are commensurate with the size of the company and the frequency of the default. Currently, total tax penalties for all companies stands at GBP 850. Micro and small entities will see a slight increase to GBP 1,050. Medium-size and large companies will see greater increases of GBP 3,150 and GBP 9,150, respectively. The penalty increases will become effective on 1 July 2023. 

Tax amnesty  

A corporate tax amnesty will be available through 31 December 2022, under which any company that filed tax returns during the COVID period (i.e., the last two financial years) and must file returns up to December 2022 will be allowed to revisit its returns if it under-declared or pushed deductions in a way that could be considered “over creative.” Companies will be given the opportunity to resubmit their returns and pay any corresponding tax without penalty, interest or further question. After this period, the Commissioner of Income Tax will issue assessments for companies if the Commissioner believes there has been an under-declaration of tax for the years in question. Penalties and interest will be applicable. 

Audit threshold

The tax assessable income threshold triggering the requirement for companies to submit audited accounts to the Income Tax Office is increased from GBP 1,25 million to GBP 1.5 million per annum. The increase is applicable for accounting periods ending on or after 1 July 2022. 

COVID charge

Over the next two years, every company will be required to pay a COVID recovery charge of GBP 25 per week. Starting on 1 August 2022, the charge will be levied as part of the company’s annual return collected by Companies House. However, following representations from industry, the government is revisiting the implementation of the GBP 25 COVID recovery charge for companies, so additional guidance is likely. 

Import duty 

Previous measures introduced as a result of the pandemic, which saw an import duty waiver for all commercial imports, other than certain commodities, and the introduction of a 10% flat rate of import duty on all personal imports over GBP 25 is revoked with effect from 29 June 2022. Private imports will be charged at the import duty rates in place before these measures were implemented. 

Sustainable tourism tax 

As from 1 August 2022, hotel and Air BnB visitors are required to pay GBP 3 per person per night for the duration of their stay in Gibraltar and cruise ship passengers will be required to pay a GBP 1 passenger environmental levy based on the number of passengers on the vessel as from 1 April 2023. The responsibility to collect and remit the tax to the Department of Environment stands with each hotelier or property owner.  

Christian Summerfield

Stephanie Montegriffo