Under the Companies Ordinance 1930 all incorporated companies in Gibraltar are required to prepare accounts and have them audited by independent accountants. Auditors, who are individuals, are appointed by the directors of a company, must be independent of the company, and must be registered under the Auditors Registration Ordinance.

As a general rule, all trading businesses incorporated under the Companies Act are required to have their annual accounts audited by a Gibraltar registered auditor. The Commissioner of Income Tax does not require small companies that have less than £1,000,000 of income subject to taxation in Gibraltar to submit accounts that have been audited.

In addition, a public company, bank, insurance company or any other company authorized or licensed by the Financial Services Commission is required to conduct a statutory audit, irrespective of its size.

The auditors are required to report to the members as to whether or not the financial statements have been properly prepared in accordance with the Companies Act and whether or not they show a true and fair view of the company’s operations. If they are not satisfied, the auditors must declare that fact in their report.

Income tax in Gibraltar is charged on income accruing in or derived from Gibraltar: A company will be considered resident in Gibraltar for tax purposes if the management and control of its business is exercised from Gibraltar. The location of management and control is established under legal principles laid down in the United Kingdom and is the place of the highest form of control and direction over a company’s affairs, as distinct from decisions on the day-to-day running of the business.

A company that is ordinarily resident in Gibraltar but earns profits outside Gibraltar may not be subject to tax in Gibraltar. The broad principle established by the Commissioner of Income Tax is that where a company has rendered a service or is engaged in an activity, the profit will have accrued in or derived from the location where the service was rendered or the activity or the preponderance of activities which gave rise to the profits took place. If this is outside Gibraltar then there is no liability to tax in Gibraltar.

If the activities which give rise to the profit relates to a business whose underlying activity requires a license the business shall be deemed to take place in Gibraltar.

Taxable trading profits are calculated in accordance with generally accepted accounting principles, with certain statutory adjustments. Some of the most common adjustments include the following:

• expenditure that is incurred wholly and exclusively for business purposes may be deducted • amortization of capital expenditure deducted in the accounts by way of depreciation must be added back to the net profit or loss figure in the accounts and statutory ‘capital allowances’ are deducted instead

• certain expenses are deducted on a ‘paid basis’ (eg, staff bonuses and pension contributions), and • general provisions and provisions for contingent or future losses contained in the accounts must be added back, as only specific provisions are permitted to be deducted for tax purposes.

There is no capital gains tax in Gibraltar. In addition, Gibraltar’s access to EU directives results in the elimination of withholding tax on dividends received in Gibraltar and enables mergers and corporate reorganizations to be undertaken on a tax-efficient basis.

An imputation system is used whereby tax paid by a company is, deducted from the personal liability of a shareholder who receives dividends paid from the company’s profits.

There is no tax payable by a company on dividends paid to either another company, including another Gibraltar company, or a non-resident individual.

Royalties and licensing

Royalty income and license fees are taxed at the standard corporate income tax rate.

Companies with a banking or money lending license and earning interest as a trading receipt will have that interest treated as income chargeable to tax. Interest received or receivable by a Gibraltar company, arising from an inter-company loan, will be chargeable to tax at the standard corporate income tax rate. Where the interest received or receivable is less than £100,000 per annum, the interest is exempt from any charge to taxation.

All other interest received or receivable is not taxable in Gibraltar.

Interest on borrowings used for the purposes of a trade or business is tax-deductible on an accruals basis, subject to certain anti-avoidance provisions.

Book depreciation is not deductible in computing business profits for tax purposes. Tax depreciation allowances are available in respect of capital expenditure. This is available in the form of a first year allowance up to a maximum fixed amount with the balance deductible at a percentage per annum on a reducing balance basis.

A trading loss incurred in an accounting period may be set off against trading income, if any, arising in the same period or subsequent periods. There is no provision for carrying back losses.

There is no group relief available in Gibraltar.

There is no capital gains tax in Gibraltar.

Capital duty of £10 is payable on the initial authorization of share capital or any subsequent increase thereto.