Gibraltar

For the purpose of ascertaining assessable income, all expenses wholly and exclusively incurred in the production of income shall be deducted.

Capital allowances

The first GBP 30,000 of qualifying expenditure on plant and machinery (including fixtures and fittings) and the first GBP 50,000 of qualifying expenditure on computer equipment is fully deductible in the first year as a 'first year allowance'.

Thereafter, qualifying assets are pooled and are subject to an annual capital, or wear and tear, allowance. Allowances are available for plant and machinery (including fixtures and fittings), computer equipment, and motor vehicles at the rate of 15% (20% for companies that are obligated to pay the higher CIT rate, see the Taxes on corporate income section) and are calculated on a reducing-balance basis.

For accounting periods (or years of assessment as the case may be) ending in the period 1 July 2021 to 30 June 2023, the capital allowances deduction will be based on the higher of:

• the first GBP 60,000 of qualifying expenditure in relation to plant and machinery and the first GBP 100,000 of qualifying expenditure on computer equipment, and
• 50% of the qualifying expenditure incurred,

with the balance deductible at the rate of 25% per annum (30% for companies that are obligated to pay the higher CIT rate) on a reducing balance basis.

Capital allowances for industrial buildings are deductible at the rate of 4% per annum on a straight-line basis.

For accounting periods (or years of assessment as the case may be) ending in the period 1 July 2021 to 30 June 2023, a 1% general wear and tear allowance is available based on the cost of acquiring real property from where a business is conducted (excluding industrial buildings).

Goodwill

Amortisation of goodwill is not a deductible expense.

Start-up expenses

Expenditure incurred with a view to carrying on a trade is treated as incurred on the first day on which the trade is carried on for the purposes of computing the profits or gains of the trade.

Interest expenses

Full deduction is available in respect of interest expenses, subject to anti-avoidance rules (see the Group taxation section for more information).

Bad debt

Only specific bad debts or specific bad debt provisions are deductible to the extent that they are respectively estimated to be bad during the said period, notwithstanding that such bad debts were payable prior to the commencement of the period. General doubtful debt provisions are not an allowable expense.

Charitable contributions

A charitable donation is not considered as having been wholly and exclusively expended for the purposes of the production of the income of the trade and is therefore not allowable as a deduction for tax purposes.

Fines and penalties

Fines and penalties, including those resulting from late payment of taxation or from failure to make the necessary tax submissions, are deemed to be a tax and are therefore not a deductible expense.

Taxes

No deduction is allowed for any tax charges under the Income Tax Act.

Other significant items

Additionally, no deduction is allowed in respect of the following:

• Domestic or private expenses.
• Expenses not incurred wholly and exclusively in the generation of income.
• Any expenses of a capital nature.
• Any sum recoverable under an insurance contract or contract of indemnity.
• Property expenses not incurred for the purposes of producing income.
• Depreciation of assets (although capital allowances are available, see above).
• Employee remuneration not accompanied by a certified statement of name, address, and amount of remuneration (in respect of Gibraltar employment only).
• Certain business entertainment expenditure falling within guidelines published by the Commissioner.
• Interest paid to a non-Gibraltar resident that is more than a reasonable commercial rate.

In the case of a company that has income, some of which is chargeable to tax and some of which is not, the deductions allowed shall be apportioned on a pro-rata basis between the chargeable and non-chargeable income.

Net operating losses

A trading loss incurred in an accounting period may be offset against trading income, if any, arising in the same period or subsequent periods.

If, however, within any period of three years there is both a change in ownership and a major change in the nature and conduct of a trade, trading losses may not be offset against trading income arising in the same or subsequent periods.

Any losses not connected with or arising from the trade, business, profession, or vocation are not allowable deductions.

There is no provision for the carrying back of losses.

Restriction on the use of accumulated losses

The measure limits the use of losses to offset no more than 50 percent of profits or gains for the period. These regulations will not affect losses incurred during accounting periods or assessment years ending between 1 July 2021, and 30 June 2023.

This measure applies to the following "Designated Persons" for accounting periods ending on or after July 31, 2024:

• any individual (includes a company) engaged in a regulated activity as defined by section 5 of the Financial Services Act 2019; 
• any individual involved in an activity that requires licensing under section 3(1) of the Gambling Act; 
• any person connected to those mentioned in (A) or (B).

A company is connected with another company where:

• the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other; or
• a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected. 

The measure does not apply to companies undergoing insolvency proceedings as defined in Section 3 of the Insolvency Act 2011, even if they qualify as Designated Persons.

A Designated Person must first apply losses from accounting periods or assessment years ending between 1 July 2021, and 30 June 2023, before applying losses from other periods.

Transfer of allowable trade losses 

The measure provides for a scenario where a trade or business is transferred to a separate legal entity and is part of a group restructure. Under the amendment any corresponding unrelieved tax losses arising previously in relation to that trade or business may be available to be set off against future profits of that separate legal entity. 

The transferred unrelieved tax losses shall only be available to set off against future profits if that trade or business would have been taxable under the provisions of this Act had it given rise to taxable profits. 

There is no set off if within any period of three years from the date of transfer, there is a– 

• change in the ultimate ownership of the company; and 
• major change in the nature or conduct of that trade or business. 

The unrelieved tax losses available for set off shall be restricted proportionally, on the basis of income attributable to each share of the trade, to that part of the trade or business transferred. 

A “change in ownership” means a change in effective control, whether by virtue of a change in direct or indirect ownership of voting shares together with a change in beneficial ownership and a “group restructure” includes a re-organisation, take-over, merger or sale of a trade or business”.

Anti-abuse provisions restrict the transfer of losses to instances of legitimate group restructuring. The transfer of accumulated losses from one type of business to another is specifically prohibited.

Payments to foreign affiliates

In the case of branches, the amount of general head office expenses incurred that is deductible is limited to 5% of its turnover.

The Income Tax Act includes anti-avoidance provisions. These provisions state that if the amount charged for goods or services by a connected person is not at arm's length, then the expenses that are allowed are subject to the lower of:

• the expense
• 5% of the gross turnover of the company, or
• 75% of the pre-expense net profit of the company.