Gibraltar agrees 15% sales tax on goods in post-Brexit settlement with Spain
Gibraltar will apply a 15% sales tax on goods to avoid unfair competition with Spain, as a result of the agreement on the post-Brexit future of the British overseas territory, it has emerged.
The territory has agreed to ensure a 15% minimum 'transaction tax' on goods within three years of the ratification of the agreement, according to a senior European official.
'For Gibraltar, it was a big ask, they have always claimed … that this taxation will create for them a serious economic problem,' the official said. The European Commission insisted that the British territory had to align its taxation policies with the EU in order to join a customs union, an integral part of the deal struck on Wednesday.
'The agreement that we have reached is that they will, in a period of three years, reach a level [on a transaction tax] that is acceptable for us,' the person said.
The agreement, hailed as 'historic', will erase the border separating the British overseas territory from the rest of the Iberian peninsula. Gibraltar will be connected to the EU's border-free Schengen zone, meaning Gibraltarians can move freely in the surrounding region, although without rights to work and settle elsewhere in the EU.
Passport checks will be carried out at the port and airport by British and Spanish border guards. Spanish officers will be empowered to deny entry to the British overseas territory to any British national who has already exceeded their 90-day stay limit. Under Schengen rules, UK citizens are limited to stays of 90 days within a 180-day period.
Spanish customs officials will also check goods entering Gibraltar via the land border, the main entry point for nearly all items. The British overseas territory will eventually enter into a customs union with the EU, which requires a further agreement.
Spain's foreign minister, José Manuel Albares, has welcomed 'the tax convergence process that will ensure that everybody is treated fairly'. He said: 'Now Gibraltar is linked to the customs union. There will be fair competition for everybody.
Madrid has long been concerned that cigarettes from Gibraltar were being illegally sold in Spain, while European anti-fraud investigators have warned about cross-border smuggling by organised crime.
The government of Gibraltar, which is responsible for setting taxation on the British overseas territory, has been contacted for comment.
The Gibraltar agreement came weeks after the UK and EU agreed on a wider reset. EU sources said completing the unfinished business of Brexit for Gibraltar was necessary to move forward in other areas, such as defence and a veterinary agreement.
Spain has been blocking British participation in defence projects and could have proved an obstacle to future deals if the status of Gibraltar had not been agreed. 'Everyone wanted to find compromises, solutions, etc, and it was the right moment to do that,' the official said.
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