Extension of interest income for DLTs

The Income Tax (Amendment) Act 2024 (“the Amending Act”) was passed last week and establishes amendments to the Income Tax Act 2010 (“the Old Act”), in particular, the extension of paragraph 15, Schedule 3 to insurance companies and Distributed Ledger Technology (DLT) firms. The Amending Act applies with effect for the accounting periods commencing on or after 1 February 2024.

The main changes brought about are as follows:

1. The extension of paragraph 15, Schedule 3 to insurers and DLT firms;
2. Interest income and similar amounts of relevant entities shall be taxable; and
3. Introduction of anti-avoidance provisions to capture disposals to connected persons.

Under paragraph 15, Schedule 3 of the Old Act, only interest income of money lenders and deposit taking institutions was treated as trading income and therefore subject to taxation in Gibraltar. This scope is now extended to insurers and DLT firms. The amendment was designed to clarify the tax treatment of Gibraltar insurance and DLT firms and provides that any profits accrued as interest or similar amounts would be chargeable to corporation tax in Gibraltar.

Relevant entities

The scope of paragraph 15, Schedule 3 now applies to the interest income and similar amounts of any entity which, amongst others, has permission under Part 7 of the Financial Services Act 2019 to carry on the regulated activity of using distributed ledger technology (DLT) for the storage or transmission of value.

Trading Income of Relevant Entities

The profits of the relevant entities derived from interest bearing-like products, also referred to as “similar amounts”, shall now be included as trading income and taxable in Gibraltar. For the purposes of clarification, similar amounts include, amongst other things, lending, advancing or otherwise generating income from virtual assets by means of an arrangement under which, in return for value (calculated in relation to a percentage of the value or number of those virtual assets or otherwise benchmarked to their characteristics) – (1) another person or entity is permitted to use the virtual assets; or (2) the virtual assets are used to validate transactions on a proof of stake blockchain or any similar consensus mechanism. 

Anti-avoidance provisions

The Amending Act has also introduced anti-avoidance provisions to capture disposals to connected persons of the relevant entities, to ensure that in-scope taxpayers do not circumvent their tax obligations. However, such anti-avoidance provisions shall not apply to entities who provide evidence to the satisfaction of the Commissioner that the avoidance of tax was not the main purpose of the disposal.

We hope this has been useful. For any further queries, or if you wish to discuss these changes further, please contact us at stuart.dalmedo@isolas.gi 

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