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27th June 2019 | Natalia Wyżycka | Assistant to the CEO

Gibraltar CAT 2 Status: A Low-Tax Residence

Category 2 (CAT2) status was introduced in Gibraltar in February 1992 by the Government of Gibraltar. It involves the implementation of low tax limits for high-net-worth individuals, in order to encourage them to establish a residence in Gibraltar. 

These rules, forming part of the Income Tax Act, have been reviewed and promulgated several times resulting in the current Qualifying CAT2 Individuals Rules 2004. Since 1992, there has been a continuous increase in the demand for CAT2 status.

Tax Benefits of the CAT2

The benefits of the CAT2 status are attractive for individuals from countries where levels of personal income tax are particularly high, such as Britain, Germany, Canada, Switzerland, or France, as well as for individuals who are generally wealthy and have sizeable liquid investable assets.

The tax benefits in Gibraltar include, in particular, the following: no wealth tax, no capital gains tax, no gift tax, and no estate duty. There is also no tax on the remittance of capital to Gibraltar. In terms of interests and dividends, interest arising from a licensed bank or building society or dividends arising from companies quoted on a recognised stock exchange are not taxable in Gibraltar either.

Moreover, a CAT2 individual has their Gibraltar tax capped to the first GBP 80,000 of assessable worldwide income only, with a minimum tax payable per annum of GBP 22,000 (which equates to the tax on income of around GBP 65,744) and a maximum of GBP 27,560 (which equates to the tax on income of GBP 80,000). Professional traders in financial markets using their own funds do not have any taxable income from trading so the minimum tax of GBP 22,000 would be payable. Effectively, tax is payable only up to the maximum assessable income of GBP 80,000 and any income in excess of GBP 80,000 is not subject to tax in Gibraltar. There is no requirement to disclose the individual’s worldwide income, and the spouse and family income can be included.

Residency: Permit to Stay in Gibraltar

Apart from the CAT2 status, a residency, i.e. a permit to stay in Gibraltar, can easily be obtained once the CAT2 status has been granted. The process for obtaining residency differs depending on whether the CAT2 individual is an EU National or not.

The Governor, to whom the applications are made, issues a permit to stay in Gibraltar to any person who in his opinion is of good character. Generally, a permit of residence is valid for a period of one year but may be easily renewed subject to the continuation of the CAT2 status certificate. The CAT2 certificate remains effective as long as the Finance Centre Director is satisfied that the CAT2 requirements are still met, with the requirements being checked every three years.

Nevertheless, if an individual does not want to physically reside in Gibraltar, there is actually no minimum physical presence to retain residency. So, one can have the CAT2 status but does not need to spend any time in Gibraltar.

Requirements for Application and Granting of the CAT2 Status & Residency

An application for CAT2 status is made to the Finance Centre Director. In order for an individual to qualify for CAT2 status, they will be required to meet the following rules: 

  1. Have available for their exclusive use an approved residential accommodation in Gibraltar, that can be either bought or rented. The property must be large enough to house their family. There are particular property developments within Gibraltar which have been identified by the Finance Centre Director as being suitable for these purposes.
  2. Hold a private medical insurance which would cover them and their family in the event of illness in Gibraltar. The applicants must not look to the Government of Gibraltar for medical treatment. They must be self-sufficient in this respect.
  3. Submit a Curriculum Vitae detailing their qualifications, source of wealth and income, and work experiences.
  4. Submit two reference letters to vouch for their good financial standing and repute. One of the letters must be issued by a bank, and another one can be issued by an accountant or a lawyer, and they must confirm the individual's good character and financial status.
  5. Submit a confirmation that their net worth is of at least GBP 2,000,000. The confirmation can be in a form of a letter as well and does not need to be a bank statement.
  6. Submit a copy of their passport together with the application form.
  7. Confirm that they will not undertake any Gibraltar business activities that compete with local entities.
  8. Pay a non-refundable application fee of GBP 1,000, payable on submitting an application.

Gibraltar Citizenship

The Gibraltar Government introduced the CAT2 rules to make Gibraltar a fiscally attractive location for wealthy individuals. Coupled with the fact that there is no inheritance tax, capital gains tax, wealth tax or VAT/sales tax in Gibraltar makes it a worthwhile option to consider for anyone looking to change their tax residency. However, whilst the CAT2 permit does not automatically grant Gibraltar citizenship, after being a resident in Gibraltar for 5 years, the individual is entitled to apply for the British citizenship.

Golden Sand Bank ("Bank") exercised due diligence to ensure that the information contained in this publication was not incorrect or untrue as at the date of publication.

This material has been prepared for informational purposes only, the Bank does not provide any formal tax advisory.