Category 2 tax residents have their tax capped at a maximum of just over £20,000 per annum. This capped amount is calculated based on a total income of £60,000, but the capped amount varies from year to year due to changes in the tax band. Therefore, the maximum tax payable for the current 2008/2009 tax year is calculated as follows:

£4,000 x 17% =	£680
£12,000 x 30% =	£3,600
£44,000 x 40% =	£17,600
Total tax payable	£21,880

Therefore the total tax payable for a Category 2 resident for 2008/2009 is £21,880.

If as a Category 2 resident there is no Gibraltar source income then you would pay the minimum £18,000.

In addition, there is no capital gains tax, inheritance tax, wealth tax or sales tax in Gibraltar. This makes it a very attractive low tax location for individuals.

The key conditions for a Category 2 include the following:

• The Category 2 applicant must be of good character and of substantial and sound financial standing and have a minimum net worth of £2 million.

• Two references are required for the application, one from a lawyer or accountant the other from a bank.

• The Category 2 applicant must either own or rent approved residential accommodation in Gibraltar. The accommodation must be approved by the Finance Centre and be used exclusively by the Category 2 individual and his direct family. (His direct family includes his spouse, children, brother, sister, parents and the spouses parents). Therefore, a Category 2 individual cannot rent his property and is limited to occasionally allowing others to stay in his property; otherwise he will not be deemed to have “exclusive use” and would lose his status.

• There is an application fee of £1,000 (non-refundable) payable to the Finance Centre when submitting the application.

• The Category 2 individual cannot have been resident in Gibraltar during the five years immediately proceeding the year of assessment. Previous residency rules include 183 days in any of the previous 5 years or an average of 90 days in any three or more years.
  

• The Category 2 individual is not allowed to engage in a trade, business or employment in Gibraltar. Exceptions to this rule include where duties are incidental to a business outside of Gibraltar or the Category 2 resident is a director of a Gibraltar Exempt Company or a director of a Company which does not transact any trade or business in Gibraltar.
  

• The Category 2 residency certificate is issued on an indefinite basis, but the Category 2 residency certificate needs to be sent to the Gibraltar Finance Centre for endorsement every three years. This endorsement confirms compliance to the Category 2 rules.
  

• There is no minimum stay in Gibraltar requirement for a Category 2 resident.

If you wish to apply for category 2 status then your next step will be to contact a local Category 2 adviser in Gibraltar to commence the application process.