Upon the approval of the Agreement signed between the Kingdom of Spain and the United Kingdom regarding Gibraltar, some Gibraltar companies, incorporated under the laws of Gibraltar, will be deemed resident in Spain for tax purposes as from the tax period starting after March 14, 2021.
This implies that those entities affected by the application of the rules contained in article 2 of the aforementioned Agreement will have to comply in Spain with all their tax obligations, as if they were entities incorporated under the Spanish law. Therefore, if your company falls within any of the following circumstances, it must take the necessary measures to comply with its obligations in Spain in order to avoid penalties.
In this sense, the following entities will be resident in Spain for tax purposes as for the tax year starting after the entry into force of the Agreement:
- Entities in which the majority of its assets, directly or indirectly owned, are located in Spain or consist of rights that can or should be exercised in Spain. That is, companies with real estate properties located in Spain or with loans granted to Spanish companies, provided that these assets represent more than 50% of total assets, will be considered residents in Spain for tax purposes and must submit Corporate Income Tax in Spain.
- Entities in which the majority of the income accrued within the tax year derived from Spanish sources. That is, companies whose main sources of income are located in Spain, either dividends, interest or other types of income, including income derived from a business activity carried out in Spain without a permanent establishment. In these cases, those entities will be consider resident in Spain and must submit Corporate Income Tax in Spain.
- Entities in which the majority of the individuals in charge of the effective management (i.e. de facto directors, managers and even employees) are tax residents of Spain.
- Entities in which the majority of the share capital or equity, voting rights or profit-sharing rights are held directly or indirectly, either by individuals who are tax residents of Spain, or by legal entities, entities or other instruments or legal forms linked to tax residents of Spain.
In cases 3 and 4 above, the entity will remain a tax resident of Gibraltar (and not of Spain) provided that it has been incorporated in Gibraltar before November 16, 2018 and that, as of December 31, 2018, is able to proof the following:
- It has a fixed location of business through which the activity is carried out totally or partially in Gibraltar,
- It is effectively subject to corporate income tax and pays such tax on profits in Gibraltar,
- During the period between the date of its incorporation and December 31, 2018, it has carried out its business activity in or from Gibraltar, and has done so without interruption or change of sector since January 1, 2011.
- More than 75% of its income, with respect to the financial year immediately prior to December 31, 2018, is accrued and derived from Gibraltar sources.
- Less than the percentage of gross income indicated below, with respect to the financial year immediately prior to December 31, 2018, comes from Spanish income sources: i) 5% if its annual turnover exceeds 6 million euros; ii) 10% if its annual turnover exceeds 3 million euros and is less than 6 million euros; iii) 15% if its annual turnover does not exceed 3 million euros.
To determine the annual turnover it will be taken into account the turnover of related companies set up in Gibraltar.
Note that the Gibraltar authorities will provide the Spanish Tax Administration with the list of entities that meet the above requirements (entities 3 and 4 that comply with requisites 1 to 5).
The consideration of Gibraltar entities as tax resident in Spain may entail tax consequences beyond the Corporate Income Tax, affecting partners, shareholders, subsidiaries, groups, etc. Therefore, it is convenient to analyze the impact the consequences deriving from the effective application of this Agreement.
At UHY Fay & Co we are at your disposal to analyze your particular case and provide the necessary advice in order to comply with the obligations that may arise from the entry into force and effective application of this Agreement.
For more information, make an appointment with our tax advisory department.