Gibraltar VAT regime ends in landmark UK–Spain–EU Brexit deal

In a significant resolution to one of the few remaining Brexit-era trade issues, the UK, Spain, Gibraltar, and the EU have struck a deal that will see Gibraltar end its VAT-free regime. In exchange, Gibraltar will introduce a “transaction tax” on imports, targeting concerns from Spain regarding economic imbalance and smuggling.

As part of the agreement, Spanish officials will gain Schengen-aligned passport-control duties at Gibraltar airport and port, while the land border with Spain remains open, effectively bringing Gibraltar into the EU’s Schengen zone. The deal preserves Gibraltar’s legal status under British sovereignty, maintains UK military control, and ensures Gibraltar continues setting its own laws and immigration rules.

For UK–EU trade flows, this pact eliminates potential customs or VAT checkpoints between Gibraltar and Spain, stabilising logistics for cross-border businesses. It benefits nearly 15,000 daily commuters and reassures industries in Gibraltar and neighbouring Spain by removing uncertainty over trade and travel.

Importers/exporters dealing with goods moving through Gibraltar should monitor the implementation timeline for the new transaction tax and any changes to VAT documentation. Customs agents will need updates for paperwork submission from Gibraltar to EU entry points, particularly in Spain.

This breakthrough, hailed as the last major unresolved post-Brexit issue, offers renewed clarity and economic stability in the region, transforming a long-standing European-UK tension into operational certainty for trade.