The introduction of a new alternative personal income tax regime and a new capped tax system for relocated executives will result in tangible benefits for all employees and the business community as a whole.

Regular taxpayers will be able to choose whether to be taxed under the existing ‘Allowances and Deductions’ system or instead be taxed at differing rates on their ‘Gross’ income.

This will benefit all, and will be particularly attractive to frontier workers, i.e. those living in Spain but working in Gibraltar, who cannot benefit from the full range of allowances and deductions.

It will also assist Gibraltar-based companies in recruiting international talent - the new tax cap for relocating executives should encourage a migration of individuals with specialist skills. This measure replaces the existing ‘Category 3’ and ‘4’ regimes which are in the process of being phased out.

Further to company tax reforms, the Government has affirmed its commitment to replace the current regular and tax exempt regimes with a unified system based on a low rate of tax, competitive with other such regimes existing within the EU.

The deadline for it’s’ introduction is by mid-2010, with the grand-fathering of the tax exempt regime at the end of 2010, it is entirely feasible that a new regime could be announced much sooner, following the conclusion to the ECJ court case on Regional Selectivity.

Whilst there are tax reductions to the headline rate, it should be noted that Gibraltar companies are only taxed on local source income meaning that, particularly in the case of companies trading internationally, a low effective tax rate is achievable.

The benefit of this is further enhanced by Gibraltar based companies being able to access various EU Tax Directives and of the tax exemption for certain interest, inbound and outbound dividends.

No changes have been proposed to the amounts of allowances and deductions although the tax credit system has been enhanced and will benefit persons earning under £19,500.

A new alternative ‘Gross Income Based’ system is introduced -

The qualifying conditions for Category 2 regime remain unchanged.

The minimum level of taxation is increased to £18,000 (£14,000) and the tax cap is increased to £60,000 (£50,000) per annum.

The maximum level of Gibraltar tax payable is therefore increased to £21,880 (£18,920)

A new tax regime is established for executives and senior management possessing specialist skills which, in the Government’s opinion, are necessary to promote and sustain the economy, and who will earn more than £100,000 per annum.

In such instances, income tax is capped at £100,000 with tax payable in accordance with the dual tax alternatives.

This will result in an effective tax rate of 27.5% or less.

Qualifying individuals will be required to maintain suitable accommodation as required akin to category regime rules.

Under EU law Gibraltar will be introducing a unified tax system, applicable to residents and non-residents alike, replacing the current regular and tax exempt regimes.

The new regime will be based on a low headline rate of tax – targeted to be 10% - which will be in place by mid 2010, preceding the ‘phasing out’ of the current ‘tax exempt’ schedule under which benefits may be grandfathered until 31 December 2010.

In the interim, the headline tax rate under the regular tax regime is decreased to 33% (35%) with further cuts in following years to 30% and 27%.

There are no changes to the manner in which the tax base is calculated meaning that Gibraltar companies will remain liable to tax on income which is locally accrued and derived.