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Q&A on the International Tax Agreement Between Gibraltar and Spain Image

Q&A on the International Tax Agreement Between Gibraltar and Spain

May 20, 2022

In the post-Brexit landscape, the new tax agreement between Gibraltar and Spain is of historic significance. If you live and work in these jurisdictions, here’s how it could affect you.


Though the majority of Gibraltarians voted remain in the Brexit referendum, 2016’s decision for the UK to leave the EU has, in recent years, provided unparalleled opportunities for Gibraltar to strengthen its international position through treaties and agreements such as this with Spain – the first of its kind.


Signed on 4 March 2019 and coming into operation on 4 March 2021, the Agreement offers a forward-thinking approach to improving tax cooperation and transparency between Gibraltar and Spain, a move that will strengthen Gibraltar’s own reputation as a centre for trade and business. It is also a recognition of the independence of the Rock’s tax system – a point that has been a source of much discord between Gibraltar and Spain over the last two decades. Indeed, the Agreement triggered a declaration by the Spanish parliament that it will eventually declassify Gibraltar as a tax haven – a move that will further enhance Gibraltar’s international appeal.


One of the main aims of the Agreement is to provide clarity on issues of dual tax residency, specifically by resolving cases where individuals are tax resident in both Spain and Gibraltar. Here’s what you should know.


How does the Agreement treat individuals with dual tax residency?


If you live and work in both jurisdictions (such as, for example, living in Spain but working in Gibraltar) then it’s entirely possible that you can be considered a dual tax resident. The Agreement is designed to resolve this and avoid double taxation by setting out a number of ‘tie breakers’ designed to establish residency in either Gibraltar or Spain.


What are these tie breakers?


The tie breakers can be outlined as follows:


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


You can also be deemed a tax resident of Spain if your spouse, partner and dependents (such as children or parents) habitually reside in Spain. In other words, it will be determined by your centre of economic and vital interests.


Finally, you will be considered a Spanish tax resident if your only permanent home is in Spain, or two-thirds of your assets are directly or indirectly in Spain.


What if I don’t meet any of the rules described above?


If an individual does not meet any of these criteria; then they will still be considered tax resident in Spain, unless they can prove tax residency in Gibraltar. This is because Spain’s tax system is residency based – it needs to establish tax residency in order to tax an individual, whereas in Gibraltar income is taxed at source and there is less focus on proving residency.


How do I prove tax residency in Gibraltar?


By showing you have a permanent home in Gibraltar which you use more than 183 days in a calendar year, and that you can demonstrate close personal, social and economic links there.


It has been established that I am a tax resident in Spain, but I still work in Gibraltar. Will I still have to pay tax in the latter?


Yes, as Gibraltar does not need a person to be tax resident in order to tax their income. If you earn income in Gibraltar then tax is payable. However, if you are a tax resident of Spain (and thus subject to Spanish taxation on your worldwide income) then according to the Agreement you are legally entitled to tax relief in Spain on the income tax you pay in Gibraltar.


What if I am a Spanish tax resident but I receive dividends from a Gibraltarian company. Am I still entitled to double taxation relief?


No tax is payable on Gibraltar-sourced dividends if the recipient is not resident in Gibraltar. As no tax has been paid in Gibraltar you are not entitled to double tax relief and your dividends will be taxed only in Spain.


What are the rules for Spanish tax residents who receive foreign income from outside Gibraltar?


Spanish tax residents must pay tax on worldwide income. However, double taxation relief is possible if tax on that foreign income has already been paid in its country of origin.


I plan to move from Spain to Gibraltar. What should I be aware of?


There are rules following a move from Spain to Gibraltar, and will apply regardless of personal circumstances.


  • Spanish nationals moving from Spain to Gibraltar after 4 March 2019 will retain Spanish tax residency even though they live in Gibraltar. Spanish nationals’ resident in Gibraltar will be eligible for double taxation relief in Spain on income tax paid in Gibraltar.


  • Non-Spanish nationals who have spent at least one complete tax year in Spain who then move to Gibraltar after 1 January 2022 will keep their Spanish tax residency for the year in which the move is made, and then four years after that.


If you are a registered Gibraltarian then the rule is similar, but only applies to those who spend at least four complete tax years in Spain.


The new Agreement brings much-needed clarity to a range of fiscal matters involving Spain and Gibraltar. If you are contemplating moving to Gibraltar from Spain its important you seek professional advice from a relocation expert to ensure you take full advantage of the tax benefits of making Gibraltar your home.


For further information 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.