Budget and Deficit
The Chief Minister’s annual budget address covered the economic fallout of COVID-19 and laid out the necessary steps needed to ensure a strong recovery. The Appropriation Bill for 2021 published in May set a consolidated fund expenditure of £665 million and a capital fund expenditure of £68 million for the year ending March 31st 2022, apart from recurrent and public undertakings expenditures. The numbers tallied a deficit of £138 million, explanable by the £240 million spent on responding to the crisis, which included the government covering the salaries of private sector employees. This was accompanied by a GDP drop of 4.9% down to £2.44 billion, a stark contrast to the 13.3% average growth for the preceding ten financial years. Chief Minister Fabian Picardo assured against fears for austerity, declaring that the deficit can be undone through 24 months of spending according to targets.
OECD Corporate Tax Floor Initiative
The OECD’s call for international tax reform earlier in the season and preceding the budget address targeted multinationals (turnover above what is to be €10 billion and profitability above 10%) paying taxes outside the jurisdiction of their operations and sources of profit. The proposal stands as a 15% corporate tax floor, which would help ensure an easier post-COVID-19 recovery through larger tax contributions from big firms. The historic proposition was backed by Gibraltar, avoiding it from becoming one of less than ten countries and jurisdictions that did not support the OECD initiative. Gibraltar can now expect increased reputation and attractiveness owing to its corporate accountability and transparency. The direct consequence today are the immediate effects on Gibraltar’s financial climate that were announced in the Chief Minister’s budget address.
New Corporate Tax Rate
The new budget made apparent that effective from August 1st 2021 on all profits made after this date, in part as a response to the OECD initiative, is an increase in corporate tax on company profits from 10% to 12.5%, 12.5% being the same as that of the Republic of Ireland. This was implied to ensure a smooth transition to the expected 15% global minimum proposed by the OECD. A series of tax incentives for locally based businesses until the end of June 2023 including an allowance on basic salaries for newly created jobs as well as training, plant and machinery and marketing costs allowances were also announced.
Category 2 and HEPPS Schemes
The budget also included crucial changes to the Category 2 and HEPPS schemes, where the taxable income cap for Category 2 individuals increased to £105,000 from £80,000, which corresponds to the minimum and maximum payable tax shifting up to £32,000 and £37,310 respectively. The new cap comes into effect August 1st. Regarding the HEPPS scheme, from next year the required earnings amount to qualify for the scheme are earnings of at least £160,000, that amount being taxable. The previous requirement stood at £120,000, meaning that individuals with earnings between the old and new figures enter upon a transitional arrangement where their respective employers’ certificates will be grandfathered for two years along with the new tax amount being levied to allow time and ease for contracts to be readjusted accordingly if deemed necessary.
News for Residents and Boat Owners
Less dramatic but nonetheless noteworthy news relates to residents and boat owners in Gibraltar. Pertaining to residents, the increases in electricity and social insurance rates were announced, though importantly personal taxes and pensions remain unchanged. Fuel supplied to pleasure boats such as jet-skis and superyachts will lose a rebate on duties by a third, and a £0.12 levy on diesel fuel supplied to such boats will also take effect. Gibraltarian residents should also take note that the 700 previously rented berths at the Small Boat Marina can now be purchased at a price of £32,000 or £40,000, size dependent, with purchase price increasing by 10% a year every April and subsequent sale subject to a 5% stamp duty. Transfer to other residents as well as renting require the approval of the Captain of the Port, at his discretion.