Navigating the complexities of employment taxation is crucial for businesses operating in any jurisdiction, and Gibraltar presents its own specific framework for both employers and employees. Understanding these obligations is essential for compliance and smooth payroll operations, whether you are establishing a new presence or managing an existing workforce on the Rock.
The Gibraltar tax system is administered by the Income Tax Office and includes income tax for individuals and companies, as well as social insurance contributions. Employers play a key role in this system through the deduction of income tax from employee salaries under the Pay As You Earn (PAYE) system and the payment of mandatory social insurance contributions.
Employer Social Security and Payroll Tax Obligations
Employers in Gibraltar are required to pay Social Insurance contributions for their employees. These contributions fund various social benefits. The rates are typically tiered based on the employee's earnings. For the 2025 tax year, contributions are calculated based on weekly earnings.
Employer Social Insurance Contribution Rates (2025)
| Weekly Earnings Band | Employer Contribution (per week) |
|---|---|
| Up to £50.00 | £0.00 |
| £50.01 to £100.00 | £10.00 |
| £100.01 to £160.00 | £16.00 |
| £160.01 to £220.00 | £22.00 |
| £220.01 to £280.00 | £28.00 |
| £280.01 to £340.00 | £34.00 |
| £340.01 to £400.00 | £40.00 |
| £400.01 to £460.00 | £46.00 |
| £460.01 to £520.00 | £52.00 |
| £520.01 and over | £58.00 |
In addition to the standard rates, there is a minimum weekly contribution for employers, regardless of the employee's earnings band above the lowest threshold. There are no separate payroll taxes in Gibraltar beyond the Social Insurance contributions and the obligation to operate PAYE.
Income Tax Withholding Requirements
Employers are responsible for deducting income tax from their employees' salaries and wages under the Pay As You Earn (PAYE) system. The amount of tax to be deducted depends on the employee's total remuneration, their tax code, and the tax system they have opted for (Allowance Based System or Gross Income Based System).
Employers must calculate the tax due on each payment of salary or wages and remit the collected tax to the Income Tax Office monthly. The calculation involves applying the relevant tax rates to the employee's taxable income after accounting for their allowances and deductions, as indicated by their tax code.
Employee Tax Deductions and Allowances
Employees in Gibraltar can choose between two systems for calculating their income tax liability: the Allowance Based System (ABS) and the Gross Income Based System (GIBS). The choice affects the available deductions and allowances.
Under the Allowance Based System (ABS), employees can claim a range of personal allowances and specific deductions to reduce their taxable income. Common allowances include:
- Personal Allowance
- Spouse/Civil Partner Allowance
- Child Allowance
- Dependent Relative Allowance
- Single Parent Allowance
- Medical Insurance Premiums
- Pension Contributions
The specific amounts for these allowances are set annually. Tax is then calculated on the net taxable income using progressive tax rates.
Under the Gross Income Based System (GIBS), employees pay tax on their gross income at lower, simplified rates. Fewer deductions and allowances are available under this system, typically limited to specific items like mortgage interest or pension contributions up to certain limits.
Illustrative Income Tax Rates (2025 - Subject to confirmation)
Tax rates vary significantly between the ABS and GIBS.
Allowance Based System (ABS) Rates:
| Taxable Income Band | Rate |
|---|---|
| First £4,000 | 6% |
| Next £12,000 | 20% |
| Balance | 40% |
Gross Income Based System (GIBS) Rates:
| Gross Income Band | Rate |
|---|---|
| First £10,000 | 8% |
| Next £15,000 | 20% |
| Balance | 28% |
Employees typically choose the system that results in a lower tax liability based on their personal circumstances, income level, and eligibility for allowances/deductions.
Tax Compliance and Reporting Deadlines
Employers have specific deadlines for reporting and paying taxes and social insurance.
- PAYE and Social Insurance: Monthly returns and payments for both PAYE deductions and employer/employee Social Insurance contributions are due by the end of the month following the month in which the salaries were paid. For example, payments for January salaries are due by the end of February.
- Annual PAYE Reconciliation: Employers must submit an annual return reconciling the total PAYE deducted and salaries paid for each employee during the tax year (which runs from 1 July to 30 June). This return is typically due by 31 July following the end of the tax year.
- Employee Tax Returns: While not an employer obligation, employees are required to file their personal income tax returns annually, usually by 30 November following the end of the tax year. Employers may need to provide employees with summaries of their earnings and tax deductions (P7 forms) to assist with this.
Failure to meet these deadlines can result in penalties and interest charges.
Special Tax Considerations for Foreign Workers and Companies
Foreign workers employed in Gibraltar are subject to the same income tax and social insurance rules as resident workers, provided they are considered ordinarily resident for tax purposes. Ordinary residence is generally established if an individual is present in Gibraltar for more than 183 days in a tax year or more than 300 days over three consecutive tax years. Non-resident individuals working in Gibraltar may be taxed on their Gibraltar-sourced income.
For foreign companies employing staff in Gibraltar, establishing a local presence or using an Employer of Record (EOR) service is often necessary to handle local payroll, PAYE, and Social Insurance obligations compliantly. A foreign company without a registered branch or subsidiary in Gibraltar cannot typically operate a local payroll directly. Using an EOR transfers the employment and payroll obligations to a registered local entity, simplifying compliance significantly for the foreign company. There are no specific regional tax variations within Gibraltar, as it is a single jurisdiction.
