Spain and the UK have set an agreement to implement stricter tax residency rules for individuals and businesses.
The Spanish and British government are both set to sign an international agreement after reaching a deal on handling tax evasion in the British Overseas Territory of Gibraltar. This comes after the Spanish government voiced their concerns about the competitive advantage that Gibraltar would have once the UK leaves the EU.
The advantage comes from low tax rates for businesses and individuals. In Gibraltar, corporate profits have a top rate of just 10%. In contrast, top rates in Spain sit at 25%.
Spain and other countries have voiced concerns that there may be unfair practices after Brexit when the UK stops implementing EU rules. Currently, little is known about the future relationship of the EU and UK after Brexit. As a result, the UK has reached an agreement with Spain that businesses, which are mostly based in Spain or receive the majority of their income through activities on Spanish territory will have to pay taxes in Spain.
The Foreign Minister for Spain, Josep Borrell and the Cabinet Office minister for Britain, David Lidington plan to sign an international agreement which covers and contains the effects in connection with Gibraltar. This deal will then have to go through the Spanish Congress before implementation can take place.
Improving relations over Gibraltar?
This agreement has come through an incentive to form alliances with European countries after Brexit, and the UK is now willing to make more concessions over Gibraltar than it has done in the past. In fact, the agreement comes after four memorandums were signed last year to increase the price of tobacco products in a bid to reduce smuggling.
The new agreement will help to explicitly determine who is a tax resident in Gibraltar and who is not. People who have to pay taxes in Spain are individuals who;
The new agreement will affect some people who are currently considered as tax residents in Gibraltar.
Spain also hopes to implement new regulations that curb unfair business practices too and the agreement could force companies to pay tax in Spain if;
Companies who will be exempt are those who can prove that 75% of their revenue comes as a result of activities in Gibraltar.