Gibraltar agrees 15% sales tax in post Brexit deal with Spain

Gibraltar has agreed to impose a 15% sales tax on goods as part of a significant post-Brexit agreement with Spain, ensuring alignment with EU taxation standards. The move, described by officials as historic, aims to integrate the British overseas territory into the border-free Schengen zone and facilitate its connection with the EU’s customs union.

The agreement stipulates that Gibraltar will establish the minimum tax within three years of the deal’s ratification. EU officials emphasised that this measure was critical to address concerns of unfair competition with Spain. The decision is seen as a challenging step for Gibraltar, which had previously resisted such tax reforms due to fears of economic hardship.

Gibraltar’s entry into the Schengen zone marks the dismantling of the physical border separating the territory from the rest of the Iberian Peninsula. Movement between Gibraltar and Spain will now be seamless, with British and Spanish border officials conducting passport checks at ports and the airport. However, under Schengen regulations, British nationals will remain limited to a 90-day stay within any 180-day period.

The agreement also introduces stricter customs controls at the border, where Spanish officers will inspect goods entering Gibraltar. Concerns about cross-border smuggling, including the illicit trade of cigarettes, have been a longstanding issue. EU anti-fraud agencies have welcomed the provisions aimed at tackling organised crime in the region.

Spain’s foreign minister, José Manuel Albares, praised Gibraltar’s efforts to align its taxation policies with EU standards and highlighted the significance of a harmonised tax system to create fair competition. This tax convergence is viewed as pivotal to fostering equitable economic conditions between Gibraltar and Spain.

The deal between Gibraltar, the UK, and the EU comes amid broader efforts to resolve Brexit-related uncertainties. It paves the way for expanded cooperation in areas such as defence and trade, and ensures smoother EU-UK relations. The inclusion of Gibraltar in the customs union is expected to follow with a separate agreement in the near future.