Gibraltar Residency

The status of HNWI was introduced in 1992 by the Government in order to encourage wealthy individuals to take up residency in Gibraltar. Following the June 2004 amendments HNWI’s became known in 1999 as Category 2 Individuals (Cat 2 Individual). A Cat 2 Individual pays tax only on the first £50,000 of assessable income. The minimum annual tax payable is £14,000. Assessable income constitutes income arising in or remitted to Gibraltar. Worldwide income is therefore not taxable locally. A HNWI could therefore hold a Tax Exempt or Gibraltar Qualifying Company.

Applications are submitted to the Finance Centre Director together with a £1,000 non refundable application fee.

Several requirements must be satisfied including the availability of approved residential accommodation in respect of which the Cat 2 Individual has exclusive use.

Having obtained the aforesaid status an application for Gibraltar residency under the Immigration Control Ordinance can be obtained with relative ease. The type of application to be submitted will vary depending on whether the applicant is an EU national or not. Evidence of private medical insurance applicable to Gibraltar is paramount as is evidence of the applicant’s financial resources to independently maintain himself and his family. Permits of residence and Identity Cards will be valid for specific periods. These are renewable on the production of evidence that the criteria for the granting of the permit continues to be complied with.

Category 2: Residence for Individuals (previously "High Net Worth Individuals")

There has been a continuous increase in the demand for the status of High Net Worth Individual (HNWI) and residency in Gibraltar. The status of HNWI was introduced in February 1992 by the Government of Gibraltar through the introduction of new low tax limits for HNWI’s in order to encourage wealthy individuals to establish a residence in Gibraltar. These rules, forming part of the Income Tax Ordinance of Gibraltar, have been reviewed and promulgated several times resulting in the current Qualifying (Category 2) Individuals Rules 2004. Although these rules revoke and replace the earlier Rules and provide amongst other changes, higher rates of tax, endorsements of certificates and an increase in fees, they do not however significantly alter the original concept of HNWI as contained in the Qualifying (High Net Worth) Individuals Rules 1992.

The purpose of this article is to consider the implications of the new Rules and establish the criteria that will be implemented in applying for the status. Initially referred to, under the 1992 Rules, as HNWIs, these have been recognised, since 1999, as Category 2 Individuals.

The benefits of the Category 2 status and residency in Gibraltar are attractive for individuals of countries where levels of personal income tax can be particularly high, such as British, German, Canadian, Swiss and French nationals. In essence a Category 2 Individual will only pay tax on the first £50,000 of assessable income with a minimum tax payable per annum of £14,000. In the first year of assessment the minimum tax payable under the new Rules shall be £1,166.66 for each complete or part month for which the certificate is on force in that year.

Only income received or remitted to Gibraltar is taxable and therefore Category 2 Individuals can still hold a Gibraltar tax exempt company or indeed hold deposits in their own name in a Bank in Gibraltar and the income from such companies or Bank accounts would only be taxable if received by the individual for his own use in Gibraltar.

Additionally British nationals with pensions based in the UK can relocate their pensions to Gibraltar and make significant tax savings.

Accordingly the Category 2 Individual is able to make full use of Gibraltar’s Offshore Financial Centre whilst at the same time paying the prescribed low tax limits.

An application for Category 2 status is made to the Finance Centre Director and a Qualifying (Category 2) Individual Certificate under the Qualifying (Category 2) Individuals Rules 2004 of the Income Tax Ordinance will be issued. In order for an individual to qualify for Category 2 status he will be required pursuant to the current Rules to have available for his exclusive use approved residential accommodation in Gibraltar for the whole of the year of assessment (July to June).

In addition, an applicant must submit a Curriculum Vitae detailing his qualifications and work experience and two references one of which must be from a Banker confirming that the individual’s financial standing is in excess of £2,000,000. A copy of the applicant’s passport must be included together with evidence of the ownership or rental of property. There are particular property developments within Gibraltar which have been identified by the Finance Centre Director as being suitable for these purposes. A non-refundable application fee of £1,000 is payable on submitting an application.

The Government of Gibraltar will be looking to ensure that the individual has sufficient means to maintain himself and his family. Evidence of wealth is therefore important although it is not necessary for the individual to declare his worldwide wealth or earnings. In accordance with the bandings contained in the Rates of Tax Rules a Category 2 Individual would pay tax as follows:-

The first £4,000 of taxable income at the rate of 17%
The next £6,000 of taxable income at the rate of 30%
The next £5,000 of taxable income at the rate of 35%
The remainder of taxable income at the rate of 45%

There are no allowances or deductions. Tax is payable only up to the maximum assessable income of £50,000. Any income in excess of £50,000 is not subject to tax.

Additionally, in each year of assessment the Category 2 Individual will have to make a return to the Commissioner of Income Tax. The individual can exercise an option before the termination of the year of assessment and advise the Commissioner that he shall be deemed to have a taxable income in Gibraltar in that year of assessment of £50,000 notwithstanding that the income remitted to Gibraltar is less than that amount. The advantage of this is that no tax return will need to be made to the Gibraltar Authorities. The difference between the minimum tax payable of £14,000 and the amount of £19,980 which would be payable could be offset against any liabilities for tax in respect of income dealt with under the rules in the next year of assessment.

Residency is easily obtained once the Category 2 status has been granted. An application for residency is made under the Immigration Control Ordinance. However, the process for obtaining residency differs somewhat depending on whether the Category 2 Individual is an EU National or a non-EU National. Applications are made to the Governor of Gibraltar. The Governor issues a permit to any person who in his opinion is of good character and it is in the interests of Gibraltar that he be issued with such a permit. A permit is valid for such period as the Governor may specify. Generally, a permit of residence is valid for a period of one year but may be renewed subject to the continuation of the Category 2 status certificate, which certificate remains effective so long as the Finance Centre Director is satisfied, on each anniversary of the issue of the certificate, that the requirements are still met.

Each applicant will have to satisfy the authorities that he holds private medical insurance which would cover him and his family in the event of illness in Gibraltar. The individual and his family must not look to the Government of Gibraltar for medical treatment. They must be self sufficient in this respect. The property he holds must also be large enough to house his family.

The advantages derived from obtaining the Category 2 status and residency in Gibraltar are notable the most significant of all being the tax advantage to such individual, which is why most applicants are people heavily taxed in their own countries. In addition a Category2 Individual can make full use of the Gibraltar Offshore Financial Centre. There is no capital gains tax or estate duty payable in Gibraltar. Further, whilst the holding of a permit does not automatically entitle a person to claim citizenship or any social benefit or social security in Gibraltar children of the family may attend local schools and enjoy benefits enjoyed by local residents.