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International Tax Treaty between Gibraltar and Spain: The Tax Implications of Moving to Gibraltar from Spain Image

International Tax Treaty between Gibraltar and Spain: The Tax Implications of Moving to Gibraltar from Spain

March 11, 2022


The decision to leave the EU in 2016’s Brexit referendum was an event of global significance, particularly for Gibraltarians, 96% of whom voted Remain. Yet despite initial uncertainty of what leaving the EU would mean, recent years have offered opportunities for Gibraltar to establish new, progressive international relationships and agreements that will enhance the Rock’s position in a post-Brexit world (the most notable being a new treaty with Spain and the E.U. to join the Schengen Area).



A New Agreement

Gibraltar and Spain’s often fractious history has included much dispute over Gibraltar’s tax regime, with Spain heavily critical of the overseas territory’s tax system and instigating punitive measures such as putting Gibraltar on a blacklist of tax havens, and encouraging other countries and other jurisdictions to consider Gibraltar as a tax haven.


The signing of the International Agreement on Taxation and the Protection of Financial Interests between Spain and the UK in 4 March 2019 – which came into force two years later in 4 March 2021 – is of historic importance. It’s the first treaty signed between Spain and the UK concerning Gibraltar since the Treaty of Utrecht in 1713, when the Rock was ceded from Spain to the UK.


The new treaty covers a range of areas concerning tax and residency, and represents an important step forward in establishing a productive relationship between Gibraltar and Spain that enhances tax cooperation and transparency. It also, crucially, recognises the independence and legitimacy of Gibraltar’s tax system (the first time Spain has done so). This will help preserve and boost the international trade and business links that are key to Gibraltar’s prosperity.



The End to Blacklisting of Gibraltar

One key element of this in the Agreement is Spain’s commitment to declassify Gibraltar as a tax haven in the future. This measure will have a hugely positive impact for Gibraltar, bolstering its identity as a tax-compliant jurisdiction. This will enhance its international reputation, opening up trade with other countries and territories.



An End to Double Taxation

The treaty will also have ramifications for those living or planning to live in Spain and work in Gibraltar, as well as Spanish, foreign and UK nationals looking to leave Spain and gain Gibraltar residency. Here’s what you need to know.


When living and working in two different countries it’s entirely possible that you could be considered a tax resident in both. The Agreement sets out a number of criteria, or ‘tiebreakers’, in such situations to establish single tax residency and avoid double taxation.


According to the treaty, you are deemed a tax resident in Spain if you have 183 overnight stays in Spain during a calendar year. Any sporadic overnight stays in Spain or Gibraltar will be added to the place you spend the most time in.


You can also be considered a Spanish tax resident if your spouse, partner and dependents such as parents or children habitually reside in Spain.


Finally, the same applies if your only permanent home is in Spain, or two-thirds of your assets are directly or indirectly in Spain.


Bear in mind that even if you don’t fulfil the above criteria, you can still be considered a Spanish tax resident unless you can demonstrate you spend more than 183 days in a year in Gibraltar and have a permanent home there for exclusive use.


In additional, the treaty also states that special Gibraltar tax schemes for high-net worth individuals such as HEPSS or CAT2 do not constitute proof of Gibraltarian tax residency for the purposes of the agreement.


Any British expats living in Spain and working in Gibraltar, or planning to do so, should be aware of this and seek expert financial advice regarding your tax position going forward, particularly if you intend on maintaining tax residency in Gibraltar. Careful planning now could help you avoid an onerous tax burden in the future.



Moving to Gibraltar

In the instance that you are planning on leaving Spain and living in Gibraltar the Agreement also includes a number of special rules:


Spanish nationals who move to Spain after 4 March 2019 will be indefinitely considered tax residents of Spain, regardless of how long they live in Gibraltar.


Non-Spanish nationals’ resident in Spain for more than one year will continue to be tax residents in Spain and taxed for four years after they move to Gibraltar.


Gibraltarians’ resident in Spain for more than four years will be tax resident in Spain and taxed for four years after they move to Gibraltar.



Cross-border Workers

Although the agreement ends double taxation for the cross-border frontier workers – of which there are some 14,000 – who live in Spain and work in Gibraltar, one should bear in mind that Gibraltar income tax is payable on earnings and will be taxed at source. Workers will not then be taxed in Spain, as per the Agreement, but they will have to pay the difference between Gibraltar income tax and Spanish income tax if the former is lower.


It’s clear that the new Agreement provides a raft of benefits for Gibraltar and much-needed clarity on a range of tax matters. Yet it also reinforces the need for any person moving to Gibraltar from Spain, or living in Spain and working on the Rock, to keep fully abreast of these new regulations, and seek expert advice to ensure their tax status remains as advantageous as possible.


Book your free, no obligation consultation with one of our financial advisers! Email enquiries@fwm.gi or give us a call on +44 207 998 0570.