Gibraltar to implement 15% sales tax in exchange for open border with Spain

Following a new agreement between the UK and Spain, Gibraltar has committed to introducing a 15% Transaction Tax on goods by 2028. This measure is a key component of the broader settlement aimed at maintaining open borders with Spain and avoiding the imposition of a hard border following the UK’s departure from the EU.

The new 15% levy, effectively functioning as a sales tax, marks the end of Gibraltar’s long-standing VAT-free regime. This shift addresses longstanding concerns from Madrid, which has argued that Gibraltar’s lower tax environment distorted competition and contributed to illicit trade, particularly in products such as tobacco.

Instead of adopting traditional VAT, Gibraltar will apply a “Transaction Tax”—a form of import duty applied at a higher rate—designed to ensure parity with EU tax standards and satisfy Spain’s demand for a level playing field.

Timetable

The Transaction Tax is to be implemented within three years of the agreement’s ratification, (anticipated to be 2028). The change represents a significant policy shift for Gibraltar, aligning it more closely with EU fiscal norms in exchange for critical border and trade concessions.