Navigation path

Left navigation

Additional tools

Other available languages: FR DE ES


Brussels, 30 March 2004

Gibraltar planned corporate tax not in line with EU State aid rules

The European Commission decided today that the planned reform of Gibraltar's company taxation laws is not in line with EU rules on State aid. Therefore, it shall not be implemented. The reform aimed at abolishing the current 35% corporate tax rate and replacing it with a payroll tax and a business property occupation tax - both capped at 15% of profit. Thereby, companies registered in Gibraltar would benefit from a much lower tax rate than the corporate tax rate applicable in the United Kingdom. This will give companies registered in Gibraltar an unfair advantage. In addition, since the tax is based on payroll and occupation of business premises, offshore companies which have no physical presence in Gibraltar will not incur any tax liability at all.

Today's decision does not mean that the Commission is opposed to the development of a real and sustainable economy for Gibraltar. Mario Monti, EU Commissioner responsible for competition and State aid policies recognises the geographical isolation and the regional disadvantages that result from this and points out that the Commission already approved regional development schemes for the Azores and the Canary Islands in the past.

According to the planned reform of Gibraltar's company taxation laws, notified by the United Kingdom for State aid review in August 2002, companies domiciled in Gibraltar would be subject to a yearly payroll tax of £3,000 per employee and to a business property occupation tax (BPOT). Total tax liability (payroll + BPOT) would be capped at 15% of profit. If a company makes no profit, there would be no tax liability.

In addition to the payroll and property taxes, financial services companies would be charged a top-up tax fixed at a rate between 4% and 6% of profits from their financial service activities. The total taxation of financial services companies (payroll + BPOT + top-up) would also be capped at 15% of profit.

The Commission decided today that the planned reform of corporate taxation in Gibraltar would give companies domiciled in Gibraltar an unfair tax advantage in the form of fiscal revenue that the UK would forego:

Firstly, the introduction of a tax system that would limit tax liability to 15% confers an advantage to undertakings in Gibraltar compared to undertakings operating in the rest of the United Kingdom. The normal rate of corporate tax in the United Kingdom is 30% of profit, whilst under the reform; the tax rate in Gibraltar would be lower.

By taking the view that the introduction by Gibraltar of a corporate tax lower than the one generally applicable in the United Kingdom constitutes state aid the Commission does not put in question the autonomy of Gibraltar in fiscal matters. It confirms the line taken by the Commission in its decision concerning reductions in the rates of income and corporation tax limited to the Autonomous Region of the Azores(1).

Secondly, the planned reform was designed in such a way that despite the fact that advantages appear in law to be applicable equally to all companies in Gibraltar only a defined number of companies benefit de facto form the favourable tax rates. This is true for offshore companies that do not have a physical presence in Gibraltar. These companies will neither be subject to payroll tax because they have no employees, nor to BPOT, because they have no premises.

Since the measure only aimed at reducing the tax liabilities of companies located in Gibraltar and the offshore sector in particular, and did not aim at promoting any Community objective (regional development, employment, etc.) the Commission considered that it could not be deemed compatible with the Common market.


Since the Commission had doubts about the compatibility of the measure with state aid rules, it initiated an in-depth investigation on 16 October 2002(2). In the context of this investigation the Commission received comments from diverse third parties: the Spanish Government, the Government of Gibraltar, the Åland Islands Executive and the Spanish Confederation of Business Organisations.

By virtue of Article 299(4) of the EC Treaty the United Kingdom is responsible for the external relations of the territory of Gibraltar. The UK is also responsible for Gibraltar being in line with the prohibition on State aid that is applicable across the common market.

(1) OJ L 150, 18.6.2003, p. 52.

(2) Published in OJ C 300/2, 4.12.2002 HYPERLINK "" ; IP/02/1484.

Side Bar