UK and Spain sign post-Brexit tax treaty over Gibraltar

Spain’s Foreign Minister Josep Borrell and UK Cabinet Office minister David Lidington signed a treaty on 4 March 2019, covering areas such as harmful tax practices, anti-money laundering regulations and rules to resolve conflicts over tax residency between Spain and Gibraltar. It was the first treaty to be signed by the UK and Spain over Gibraltar since 1713.

The International Agreement on Taxation and the Protection of Financial Interests between the UK and Spain regarding Gibraltar sets out objective criteria to determine who is a tax resident in Gibraltar and who is not after the UK formally leaves the European Union.

A British Overseas Territory, Gibraltar controls its own affairs, taxation and policies, with the exception of defence and foreign relations. But unlike all UK’s other Territories and Dependencies, Gibraltar has also been part of the European Union since 1973.

The treaty sets out that an individual will be a tax resident in Spain if they spend over 183 nights in the country, their spouse resides habitually in Spain, their permanent home is in Spain or two-thirds of their net assets are located in Spain. Spanish nationals who move their residency to Gibraltar after the agreement date will continue to be considered tax residents of Spain in all cases.

Non-Spanish nationals that demonstrate they have moved their residency to Gibraltar will stay as tax residents of Spain for the tax period when the change was made and for the next four years. There is an exemption for those non-Spanish nationals who have spent less than a year in Spain and for individuals registered as Gibraltarians that spend less than four years in Spain.

Signing up to Gibraltar’s tax residency schemes for high net worth Individuals (HNWI), Category 2 Individuals, High Executive Possessing Specialist Skills (HEPSS) or any other equivalent scheme “shall not of itself” constitute proof of tax residency in Gibraltar.

The treaty will eliminate double taxation where relevant and comply with domestic laws of the country in which individuals reside. It also covers exchange information on tax matters regarding administration, enforcement and collection concerning taxes of all kind imposed by the jurisdictions.

Following Brexit, both countries will implement EU-equivalent legislation surrounding mutual assistance of tax administration; as well as the EU equivalent to anti-money laundering and transparency rules. Both countries will also create a joint co-ordination committee to monitor all of the tax issues covered in the treaty.

The UK government also brought a new statutory instrument, the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019, into force on 15 March to enable financial services firms authorised in Gibraltar to continue to provide services and establish branches in the UK after Brexit, until at least the end of 2020.

The governments of the UK and Gibraltar have also committed to work to design a replacement framework to endure beyond 2020 that is similarly based on shared standards of regulation that are underpinned by up-to-date arrangements for exchange of information, transparency and regulatory co-operation.

The statutory instrument amends Section 409 of the Financial Services and Markets Act 2000, the Financial Services and Markets Act 2000 (Gibraltar) Order 2001, and EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (2018 No.1149) to address deficiencies arising from the UK’s exit from the EU.

The government of Gibraltar will be adopting a similar and reciprocal approach to the UK in its own ‘EU Exit legislation’. As a result, Gibraltar will continue to have automatic access to the UK in banking, insurance, investment services and any other similar area where EU cross-border directives currently apply.

The UK has also provided assurance that gambling operators based in Gibraltar will continue to access the UK market after the UK leaves the EU in the same way they do now and has committed to work closely with Gibraltar in respect of transport arrangements that support Gibraltar’s prosperity.

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