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Gibraltar is a rocky promontory located at the southern tip of the Iberian Peninsula, territorially a British Overseas Territory under British sovereignty since 1713. Sovereignty was ceded to the United Kingdom by Spain in the Treaty of Utrecht of 1713, although Spain argues that the Treaty transferred only the city, the castle, the port, and the fortifications, not the surrounding isthmus. Since then, Gibraltar has remained under British administration, maintaining border tensions with Spain. During the Franco period (1969-1985), the border fence was completely closed, isolating the Rock; it was not reopened until 1985, just one year before Spain’s accession to the EEC.

At present, Gibraltar enjoys internal self-government (a unicameral parliament and a local government) under British sovereignty. It shares a 1.6 km land border with Spain across the isthmus of La Línea (Cádiz), while the Strait of Gibraltar separates Europe from Africa (Morocco lies 14 km to the south). The population stands at around 32-34 thousand inhabitants; the 2016 census reported 34,003 residents. English is the official language, but Spanish is widely spoken, and there is a local dialect, Llanito, which blends English and Spanish (with Genoese, Hebrew, Maltese, and Portuguese influences).

Gibraltar exercises its internal institutions (elected ministers, local legislature), while the United Kingdom government is responsible for defense, foreign affairs, and currency (the Gibraltar pound, at parity with the pound sterling). In historic referendums, Gibraltarians have overwhelmingly chosen to remain British: in 1967 and 2002 they rejected shared sovereignty with Spain, and in the 2016 EU referendum they voted by 96% to remain in the European Union. This reflects Gibraltar’s political identity as a community distinct from Spain. Today Gibraltar is configured as a small British colony in Europe, with growing economic ties to the surrounding region (employing thousands of Spanish cross-border workers) but with a political status that has remained unchanged since Utrecht.

Diplomatic negotiations and the current status quo

Diplomatic relations surrounding Gibraltar remain delicate. Internationally, the community recognizes Gibraltar as being under British administration, although Spain insists on the existence of a territorial dispute. The United Nations considers the Gibraltar question to be unresolved: in 2023, the General Assembly adopted Resolution 78/513 urging Spain and the United Kingdom to negotiate by “listening to the legitimate interests” of the Gibraltarian population and seeking a definitive solution “in the spirit” of the 1984 Brussels Declaration. Spain maintains its official position of treating Gibraltar as one of the last colonies pending decolonization, calling for the opening of negotiations with the EU, while the United Kingdom rejects any change to the borders without a referendum of the Gibraltarians.

The Brexit crisis repositioned the conflict on the European diplomatic agenda. Gibraltar left the EU in January 2020 together with the United Kingdom (even though the Rock had voted overwhelmingly to remain). At Spain’s request, the EU Withdrawal Agreement stipulated that Gibraltar would be excluded from the general Trade and Cooperation Agreement (TCA) negotiated with the United Kingdom. The British government later described the negotiation on Gibraltar as “the last piece of the Brexit puzzle”. In practice, it was decided to negotiate a separate, specific EU-UK treaty for Gibraltar, with Spain participating in the discussions. On a provisional basis, Spain allowed border crossings without passport stamps (modus vivendi) in order to avoid a strict border closure that would have threatened the local economy (around 15,000 Spaniards cross daily into Gibraltar).

In 2024-2025, the parties intensified talks. In June 2025, the EU, Spain, the United Kingdom, and Gibraltar announced a political agreement on the “general outlines” of the future treaty. According to EU sources, the objective is to “guarantee the future prosperity of the entire region” by eliminating all physical barriers between Spain and Gibraltar, while simultaneously preserving Schengen, the EU single market, and the customs union. The negotiated plan included removing controls at the La Línea border and relocating passport checks to Gibraltar’s airport and port. It was agreed to establish an EU-Gibraltar customs union with no tariffs on goods, alongside close coordination between customs administrations. In addition, commitments were established to ensure a “level playing field” in state aid, taxation, and other areas, and rules were set for indirect taxation (for example, tobacco duties) to prevent distortions between Gibraltar and Spain.

Authorities stress that this agreement protects British sovereignty over Gibraltar and its military autonomy, while at the same time securing the Rock’s economic future. The United Kingdom government emphasized that the new formula does not transfer any sovereignty, but merely facilitates trade and movement in the region. In this way, a practical solution is ensured for immediate economic problems (avoiding a “hard border” that would have cost tens of millions of euros per year) without abandoning the fundamental positions of each party. In parallel, in October 2025 Spain and the United Kingdom initiated a high-level bilateral strategic framework that opens political channels (such as annual foreign ministers’ dialogues) to resolve outstanding issues in full “coherence” with Spain’s membership in the EU. Taken together, negotiations to date have stabilized the current situation: Gibraltar remains under British political control, but with a new framework of functional cooperation with Spain and the EU on border, customs, and security matters.

Economic features of the enclave and areas for improvement

Gibraltar’s economy reflects the particularities of its enclave: a small territory, a limited population, and an attractive tax system. It is defined as a low-tax jurisdiction with a well-developed financial infrastructure. The economic pillars are services: the financial center (banking, funds, insurance, professional services, etc.), tourism, maritime services (especially ship bunkering), and e-gaming. It is estimated that more than 10 million people visit Gibraltar each year for business and leisure. The financial sector accounts for a large share of GDP (around 30% according to earlier data), tourism for another 30%, port services for about 25%, and the remaining 15% comes from technology and online gaming. There is no significant agriculture or industry: 100% of the economy is service-based.

This model results in Gibraltar having a very high GDP per capita. In 2024, GDP reached approximately £3.1 billion, implying nearly £96,900 per inhabitant. This figure is among the highest in the world, far exceeding that of Spain or the European average. Unemployment is almost negligible: in 2024 there was an annual average of only about 20 unemployed people. Fiscal revenue comes from indirect taxes, fees, and very low contributions: the tax-to-GDP ratio is only 12.5%, and no increases in personal or corporate taxes were planned for 2025. In short, Gibraltar is one of the wealthiest economies per capita in the world, with solid fiscal sustainability thanks to growth and budgetary discipline.

However, this configuration presents specific challenges. Nearly half of the workforce resides in Spain and crosses the border daily to work in Gibraltar. The economy is highly dependent on this cross-border flow: for example, the government warned that without a EU-UK agreement a “hard border” would have been imposed, which could have been “devastating” for Gibraltar. Exports of goods are secondary; almost everything consumed is imported. The territory also cannot rely on natural resources or land; therefore, it invests part of its income in public projects. In recent years, the government set the goal of returning to fiscal surpluses after the pandemic. In 2023/24 it recorded a surplus of £1.9 million and projected around £9.78 million for 2024/25. Net public debt is estimated at only £660 million, well below the European average.

Gibraltar’s tax system retains attractive exemptions. In 2025 there were no changes to personal or corporate tax rates. However, to harmonize with the future agreement with the EU, a Transaction Tax on goods was gradually introduced, with rates ranging from 15% to 17% over three years and a reduced rate for basic goods or cultural products. Exemptions and annual reviews were provided for to avoid distortions. Commitments on indirect taxation were also agreed within the future customs union. To mitigate impacts, the Gibraltar Government created a Business Transition Advisory Group and is preparing selective tax incentives for companies affected by the treaty. These measures aim to preserve Gibraltar’s fiscal competitiveness while adapting to new international rules.

The volume of trade in Gibraltar is low but growing. Economic growth of close to 6.5% is estimated for 2025, driven by banking, e-gaming, and construction, while tourism is gradually recovering. To support this growth, the 2025 budget included investments in public housing, renewable energy, and culture, strengthening social services in the context of high living standards. Tariff subsidies and favourable conditions for key sectors are also maintained.

At the cross-border level, improvements are anticipated: the 2025 agreement removes the physical fence and promises a de facto open border. Spain has proposed formally incorporating Gibraltar into the Schengen area under its control in the future, creating an area of “shared prosperity” with the Campo de Gibraltar region. This could further facilitate trade and labour mobility. However, any latent tension continues to require political solutions: Gibraltar now has institutional mechanisms that provide stability, but it should continue to diversify its economy and deepen regional cooperation. Overall, Gibraltar’s economic particularities are managed through prudent internal policies and external agreements that minimize risks for the enclave.

Remarks and conclusions

In conclusion, Gibraltar constitutes a unique enclave in Europe, marked by a stable yet disputed political status and by an economic model highly specialized in services. Despite the persistence of the sovereignty dispute between Spain and the United Kingdom, the continuity of British administration has been reinforced by internal self-government and by the repeatedly expressed will of the Gibraltarian population.

Brexit intensified the risks associated with the border and the local economy, but the negotiations conducted between 2024 and 2025 resulted in a pragmatic solution aimed at preserving border fluidity and economic cooperation without altering the fundamental positions of the parties. This approach has made it possible to stabilize the political situation of the Rock and to ensure its functional integration with Spain and the European Union.

From an economic perspective, Gibraltar displays high per capita income, solid public finances, and a labour market that is virtually at full employment. Nevertheless, its prosperity depends largely on cross-border workforce and a predictable political environment. Consequently, the future of the enclave will be conditioned more by the continuity of regional cooperation and the capacity to diversify its economy than by an immediate resolution of the sovereignty dispute.

Photo source: PxHere.com.

References:

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https://dialnet.unirioja.es/descarga/articulo/10391175.pdf

Central Intelligence Agency (2022) Gibraltar, in The World Factbook (2022 Archive). Available at:
https://www.cia.gov/the-world-factbook/about/archives/2022/countries/gibraltar

Chislett, W. (2025) ‘Spain and the UK deepen bilateral ties within a strategic framework’, Elcano Royal Institute, 7 October. Available at:
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Fella, S. (2025) ‘UK–EU agreement on Gibraltar: What has been agreed?’, House of Commons Library, 19 June. Available at:
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Gibraltar Finance Centre (n.d.) The Economy. Available at:
https://www.gibraltarfinance.gi/about-gibraltar/the-economy

Gibro (2025) Gibraltar Budget 2025: Key Takeouts. Available at:
https://www.gibro.com/news/gibraltar-budget-2025-key-takeouts-154

Government of Gibraltar (n.d.) Gibraltar Fact Sheets. Available at:
https://www.gibraltar.gov.gi/press/gibraltar-fact-sheets

Government of Gibraltar (2025) The Budget 2025 – The Chief Minister’s Address (Press Release No. 479/2025), 11 December. Available at:
https://www.gibraltar.gov.gi/press-releases/the-budget-2025-the-chief-ministers-address-4792025-11012

Swissinfo.ch (2025) ‘La UE, España y Reino Unido pactan líneas generales del futuro tratado sobre Gibraltar’. Available at:
https://www.swissinfo.ch/spa/la-ue,-espa%C3%B1a-y-reino-unido-pactan-l%C3%ADneas-generales-del-futuro-tratado-sobre-gibraltar/90656706