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Finance • Legal Tax Reduction

How to Pay Low Taxes with Gibraltar Category Two

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Enjoying a coffee at one of the many cafes on Gibraltar’s lively Main Street is an adventure in itself. The aroma of freshly brewed coffee blends with the scent of the sea, while the sound of English banter mixes with the urgency of Spanish chatter. 

Such experiences are ever-present reminders of how the peninsula, affectionately known as ‘The Rock’, is more than a financially strategic location. It’s a melting pot of cultures and histories with a unique blend of British, Spanish and Mediterranean influences that have shaped the identities of the peninsula and its people.

From the bustling Main Street, lined with British-style pubs and Spanish tapas bars, to the annual Gibraltar National Day, where the streets come alive with a vibrant mix of cultural celebrations, Gibraltar offers a rich, multicultural experience. 

Think low tax and your mind wanders to places like The Cayman Islands and St Kitts. But Gibraltar is a wonderful option for many nomads. Living here can prove that a wise financial decision can be combined with a lifestyle choice that immerses you in a diverse and dynamic culture.

It’s fair to say that Gibraltar is one of the lesser-known, low-tax jurisdictions in or near Europe, something it has in common with Hungary, Montenegro, Bulgaria and Andorra. These jurisdictions aren’t talked about as much because they are often more complicated to operate in. Countries with a well-known infrastructure for lower taxes have systems that are easier to navigate. Banking can be unsophisticated in some of these lesser-known places: some locations are not typically robust international financial centres and often come with extra bureaucracy.

However, its diminutive size notwithstanding, Gibraltar manages to offer the benefits available in many of the more developed low-tax countries. It’s an advanced private banking hub connected by a modern airport offering easy international travel.

Compared with better-known financial centres, its favourable banking terms and tax treatments are easy to access. If you live in a high-tax country in Europe like Germany, France, Italy or Ireland, Gibraltar is an excellent option if you want to pay lower taxes but retain your EU footprint. 

The Rock is small, so you may want to be there only part-time. However, by paying a relatively small flat tax each year, you can claim tax residence, live there for part of the year or even start a company there. 

Why Live in Gibraltar?

Why Live in Gibraltar

Gibraltar has been a British overseas territory since 1704. Located on Spain’s southern Mediterranean coast, it’s a popular tourist destination with plenty of history and colour – from the natural limestone rock, home to about 55 km of tunnels, to Europe’s only colony of wild Barbary macaque monkeys.

Dominating the stretch of water that separates Southern Europe and North Africa, the peninsula is of substantial strategic importance to Britain. English is the official language, but most locals also speak Spanish. The official currency is the Gibraltar pound (GIP), which is pegged to the British pound (GBP).

Financial services, shipping, online gaming and tourism dominate the economy. The Rock also ranks as the number one European jurisdiction for crypto funds.

Gibraltar has no capital gains tax, gift or inheritance tax, and no tax is charged on interest accrued through savings. Among its other advantages is that there are few restrictions on foreign citizens who want to open a bank account in Gibraltar. You can learn more about this in our Ultimate Guide to Banking in Gibraltar

Gibraltar’s Category 2 Tax Residence 

In order to live in Gibraltar and benefit from its lower taxes, you need to become a tax resident. There are two routes to achieve this. 

The first – Category 2 Residence – is for high-net-worth individuals who can demonstrate a wealth of GBP£2 million through the ownership of assets, including property and shares. It requires applicants to rent or purchase a government-approved property in Gibraltar and have medical insurance. As a tax resident here, expect to pay a flat tax that ranges from GBP£37,000 to a maximum of GBP£44,740 per annum.

Foreign citizens may then set up a company in Gibraltar. 

Despite its modest size, Gibraltar is a burgeoning hub for industries like fintech and online gaming. This economic dynamism makes it an attractive destination for entrepreneurs and investors seeking opportunities beyond tax efficiency.

The government’s forward-thinking policies foster a business-friendly environment, particularly in the digital finance and e-commerce sectors. Here, innovation isn’t just a buzzword; it’s a reality, with Gibraltar positioning itself as a leader in these growing fields. For those looking to establish or expand their business, Gibraltar offers a unique blend of opportunity, support and strategic location.

However, it’s vital to note that as a Category 2 resident, you’re not permitted to engage in trade, business or employment in Gibraltar. An exception applies to activities you conduct there for a business outside Gibraltar, approved companies or those that do not transact business in Gibraltar. 

There’s no minimum stay in Gibraltar for a Category 2 tax resident. You can retain Gibraltar tax residency without spending time there if you meet all the conditions. 

If you choose to live there for less than 183 days a year, you will not be considered a tax resident and will have no tax liability because you have no Gibraltar-sourced income.

The second route to becoming a tax resident is via the Higher Executive Processing Specialist Skills (HEPSS) program. This allows specialised, skilled workers who earn more than GBP£120,000 per annum to obtain tax residence. 

The employer must make the application and upon its success, the employee can limit their tax liability to the first GBP£160,000 earned. In practice, the tax paid on this figure currently amounts to just under GBP£40,000 per annum. Anything over GBP£160,000 is tax-free. 

You can apply for citizenship after five years of permanent residence in Gibraltar. You’ll need to prove you’ve lived there continuously for five years, that you’re of good character and can show property deeds or letters from landlords.

Pay Lower Taxes in Gibraltar 

How to Open a Bank Account in Gibraltar

Gibraltar will leave your foreign-earned income alone. If you keep it overseas, income from salary, savings, investments, dividends, property and the like is not subject to tax in Gibraltar. 

If you are deemed a tax resident, you have the choice of being taxed on income sourced there under either an allowance-based system or a gross income-based system. Taxes of 7% are applied to income up to GBP£20,000, but under the allowance system, if your taxable income does not exceed GBP£11,400 per year, it is exempt from tax.

Under the gross income system, the first GBP£10,000 is taxed at 6%, and the next GBP£7,000 is taxed at 20%. The tax rates for income above GBP£25,000 range between 16% and 28%.

Nomad Capitalist has helped numerous clients legally reduce their taxes, grow their wealth and maximise their freedom – to find out how we can help you, get in touch here

Setting Up a Company in Gibraltar

In terms of corporations, taxes are only levied on locally sourced income at a corporate tax rate of 12.5%, making all other foreign-derived income tax-free. 

Gibraltar-based companies also benefit from not having to pay capital gains tax, dividend tax, estate tax or value-added tax. The country boasts a robust banking system that offers many offshore accounts and investment opportunities for both resident and non-resident companies. 

Gibraltar companies are used for various purposes, including e-commerce, trade, investing and various holding companies. Gibraltar gives non-resident companies the same benefits and opportunities as local companies – single-member ownership, access to European markets and minimal financial reporting. 

All of which makes Gibraltar an attractive destination in which to form an international company.

Setting up a business in Gibraltar is a methodical journey filled with potential. The process begins with understanding the local regulatory environment, which is designed to support both startups and established enterprises. From registering your company to navigating the tax landscape, Gibraltar offers a logical path for entrepreneurs. 

The territory is not just about tax benefits; it’s about being part of a thriving business community. Success stories abound, from tech startups to international e-commerce platforms, all finding their footing on The Rock. These real-life examples are a testament to the possibilities that await in Gibraltar.

Still, it’s worth bearing in mind that setting up here is not all smooth sailing.

Gibraltar has a reasonably rigorous licensing regime for distributed ledger firms operating businesses in the crypto space. For example, those who operate a crypto exchange must go through a demanding application process and be prepared to set up an office with at least four staff, including three senior officers. 

The regulations and requirements will depend on the type of crypto services a firm provides to its customers and whether they will store and transmit cryptocurrencies. 

If you set up a crypto-based company there, you may have to show a certain amount of economic activity. It’s becoming increasingly difficult to start a company and use it to keep a residence permit going long-term.

However, if you want to live somewhere in Europe or set up a business in a location that’s credible and not on the low-tax list, Gibraltar is an attractive option. Your business may have access to certain tax treaties depending on what products or services you sell.

Who Will Gibraltar Work For?

GIBRALTAR

If you want to leave your home country and travel to multiple bases while maintaining a tax-friendly setup rather than settle in one place, Gibraltar is an excellent option. 

A flat tax must be paid yearly, a requirement to purchase or rent a property and you must show a net worth of GBP£2 million. If you qualify, you are deemed a tax resident but don’t have to spend time there.

In truth, despite this being a low-cost program, there are more affordable options for those who don’t need a property. But what Gibraltar offers, above many more affordable options, is excellent banking opportunities, a credible tax residence and a good reputation.

This will suit those of a nomadic disposition. It will also benefit anyone wishing to establish companies in Gibraltar, pay lower business taxes and operate them as non-resident companies from outside the territory.

In short, you can live somewhere else virtually full-time, provided you don’t have tax residence there, and maintain Gibraltar as a low-tax base. 

Gibraltar’s strategic location offers more than just scenic views of the Mediterranean; it’s a gateway to Europe and Africa. For the global citizen, it presents unparalleled opportunities for travel and business. The peninsula’s unique position makes it an ideal base for those looking to explore or conduct business across continents.

Beyond its economic advantages, Gibraltar’s lifestyle is equally compelling. Life here blends relaxation and adventure from its Mediterranean climate to its outdoor activities. The cultural richness of nearby Spain and Morocco is just a short journey away, making Gibraltar not just a tax-friendly base but a crossroads of diverse experiences.

Another significant benefit to Gibraltar that will be most relevant to EU and UK citizens is proximity and access to Spain and the rest of Europe. Given that it shares a border with Spain, 96% of Gibraltarians voted to remain in the EU during the Brexit referendum. 

After Brexit, this caused tension over the nature of Gibraltar’s border with the EU until a resolution was found. It was deemed part of Schengen and thus an area without internal border controls. This allows free movement within the EU for Gibraltar passport holders. Such frictionless access to the rest of the EU, along with its good weather, British culture and history and tax-friendly regime makes Gibraltar an appealing destination for wealthy UK citizens.

Overall, if you’re a high-net-worth entrepreneur or investor, there are clear advantages to tax residence in Gibraltar. By having a base there but retaining the option of not having to be there, you can grow your businesses, enjoy a beneficial lifestyle and access travel opportunities. 

Making this a reality requires proper planning. But with the ideal combination of tax planning, residence and asset protection strategies at Nomad Capitalist, Gibraltar can be a great example of going where you’re treated best. We have helped 1,500+ high-net-worth individuals and can help you, too.

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