The United Kingdom and Kingdom of Spain will sign an agreement on Monday detailing stricter rules on the tax residency of businesses and individual residents in Gibraltar, the British Overseas Territory on the southern tip of the Iberian peninsula.
Both will have to pay taxes in Spain if they spend most of their time or receive income from activities conducted within Spanish territory.
The deal aims to prevent Gibraltar from increasing its competitive advantage after Britain leaves the EU, due to Gibraltar’s lower tax rates of roughly 10 percent for the business and finance industry, compared with Spain’s 25 percent.
EU officials have warned of unfair practises after the UK leaves on 29 March, and Spanish foreign minister Josep Borrell will meet UK Cabinet Office minister David Lidington on Monday to sign the deal in order to flesh out the terms between the two countries. Spanish officials hope to see the plan go into effect quickly and irrespective of a deal or no-deal scenario. But the deal must pass through Spain’s Congress beforehand.
In November 2018, Madrid and London signed four memorandums of understanding (MOUs) detailing contentious issues on citizens’ rights, the environment, intergovernmental police and customs’ cooperation, and tobacco and related products.
What Does the Treaty Say?
The international treaty between both countries aims to show who is a paying tax resident in Gibraltar, with individuals spending over 183 days a year in Spain, spouses or partners of Spanish residents, Spanish homeowners, and those keeping two-thirds of assets in Spain will have to pay Spanish taxes.
Roughly 55,000 companies are registered in Gibraltar despite the territory only having a population of 30,000, and an unemployment rate of one percent.