Gibraltar: Tax Breaks In Gibraltar

Last Updated: 17 June 1998
For centuries Gibraltar has been at the crossroads of international trading, majestically dominating the entrance to the Mediterranean. Gibraltar has been a British dependent territory since 1704 and has therefore been a member of the European Union since 1973 when Britain joined. It has, however, managed to obtain certain derogations from European Law, in particular from applying Value Added Tax or the Common Customs Tariff.

Today, Gibraltar is still considered an important centre for international business, although the advantages now arise from the fiscal opportunities available rather than physical location.

Gibraltar does not apply any Capital Gains Tax or Sales Tax. The main taxes applied are Income/Corporation Tax, Withholding Tax and Estate Duty. However, opportunities exist for non-resident non-Gibraltarian individuals and entities to either be tax exempt or substantially reduce their exposure to these taxes.

TAX BREAKS FOR COMPANIES

There are four types of corporate structures available in Gibraltar, a company limited by shares, a company limited by guarantee having a share capital, a company limited by guarantee without a share capital and an unlimited company. Only companies having a share capital can apply to be registered as an exempt or qualifying company.

Tax Exempt Companies

Subject to certain conditions (the main one being that no resident of Gibraltar or Gibraltarian has a beneficial interest in the shares) a company incorporated in Gibraltar or registered branch of an overseas company may apply for a Tax Exemption Certificate. Possession of such certificate will, in return for the payment of a fixed annual tax (between £200 and £300), exempt the company or branch from further taxation (including corporation tax and withholding tax) in Gibraltar. A tax Exemption Certificate is issued for a period of 25 years.

Exempt companies are used by individuals for many purposes, but the most common uses are the following:

Property Holding

The individual's asset then becomes the shares in the company situated in Gibraltar and not the property situated in another country. The sale of the shares or transfer of the shares on death (both effectively transferring title in the property) does not give rise to a taxable event in Gibraltar since Gibraltar has no capital gains tax, and the shares of exempt companies are not chargeable to Estate Duty. The ownership of the property in the country where it is situated is not affected, and therefore normally no taxable event occurs here either.

Investment And Asset Holding

Exempt companies in Gibraltar are not subject to either capital gains or income tax. Investment holding companies can therefore accumulate income and capital gains without any erosion due to taxation.

International Trading

Exempt companies may be used to carry out international trading between third parties in different countries. The trading is carried out by the exempt company in Gibraltar and profits earned by the company will not be subject to any taxation in Gibraltar.

Qualifying Companies

Subject to certain conditions (again the main one being that no resident of Gibraltar or Gibraltarian has a beneficial interest in the shares) a company incorporated in Gibraltar or a registered branch of an overseas company may apply for Qualifying Company Status.

A company or registered branch holding such status will be liable to taxation on its profits at such a rate as may be prescribed on the granting of the certificate but not not exceeding 35% (this rate also applies to withholding tax). The rate of tax applied will depend on the type of activity the company engages in. Once issued a qualifying company certificate is valid for 25 years.

Qualifying companies can be used in all situations where an exempt company can but where tax needs to be paid at a particular rate in order to take advantages of certain exemptions in the parent company's jurisdiction. For example the qualifying company does provide flexibility in meeting exemption from controlled foreign company rules in a number of jurisdictions. The exempt company tax charge does not qualify for this purpose.

Qualifying companies are also used in certain situations where an exemption certificate will not be granted, in particular where the company establishes a physical presence in Gibraltar. The physical presence may well be required in order to undertake certain activities, eg banking, insurance, fund management etc. As the directives of the European Union unfold removing trade barriers and facilitating cross border business within the European Union, Gibraltar is in an ideal position to take advantage of these directives and become a key jurisdiction for providing financial services in banking, insurance and UCITS (Undertaking for Collective Investment in Transferable Securities). The main vehicles for these services will be the Gibraltar exempt and/or Qualifying company.

Captive Insurance Companies

Gibraltar's insurance legislation provides for the setting up of insurance captives. Captive insurance companies can be formed in Gibraltar as either Exempt or Qualifying companies and will soon be able to take full advantage of Gibraltar's European Union membership to write direct business into the EU without the need to establish a presence in the countries where the risk is to be written.

TAX BREAKS FOR INDIVIDUALS

1992 saw the introduction of legislation designed to encourage high net worth individuals to establish tax residency in Gibraltar. This legislation operates by setting a ceiling on the amount of the individual's income that is liable to taxation in Gibraltar.

High New Worth Individuals (HNWI)

An individual can apply to be treated as a tax-resident HNWI if he has available for his exclusive use for a period of not less than 7 months approved residential accommodation in Gibraltar and actually resides there for a non-consecutive period of 30 days in the tax year.

HNWIs will only pay tax on the first £45,000 of assessable income which results in a maximum tax charge of £20,000. The minimum tax payable must be £10,000. Only income arising in or remitted to Gibraltar is taxable. HNWIs are exempt from Estate Duty.

By obtaining tax residency in Gibraltar, a registered high net worth individual might be able to avoid being considered tax resident in another higher tax jurisdiction. Relocated executive possessing specialist skills

Relocated Executives Possesing Specialist Skills

Expatriate individuals employed by qualifying companies who possess specialist skills not available in Gibraltar may, subject to certain conditions, apply to the Financial and Development Secretary and obtain a certificate which set the tax payable by the individual at £10,000 irrespective of their taxable income.

Given current rates of tax allowances in Gibraltar, this would mean that all income earned in excess of £27,000 (approx) would be tax free.

This legislation aims to assist qualifying companies in settling up operations in Gibraltar which need to attract high earning specialist employees.

Trusts

Being a common law jurisdiction, the concept of trust is recognised and given full legal effect in Gibraltar. The provisions of the Gibraltar Trustee Ordinance are based almost exclusively on the trustee laws of the United Kingdom.

As long as the trust is established by a nonresident, has no Gibraltar resident beneficiaries and derives no income locally (other than bank interest), no tax will be charged on the trust's income. Except for Asset Protection there are no filing requirements and no information needs to be disclosed to any authority as long as no liability to Gibraltar tax arises.

Under Gibraltar law, both the perpetuity and accumulation periods of a Gibraltar trust are 100 years.

Asset Protection Trusts

In December 1990, amendments to Gibraltar's Bankruptcy Ordinance came into effect, effectively providing that under certain circumstances a Gibraltar Trust can not be set aside by creditors of the settlor.

In order for a trust to be afforded the protection of the legislation certain criteria in relation to the settlor, the trust and trustees must be met.

The settlor must be an individual, he must not be insolvent at the date of the disposition nor become insolvent as a consequence of the disposition and he must not be subject to any outstanding litigation.

All Asset Protection Trusts must be registered with the Registrar of Dispositions.

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