GFSB members are being invited to review a detailed submission sent to HM Government of Gibraltar on 23 February 2026 outlining lawful ways to ease the impact of VAT-style taxation on SMEs under EU State aid rules.

Why this paper exists

The document analyses how governments within the EU lawfully reduce VAT burdens on small and medium-sized enterprises while remaining compliant with EU State aid rules.

Although Gibraltar is not part of the EU VAT regime, the paper assumes Gibraltar will be subject to EU State aid disciplines and argues that any Transaction Tax relief must be structured accordingly.

The big idea

The submission identifies multiple mechanisms already used across the EU that could, in principle, be adapted locally. These fall into six broad categories:

1. De minimis aid (now up to €300,000 over three fiscal years).
2. SME VAT exemption schemes (turnover thresholds up to €85,000).
3. Cultural and heritage aid under the General Block Exemption Regulation.
4. Deferred VAT payment schemes.
5. Postponed import VAT accounting and other administrative measures.
6. Wider SME State aid instruments, including regional, investment and training aid.

Each mechanism is analysed against EU Treaty articles, regulations and eligibility thresholds.

Key mechanisms in plain terms

De minimis aid
Since January 2024, EU rules permit up to €300,000 in aid over a rolling three-year period without formal notification to the European Commission. This can include grants, soft loans, guarantees or tax advantages, provided the benefit is transparent and tracked centrally from 1 January 2026 onwards.

SME VAT exemption
Under the VAT Directive, Member States may exempt small businesses below national turnover thresholds, now harmonised up to €85,000. This reduces compliance burdens but removes the right to deduct input VAT.

Postponed import VAT
The paper highlights postponed import VAT accounting, where VAT is declared on the return rather than paid at the border. This is described as cash-flow neutral and not State aid because it alters timing, not liability.

Cultural and heritage aid
High thresholds under the General Block Exemption Regulation allow significant investment or operating aid for cultural purposes without notification, subject to conditions.

Deferred VAT
VAT payment deferral is legally possible but must be structured either within de minimis limits or as notified State aid. COVID-era schemes are cited as precedent.

A broader funding proposal

The submission also suggests that Government consider direct SME support through a reconstituted Business Improvement District, fully Government-funded, using the same legal frameworks that permit EU-level SME support.

Why this matters now

With Transaction Tax arrangements approaching implementation, the document aims to demonstrate that relief mechanisms can be structured in ways already recognised in EU law, reducing the risk of legal challenge.

We are strongly urging our members to read the full submission and share feedback. Clear, practical and legally robust solutions will depend on detailed sector input before any policy decisions are finalised.

The full document is being circulated for review.