A tax treaty between the United Kingdom and the Kingdom of Spain regarding Gibraltar has been agreed on the 4th of March. The agreement is intended to improve cooperation between Gibraltar and Spain in the field of taxation and the expected removal of Gibraltar from the Spanish blacklist.
Cross frontier workers will have the benefit of the elimination of double taxation. The Treaty will allow individuals to be tax resident either in Spain or Gibraltar in accordance with their domestic law. The Chief Minister Fabian Picardo went on to explain,
“Frontier workers will continue to pay tax in Gibraltar, at least those frontier workers that are individuals who are resident in Spain and work in Gibraltar. Gibraltar taxes on the basis of source of income. So, if you work in Gibraltar we tax your income at source in Gibraltar. Many of those frontier workers who come into Gibraltar every day to work, go back to Spain and are also taxed on their income in Spain. This agreement […] says that both states will give unilateral tax relief against the tax paid already in a particular state. For example, if you are a Spanish cross- frontier worker you will continue to pay your tax in Gibraltar, it will be deducted from your salary. When in Spain, you will have to pay only the difference between the higher rate of tax in Spain and the amount of tax you paid in Gibraltar if there is a higher difference.” [HM Government of Gibraltar]
A tax residency conflict could arise when an individual is resident in both Gibraltar and Spain and cannot be clearly categorised as a tax resident of either one. However,