Global Daily Tax News, Gibraltar Set To Enter Into EU Customs Union, Introduce Sales Tax, (Feb 17, 2026)

The Gibraltar Government has set out the terms of a new customs arrangement with the European Union that is expected to be implemented from April 10, and has confirmed the introduction of its new transaction tax regime – being introduced in li ...

On trade with Europe, the Government has said, rather than joining the EU Customs Territory, Gibraltar will enter into a customs union with the EU. Under the customs union, the equivalent of standard EU rules on the free movement of goods will apply – notably:

The customs union applies to all goods produced in the EU and in Gibraltar; and
No customs duties or quotas will apply to the trade in such goods between Gibraltar and the EU.

The Government has said the basic rule is that goods will be imported and exported by land. However:

EU goods may be imported by sea if they are first cleared in the Customs Office in Algeciras.
All goods may be exported by sea if they are going to a non-EU country.

With some exemptions, customs clearance for all goods imported into or exported from Gibraltar will be carried out in Designated Customs Offices (DCP) situated within the EU. These are Algeciras, La Linea, Sagunto, and an office in Portugal, the location of which has yet to be confirmed.

For EU goods moving between the EU and Gibraltar, the following rules will apply:

Goods from the EU will move from their point of departure within the EU to the DCP under standard transit rules using the T2 form. All customs clearance formalities will be carried out at that DCP, except EU VAT formalities, since EU goods moving from the EU to Gibraltar in commercial quantities will not be charged VAT in the EU.

Once cleared, the T2 transit will be closed at the DCP and a new transit procedure will be opened for the movement of the goods from that DCP to Gibraltar using the New Computerised Transit System (NCTS) applying a new code T2GI.

HM Customs (HMC) in Gibraltar will be responsible for closing the T2GI transit upon the arrival of the goods in Gibraltar. HMC will also be responsible for levying the transaction tax and excise duties, where applicable, where the goods are to be placed for sale in the Gibraltar market.

The transaction tax and excise duties, where applicable, will not be levied when the goods are to be placed in a special customs procedure (SCPS) in Gibraltar. These SCPs are customs warehouse (bonds), inward processing, or temporary admission.

Goods from the Gibraltar bound for the EU will be subject to the following rules:

HMC will open the new T2GI procedure using the NCTS to cover the transit of the goods from Gibraltar to one of the DCPs. Once the DCP has carried out all the customs formalities to allow the entry of those goods into the EU customs territory, it will close the T2GI transit and open a standard T2 transit procedure for the movement of those goods from the DCP to the point of destination within the EU.

That regime will not apply to ship supplies that may leave Gibraltar by sea or air without having to be taken to a DCP. Ship supplies include traditional supplies as well as bunkering fuel and supplies to aircraft.

For non-EU goods imports, the same transit regime as for EU goods will apply. Instead, they will be subject to the T1 and T1GI transit procedures. This means that such goods must enter by land (goods which are to be placed under an inward processing or temporary admission procedure and bunkering fuel may arrive by sea). The same special customs procedures will apply, subject to the following differences:

Both HMC and the DCP will be responsible for the authorization and supervision of the goods under the three special customs procedures. In the case of the DCP, it will apply EU customs legislation;
The DCP will levy whatever customs duties are due on the goods applying the EU Common External Tariff (uniquely, the proceeds of these customs duties will be paid back to Gibraltar);
There is no limit on the time that the goods may be kept in a customs warehouse (bond). The time limits will also be longer (at least 24 months) for goods under an inward processing or temporary admission procedure.

Where bonds contain both EU and non-EU goods, this regime will apply.

For goods exported from Gibraltar to the EU, the same transit regime as for EU goods will apply, this time using the T1 and T1GI transit procedures (by land, to DCP).

Non-EU goods may be exported from Gibraltar by sea to countries and territories outside the EU from the port in Gibraltar without a physical presentation in the DCP.

On tax, the Gibraltar Government has said the current import duties will cease to apply on the entry into effect of the treaty (currently envisaged for April 10). Instead, new rules on transaction tax (TT) and excise duties (ED) will apply. EDs will apply to tobacco, fuel, and alcohol only. The TT and ED (where applicable) will apply only where goods are to be placed for sale in the Gibraltar market. They will be charged and collected by HMC upon the importation of the goods into Gibraltar. If, however, the goods are going to bond or any other SCP, they will only be charged once the goods are released to be put on the market in Gibraltar.

Goods manufactured in Gibraltar will be charged when they leave the production site.

The taxable amount for goods imported into Gibraltar will be determined with reference to the value for customs purposes. This will include:

taxes, duties, levies, and other charges (including excise duties) due by reason of importation, excluding the transaction tax; and
incidental expenses, such as commission, packing, transport, and insurance costs.

The standard rate of TT must not be below the lowest standard VAT rate applied by a member state, which currently is 17 percent. This will start at 15 percent, increasing annually to 17 percent by the third year, the Gibraltar Government has confirmed.

A reduced rate of five percent or a zero percent rate will apply to certain goods as listed in Annex III of the EU VAT Directive – these are:

Reduced rate of transaction tax of five percent to goods falling within the following product categories:

Goods of a kind normally intended for use in agricultural production but excluding capital goods such as machinery or buildings, and, until January 1, 2032, the supply of chemical pesticides and chemical fertilizers;
Live equines;
Live plants and other floricultural products, including bulbs, cotton, roots and the like, cut flowers, and ornamental foliage;
Children's clothing and footwear, and children's car seats;
Bicycles, including electric bicycles;
Works of art, collectors' items, and antiques listed in Annex IX, Parts A, B and C of the EU VAT Directive; and
Tools and other equipment of a kind normally intended for use in rescue or first aid services when supplied to public bodies or non-profit-making organisations active in civil or community protection.

A zero rate of transaction tax will apply to:

Foodstuffs (including beverages but excluding alcoholic beverages) for human and animal consumption;
Live animals, seeds, plants, and ingredients normally intended for use in the preparation of foodstuffs;
Products normally used to supplement foodstuffs or as a substitute for foodstuffs;
The supply of water;
Pharmaceutical products used for medical and veterinary purposes, including products used for contraception and female sanitary protection, and absorbent hygiene products;
Medical equipment, appliances, devices, items, aids and protective gear, including health protection masks, normally intended for use in healthcare or for the use of persons with disabilities, as well as goods essential to compensate and overcome disability;
Supply, including on loan by libraries, of books, newspapers, and periodicals, either on physical means of support or supplied electronically, or both, including brochures, leaflets and similar printed matter, children's picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts, other than publications wholly or predominantly devoted to advertising or wholly or predominantly consisting of video content or audible music; and the production of publications of non-profit-making organizations; and
The supply of solar panels to be installed on or adjacent to private dwellings, housing and public and other buildings used for activities in the public interest.

Other exemptions that are spread out in the main body of the EU VAT Directive will also apply, such as bunkering fuel, the Government has confirmed. In addition, as a specific exemption in the treaty, LNG imported and used for the production of electricity as well as electricity produced in Gibraltar will be exempted from transaction tax and excise duty.

The transaction tax is being levied to account for the lack of a value-added tax in Gibraltar. It will act as a sales tax and will be levied only on goods.

The EU minimum excise rates will apply from the entry into force of the treaty on tobacco and alcohol. A retail price differential mechanism of EUR0.80 or 15 percent will also apply in relation to cigarettes.

No excise duties will be applied to fuel for the first three years of application of the treaty. After those first three years, all excise goods will be subject to an excise duty rate that can be no lower than six percent from the excise duty rates applied by Spain.

As from the date of entry into force of the treaty, all goods produced or placed on the market in Gibraltar will have to comply with EU standards, subject to the transitional arrangements set out by the Government in a Technical Notice released on February 3, 2026.

During the first three years, an allowances regime will apply to goods for the personal or family use of travellers, or of goods intended as presents. In the case of travel by sea or air, the allowance will be EUR430 of goods per person. In the case of land travel, the threshold will be the equivalent of EUR300 per person. Quantitative thresholds will also apply cigarettes, alcohol, and fuel.

After the first three years, the allowances system will cease to apply on travel between the EU and Gibraltar. Travellers will be able to take with them any quantity of goods, so long as they can establish, if asked, that they are for personal use.