navigating the gibraltar employment tax minefield.ppt · navigating the gibraltar tax and social...

Navigating the Gibraltar Employment Tax d S i l I Mi fi ld *and Social Insurance Minefield *

and avoiding the common employer pitfalls

*connectedthinking PwC

Content

Navigating the Gibraltar Employment Tax and Social Insurance Minefield *

ContentI t d tiIntroductionRegistration of the employer Registration of the employee Social InsurancePAYEBenefits In KindCross Border WorkersPensionsReporting Calendar – Important DatesReporting Calendar Important Dates


PricewaterhouseCoopers Gibraltar believes that no organisation should

Navigating the Gibraltar Tax and Social Insurance Minefield *

pursue commercial success without also considering ways in which to operate for the benefit of society on a global scale.

In harmony with this ethos PricewaterhouseCoopers Gibraltar will be waiving their fee for this presentation and instead donating the funds to the Gibraltar Red Cross in order to support the relief work currently being given to theRed Cross in order to support the relief work currently being given to the people of Haiti following the recent earthquake.

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Registration of the employer



Employment Service

Tax Office & DSSTax Office & DSS





The Employment Service (“ES”)

• Application for registration form has to be completed• Application for registration form has to be completed• Certificate of incorporation of the Gibraltar company/branch• Particulars of directors

£50 f• £50 fee

N.B. Once registration approved ES issue a certificate which needs to be displayed at the employer’s premises.





Annual Notification

• Certificate of Registration with the ES has to be renewed• Certificate of Registration with the ES has to be renewed annually

• One month before renewal is due, ES will send an Annual N tifi ti f t th ith li t f ll ti l t bNotification form together with a list of all active employees to be checked by employer

• Annual Notification form has to be completed and returned to the ES together with the old Registration Certificate

• £20 fee• ES will then issue a new Registration Certificate to be displayed g p y

at the employer’s premises


Registration of the employer cont’d


Registration of the employer – cont d

The Income Tax Office (“ITO”) & Department of Social Security (“DSS”)

• Copy of ES certificate of registration• Copy of ES certificate of registration• Certificate of incorporation of the Gibraltar company/branch• Particulars of directors

D t il f ’ ti iti d d t h t di d• Details of company’s activities and date when trading commenced• No fee

The ITO registers the employer and advises DSS (no need for separate registration). They then issue the employer with a “starter pack”. The “starter pack” contains company registration letter, guidance notes and PAYE p p y g , g& SI remittance slips.


Registration of the employeeNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Registration of the employee

Employment Service

Tax Office & DSSTax Office & DSS



Registration of the employeeThe Employment Service (“ES”)

• Notice of Vacancy has to be filed with the ES two weeks prior to employment beginning.• Employer has to be aware that Vacancy has been filed with ES before advertised in the press (i.e. Gibraltar Chronicle) as ES will chase this up.• Terms of Engagement form has to be completed (in triplicate) and filed with the ES.T f E t f ill b d d d f ll ti th•Terms of Engagement form will be processed and ready for collection the

following day.•ES will keep white copy of terms of engagement, blue copy is for the employer and the yellow copy is for the employeeand the yellow copy is for the employee.

N.B. Work PermitIf the employee is not an EEA national a work permit will have to be obtainedIf the employee is not an EEA national a work permit will have to be obtained from the Employment Service.

A visa may also be required in certain circumstances


A visa may also be required in certain circumstances

Registration of the employee – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Registration of the employee cont d

Detached workers

An employee who is not resident in Gibraltar and is in employment in a country outside Gibraltar (but within the EEA) and who is required by his employer to perform work of a temporary nature in q y p y p p yGibraltar in the course of his employment.


Registration of the employee cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Registration of the employee – cont d

Detached workers

•Employer complete application form along with E101 form•File with ES no later than five days before employment start dateFile with ES no later than five days before employment start date•Fee of £50 payable

•NB if original employment is outside the EEA cannot apply for DW•NB – if original employment is outside the EEA cannot apply for DW status

Registration of the employee cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Registration of the employee – cont dDetached workers

Registration of the employee – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Registration of the employee cont d

The Income Tax Office

•Employee needs to take stamped ES contract to tax office.•Provide details of any allowances to which they are y yentitled e.g.:

Insurance policiesProperty deedsProperty deedsMortgage statementsMarriage certificateChildren’s birth certificatesChildren s birth certificates




The Employment Service (“ES”)

FAQs

•Inspectionsp•Variations of contracts•Fines•Directors/ Non ExecsDirectors/ Non Execs•Terminations


Social InsuranceNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Social Insurance


Social InsuranceNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Social Insurance

Why do we pay it?

To fund:

•Old Age pensiong p•Unemployment benefit•Maternity benefits•Death grant and widow’s benefitDeath grant and widow s benefit•GHA group practice medical scheme•Training levy•Insolvency fund•Insolvency fund


Social Insurance – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Social Insurance cont d

Who has to pay it?

•Contributions are required for all persons gainfully occupied in Gibraltar.

•Employees and employers need to contribute.



Social Insurance cont dAre there any exceptions?

•Individuals > 60 years old and those whose statutory retirement age is earlier (e.g. Fire & police officers) are exempt from the g ( g p ) pemployee contributions not employer contributions.

•Employees making contributions in another EU state (E101)Employees making contributions in another EU state (E101)

•Students on holiday jobs

•Unpaid sick leave

•Maternity (18 weeks need to apply)•Maternity (18 weeks, need to apply)

•Married woman reduced contribution (prior to 31 Dec 1984 if h b d i SI)


husbands were paying SI)



How are the contributions calculated?

E l 10% f i bj t t i i f £5 00/£21 67Employee - 10% of gross earnings subject to a minimum of £5.00/£21.67 per week/month and a maximum of £23.74/£102.87 per week/month.

Employer 20% of gross earnings subject to a minimum of £15 00/£65 00Employer - 20% of gross earnings subject to a minimum of £15.00/£65.00 per week/month and a maximum of £29.97/£129.87 per week/month.

Self employed contributions 20% of gross earnings subject to a minimumSelf employed contributions - 20% of gross earnings subject to a minimum of £10.00/£43.33 per week/month and a maximum of £27.43/£118.86 per week/month.



Social Insurance cont dExample 1

An employee with monthly gross earnings of £200.00: -(a) Employee Contribution - £21.67 (minimum monthly contribution rate)(b) Employer Contribution £65 00 (minimum monthly contribution rate)(b) Employer Contribution - £65.00 (minimum monthly contribution rate)

Example 2

An employee with monthly gross earnings of £500.00: -(a) Employee Contribution - £500.00 x 10% = £50.00(b) Employer Contribution - £500 00 x 20% = £100 00(b) Employer Contribution £500.00 x 20% £100.00

Example 3

An employee with monthly gross earnings of £1500.00: -(a) Employee Contribution - £102.87 (maximum monthly contribution rate)(b) Employer Contribution - £129.87 (maximum monthly contribution rate)


(b) Employer Contribution £129.87 (maximum monthly contribution rate)



FAQs

•Multiple jobs•Directors fees/non execs


Personal TaxNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Personal Tax


Dual tax systemNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Dual tax system

You have the choice of being taxed under either an Allowances Based system or a Gross Income Based system and will pay tax in accordance with the system which results in the lower tax.


Dual tax system – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Dual tax system cont d

ALLOWANCE BASED SYSTEM

U d th All B d t ld b t dUnder the Allowances Based system you would be taxed on your income less allowances at the applicable rates as follows:

The first £4,000 of taxable income – 17%The next £12,000 of taxable income – 30%The remainder of the taxable income – 40%



Dual tax system cont dPersonal allowance £2,735Deduction for spouse £2,560Deduction for children £9701

Mortgage interest 100%House purchase for own residential occupation £15,500Life assurance 100%2

1 First child only2 Allowable premiums up to 1/7 of assessable income or 7% of capital sum

dassured.Low Income Earners (“LIA”)

I < £19 5K li ibl f LIA f llIncome < £19.5K eligible for a LIA as follows:

Income of £8,000 or less £4,000Income of £8 000 to £17 500 £1 300Income of £8,000 to £17,500 £1,300Income of £17,500 to £18,500 £920Income of £18,500 to £19,500 £500

*connectedthinking PwCNote : The above allowances are subject to a minimum allowance of £3,600.


Dual tax system cont dGROSS INCOME BASED SYSTEM

The first £25,000 of taxable income – 20%The next £75,000 of taxable income – 29%The remainder of the taxable income – 35%

If your gross income does not exceed £16,000 per annum, the first £10,000 of taxable income will be taxed at the rate of 10% with the balance at 20%.

If your income is between £16,000 and £25,000 you will be taxed at the following rates, with the balance at 20%:

Income of £16,000 to £17,000, on the first £5,000 – 0%Income of £17,000 to £18,000, on the first £4,000 – 0%I f £18 000 £19 000 h fi £3 000 0%Income of £18,000 to £19,000, on the first £3,000 – 0%Income of £19,000 to £20,000, on the first £2,000 – 0%Income of £20,000 to £25,000, on the first £1,000 – 0%



Dual tax system cont dSCENARIO A

Annual salary of £30,000Allowances £10,000

ALLOWANCE BASED SYSTEM GROSS INCOME BASED SYSTEM

Income 30,000 25,000 @ 20% = 5,000Less Allowances (10,000) 5,000 @ 29% = 1,450

Assessable Income 20,000

4,000 @ 17% 68012,000 @ 30% 3,6004 000 @ 40% 1 6004,000 @ 40% 1,600

£20,000 £5,880 £30,000 £6,450



Dual tax system cont dSCENARIO B

Annual salary of £16,500Allowances £3,600

ALLOWANCE BASED SYSTEM GROSS INCOME BASED SYSTEMFirst £5,000 tax free

Income 16,500Less Allowances (3,600) 11,500 @ 20% 2,300

Assessable Income 12,900

4,000 @ 17% 6808,900 @ 30% 2,670

£12,900 £3,350 £11,500 £2,300


Which tax system best suits your employees?Navigating the Gibraltar Employment Tax and Social Insurance Minefield *

Which tax system best suits your employees?

•Depends on their individual circumstances•Depends on their individual circumstances

•Income Tax Office will inform them

•Government website calculator - http://www.gibraltar.gov.gi/Featured items – Gross Income Based Tax Calculator

•GIB application form also on the website


Which tax system best suits your employees?Navigating the Gibraltar Employment Tax and Social Insurance Minefield *

Which tax system best suits your employees?

30,000 (including Benefits-in-kind) (including Benefits-in-kind)

ALLOWANCE BASED SYSTEM GROSS INCOME BASED SYSTEM

ASSESSABLE INCOM 30,000 GROSS INCOME

ALLOWANCES 3,600

TAXABLE INCOME 26,400

- @ 0% - 4,000 @ 17% - @ 10% -

12,000 @ 30% 25,000 @ 20% 5,000.00 10,400 @ 40% 5,000 @ 29% 1,450.00

680.00 3,600.00 4,160.00

- @ 35% -

26,400 30,000

6,450.00 TAX PAYABLE 8,440.00 TAX PAYABLE


HEPSS


HEPSS

Introduced as cost saving incentive for companies recruiting senior executives.

Taxable income capped at £100K, so tax is £26,750 p.a.

•Existing Cat 3 certificate holders; •Earn more the £100K pa; P kill t il bl i Gib lt•Possess skills not available in Gibraltar;

•Necessary to promote and sustain economic activity of particular economic value to Gibraltar;•High executive or senior management position;•High executive or senior management position;•Not employed or resident in Gibraltar for prior three years; and•Approved property in Gibraltar •Application to be made to the Finance Centre Director•Application to be made to the Finance Centre Director


Sh t t i


Short term assignees

Unwritten rule - register for tax and SI if working in Gibraltar for longer than one month.

fWe would recommend that the following conditions be met:

•Employed in the home jurisdictionP id f th h j i di ti h t th l l Gib lt•Paid from the home jurisdiction, no recharge to the local Gibraltar company

•Not have permanent residence

Contact the ITO to discuss on a case by case basisContact the ITO to discuss on a case by case basis.


Payment of tax/PAYENavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Payment of tax/PAYE

For employees, collection of tax is initially through a Pay As You Earn “PAYE” system.

Every employer paying emoluments to an employee is required to y p y p y g p y qdeduct from the amount of emoluments a specified amount of tax according to each employees’ tax code.

Payment is due by the 15th day of the following month. At the end of the year of assessment the employer is obliged to make a return of the employee’s emoluments and tax deducted together with the payment ofemployee s emoluments and tax deducted together with the payment of any outstanding tax.



Payment of tax/PAYE

•Preference to pay by cheque•P8 - late filing penalty - £10 per employee per day•Queries can delay processing of P8



Payment of tax/PAYE


Payment of tax/PAYE – FAQsNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Payment of tax/PAYE FAQs

• Change of tax code/system part way through the year• Married couples – different systems? • Multiple employments• Multiple employments• Bonus calculations• Back pay adjustments

R d d• Redundancy



Payment of tax/PAYE FAQsMarried couples – different systems?

e.g. Property in Gibraltar

P h d i t i b t ti tPurchased prior to marriage by one party can continue to claim allowances, spouse can be taxed under GIB

Purchased subsequent to marriage either:-split the allowances or -one claim allowances, other does not BUT both must be taxed ,under allowance based system (if property purchased post 1/7/07)OR -if one always claimed allowances in respect of a property preif one always claimed allowances in respect of a property pre 2007 the spouse can elect to be taxed under the GIB system. OR

If one wishes to transfer to GIB system the other party can only


- If one wishes to transfer to GIB system the other party can only claim 50% (i.e. their individual entitlement) of the allowances



Multiple employments

Will be taxed at marginal rate in respect of any excess income

Example

Job 1 25,000J b 2 5 000Job 2 5,000

Total income 30,000

Taxed under GIB (for example)

25 000 @ 20% = 5 00025,000 @ 20% = 5,0005,000 @ 29% = 1,450

Tax payable 6 450


Tax payable 6,450



Bonus payment / back pay adjustments

In the month in which they are received they need to be annualised

Example: Monthly salary 2,000Bonus 2,000

Total income 4,000

T d d GIB (f l ) if l l t d th h th ll tTaxed under GIB (for example) if calculated through the payroll system

25,000 @ 20% = 5,00023 000 @ 29% = 6 67023,000 @ 29% = 6,670

Tax payable 13,670 £1,139 in month in which bonus is received




Bonus payment / back pay adjustments

Example: Monthly salary 2,000Bonus 2,000

Total income 4,000

Taxed under GIB (for example) if calculated manually

25,000 @ 20% = 5,000 24,000 @ 20% = £4,8001 000 @ 29% 290 £400 th l1,000 @ 29% = 290 £400 per month on salary

Tax payable 5,290£441 on bonus£441 on bonus

Total tax payable £841 (£441+£400)




Redundancy

Income Tax (Allowances, Deductions and Exemptions) Rules Section 2(3)(9)( )( )

“such sum paid upon redundancy which the Commissioner, considersto be appropriate having regard to but not limited to the employee’sto be appropriate, having regard to, but not limited to, the employee s length of service with the employer who made him redundant and his rate of pay”.

Questionnaire to be completed.


Individual Tax returnsNavigating the Gibraltar Employment Tax and Social Insurance minefield *

Individual Tax returns

A Gibraltar tax return will need to be filed by all individuals with incomeA Gibraltar tax return will need to be filed by all individuals with income subject to tax in Gibraltar.

Tax returns are due by 30 September following the year of assessmentTax returns are due by 30 September following the year of assessment. No penalties will apply for late filing.

Th Gib lt I T Offi ill th i ith tThe Gibraltar Income Tax Office will then issue you with an assessment based on the information disclosed in your tax return. This assessment will state any additional tax liability or rebate arising.


Benefits in kindNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Benefits in kind What does the law say?

Sec 6 (1) says that the following is taxable “gains or profits from any employment”

Tax office position - Has to be a perquisite which can be reliably measured


B fit i ki d t’d


Benefits in kind – cont’dCommon BenefitsCommon Benefits

• Accommodation allowance• Provision of accommodation employer’s own property• Provision of accommodation employer s own property• Rent payable by employer on employee’s behalf• Utility allowance

P t f tiliti l b h lf• Payments of utilities on employees behalf• Provision of company car• Car allowance • Cost of living allowances• Relocation allowances • Medical insurance• Share options


Benefits in kind – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Benefits in kind cont d

How are they taxed and reported by the employer?How are they taxed and reported by the employer?

• P10 form• Employee declares in personal tax return• Employee declares in personal tax return• Not within scope of PAYE


Benefits in kind – cont’dNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Benefits in kind cont d


Frontier WorkersNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Frontier Workers


Frontier WorkersNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Frontier Workers

Any employee irrespective of nationality who normally resides in Spain and travels to work daily in Gibraltar.

If resident in Spain for more than 183 days in a calendar year you are tax resident and taxable on your worldwide income.

Tax returns in Spain are due by 30 June each year.

The Gibraltar tax authorities are the primary taxing authority in respectThe Gibraltar tax authorities are the primary taxing authority in respect of your income earned whilst in Gibraltar. If the tax authorities in Spanish also deduct tax in relation to your Gibraltar income you should be able to claim relief in Spain for the Gibraltar tax paidshould be able to claim relief in Spain for the Gibraltar tax paid.


PensionsNavigating the Gibraltar Tax and Social Insurance Minefield *

Pensions


Pensions – State pensionNavigating the Gibraltar Tax and Social Insurance Minefield *

Pensions State pension

•Min 10 years contributions (Females)•Min 11.5 years contributions (Males)y ( )•Need to be > 20 years old•Pensionable age 60 for females & 65 for males•Min pension - £1,166.88 p.a.Min pension £1,166.88 p.a.•Max pension - £4,497.36 p.a.•DSS can provide you with a forecast•Can make additional voluntary contributions (need to apply within 1•Can make additional voluntary contributions (need to apply within 1 year from last employment date)•Received tax free


Pensions - OccupationalNavigating the Gibraltar Tax and Social Insurance Minefield *

Pensions Occupational

Relief on pension contributions will only be available if paid to an approved Occupational Pension Scheme.

Two options available:

• Company's own schemeCompany s own scheme• Provident Trust (No 3) Scheme (low cost & mobile money

purchase scheme administered by Govt)

Received tax free!




Employers Contributions

These will be governed by the trust deed which would have been approved by the CIT.

Anti-avoidance provisions.




Employees Contributions

Relief available to employees on the Allowance based system onlyp y y y

Employees can obtain relief on contributions to an approved scheme of up to 1/6th of their earned income. The 1/6th limit includesof up to 1/6th of their earned income. The 1/6th limit includes premiums payable on approved life assurance policies which themselves are subject to an earnings cap of 1/7th of earned income.

Overall employee & employer contributions eligible for tax relief up to 25% of earned income.

Bonuses opportunity!



Pensions OccupationalEmployees Contributions - Example

Employee earning £100K who already pays £13,930 worth of premiums (i.e. 1/7th of their income £100k/7 which is £14,285 less SI allowance of £355).)

Since this individual is already obtaining the maximum tax relief on their premiums can obtain further relief up to a maximum of £2 381 ontheir premiums can obtain further relief up to a maximum of £2,381 on personal contributions to an approved scheme (i.e.1/6th of their income which is £100K /6 = £16,666 less £14,285 above).

If on the other hand no relief is being obtained in respect of life assurance premiums then the maximum relief available on

t ib ti t d h i th £16 331 (i £16 665 lcontributions to an approved scheme is the £16,331 (i.e.£16,665 less the £335 SI allowance) as long as total employee & employer contribution < 25%


Reporting calendar – Important datesNavigating the Gibraltar Employment Tax and Social Insurance Minefield *

Reporting calendar Important dates

Task Due date

Form P8 30th July

Form P10 30th JulyForm P10 30th July

Form P7 Prior to 30th September

Personal tax returns 30th September

Statistics survey 6th November

Monthly tax and social insurance deductions

15th day of the following month


U f l li k


Useful links

www.gibraltar.gov.gi

www pwc com/giwww.pwc.com/gi

Employment ServiceUnit 76/77 New HarboursGibraltarEmail: [email protected]

Income Tax OfficeSt Jago’s Stone Block331 Main StreetGibraltarEmail: [email protected]


C t t


Contacts

PricewaterhouseCoopers10/8 International Commercial CentreCasemates SquareqGibraltar

Telephone: +350 200 73520Telephone: 350 200 73520Website: www.pwc.com/gi

Patrick Pilcher Áine HarringtonPatrick Pilcher Áine [email protected] [email protected]

Karen BarabichKaren [email protected]



The End!


navigating the gibraltar employment tax minefield.ppt · navigating the gibraltar tax and social...

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