Offshore companies, which are those companies subject to a nil or a very low rate of tax on their income and gains, can play a major role in financial planning for individuals, families and companies, particularly in the protection of assets and the mitigation of tax liabilities.
This brochure briefly sets out the benefits to be gained from basing such arrangements in Gibraltar, some typical examples of existing arrangements and an outline of the formation and administrative procedures involved. Where reference is made to offshore companies, it is to those companies registered in Gibraltar which have qualified for one of the categories of favourable fiscal status in Gibraltar. These categories are described later in this brochure.
As one of the largest firms of accountants in Gibraltar, Coopers & Lybrand are well placed, not only to advise on any proposals but to provide the services necessary for the formation and/or administration of offshore companies, trusts and nominee services.
This brochure is not intended to be comprehensive. It is based on Gibraltar legislation in force at the time of going to print. This brochure does not take into account the effect of legislation in the territory in which the client is resident at the time of setting up a company in Gibraltar. However, coordination of professional advice is one of the principal advantages of using the services offered by a member firm of Coopers & Lybrand International.
Gibraltar is a dependent territory of the United Kingdom but enjoys considerable autonomy and legislates for itself in such areas as taxation. Gibraltar is part of the European Union having joined with Britain in 1972. The Rock has an experienced financial services industry which is rapidly developing as a major element of the local economy. A highly sophisticated telecommunications system and daily scheduled flights to London enable Gibraltar to compete successfully with other major offshore centres.
Gibraltar has also introduced a comprehensive regulatory framework which covers:
- financial services and
- corporate trustee and company management services.
There is a Financial Services Commission which supervises the activities of the local industry.
For more details about Gibraltar, please consult our brochure "GENERAL BACKGROUND".
BENEFITS AND USES OF OFFSHORE COMPANIES
The reasons for forming a company are the same in Gibraltar as in many parts of the world ie limited liability for shareholders, separate legal identity and easy transfer of ownership. The formation and recurring annual procedures are straightforward and are governed by the Companies Ordinance.
2. Investment and property holding
The use of a company to hold investments and property may provide a number of advantages:
- it may enable the owner of the company to avoid high levels of capital and inheritance taxes that would otherwise be payable if investments were held directly;
- it may preserve the anonymity of the beneficial owner in companies and countries in which investments are made;
- it may protect assets from legal attack in the country in which the beneficial owner is resident, although such an arrangement should normally be considered in conjunction with a trust.
Trading companies may be operated for many purposes including ship chartering, aircraft leasing, film making, property development, mining and oil development and production.
The invoicing of goods by one company to another in a different country may be arranged through a company which can then retain a proportion of the profit for the services that it renders.
5. Trade marks
Trade marks, patents, royalties and other rights can be held by a company which may derive a profit from them by granting leases, rights or sole distributorship arrangements to residents of other countries of the world.
Companies may be operated for the benefit of individuals subject to high personal taxation and who earn income outside their country of residence, by the sale to a company of the rights to their services.
TAXATION OF OFFSHORE COMPANIES
Subject to the following exceptions, companies regarded as resident in Gibraltar are taxed at the rate of 35% on their profits wherever they arise.
2. Exempt Companies
Companies beneficially owned by non-residents, and which do not trade with residents may apply for tax exempt status. An exempt company will not be subject to any Gibraltar taxes, notwithstanding the fact that it is managed and controlled from Gibraltar. A number of exempt companies have established "bricks and mortar" presence in Gibraltar employing large numbers of local staff. Such companies are only permitted to trade with non-residents, and exempt status is therefore particularly appealing for companies carrying out purely administrative functions such as invoicing.
Dividends and interest paid by an exempt company are not subject to Gibraltar withholding taxes.
The annual Government charge for exempt status is £225.
Apart from confirmation that the company is beneficially owned by, and only trades with, non-residents, an applicant for exempt status must disclose details of the beneficial ownership of the company and can be accompanied by professional references on those owners. It is a requirement of the Companies (Taxation and Concessions) Ordinance that this information be kept confidential by the office of the Financial and Development Secretary. Various penalties, including imprisonment, may be imposed for a breach of confidentiality. Changes of beneficial ownership must be notified in advance to and approved by the Financial and Development Secretary. There is no requirement for financial statements to be available for public inspection at present.
3. Qualifying companies
In some situations it may be appropriate for an offshore company to be subjected to tax, albeit at reduced rates. In these circumstances a Qualifying Company is often an appropriate vehicle. The requirements of an application for qualifying status are the same as those for exempt status (see above). Qualifying Companies are subject to tax at a negotiated rate of not more than the rate of corporation tax (currently 35%) of net profits. A similar rate of withholding tax is normally applied on interest and dividends.
Annual audited accounts must be ledged with the Commissioner of Income Tax. An application for qualifying company status must be accompanied by an application fee of £250 and an advance payment against future taxation liabilities of £1,000.
4. Foreign companies
Companies incorporated outside Gibraltar may apply for tax exempt or qualifying company status in Gibraltar providing they meet the same requirements as exempt companies (see above). Such companies must, as a first step, register under Part IX of the Companies Ordinance which requires the applicant to provide Companies House with full details of directors, shareholders and persons authorised to accept service of legal process in Gibraltar.
5. EU parent/subsidiary directive
Gibraltar has enacted the EU Parent/Subsidiary Directive 90/435 which, subject to certain requirements being met, exempts from further taxation in Gibraltar dividends received by a Gibraltar company from a subsidiary taxed in another EU member state. Conversely, dividends paid by a Gibraltar company to its parent company based in another EU member state will not be subject to Gibraltar withholding tax, provided that certain requirements are met.
6. Gibraltar 1992 (GC) company
A GC is a Gibraltar incorporated company formed after 1 January 1992 and the main business of which is invested in the share capital of subsidiary companies. GCs, whilst paying normal rates of Gibraltar income tax on income (subject of course to the Parent/Subsidiary legislation (see above)), only pay a 1% withholding tax on dividends paid out of Gibraltar (subject again to the Parent/Subsidiary Directive). Such a company may be attractive as an efficient vehicle for investment into the European Union by a parent based outside the Union.
The client would subscribe to the shares in his own name, but he may prefer, for reasons of confidentiality, that his name not appear and that the shares be held by a nominee. Coopers & Lybrand are able to provide nominees in such cases and, where the shares are to be maintained in the name of the nominee, will provide declarations of trust, testifying to the fact that they hold the shares only as nominee in favour of a stated beneficial owner.
FORMATION OF AND STATUTORY REQUIREMENTS FOR GIBRALTAR COMPANIES
1. Formation Procedures
The first step in the formation of a Gibraltar company is to ensure that the proposed name will be acceptable to Companies House. This is achieved by a search of the Register to ascertain if there is already in existence a company with an identical or similar name. Furthermore, there are certain words (such as "first", "royal", "international") the use of which in a company's name is restricted.
The next step is the preparation of the Memorandum and Articles of Association, which are the documents governing the constitution, activities and administration of the company. Alternatively, the shares may be registered in the name of the beneficial owner or in the names of other nominees.
Ad valorem stamp duty is payable at the time of the incorporation of a company and is based on the authorised share capital of the company at a rate of 50p per £100, subject to a minimum of £10. The minimum payment thus covers an authorised share capital of £2,000. The Memorandum and Articles of Association are then registered with Companies House and a Certificate of Incorporation is issued. Incorporation is usually a speedy process.
Alternatively, Coopers & Lybrand always have available a selection of "shelf" companies ready for immediate use . It is usually simple to change the name of an existing company, should this be required. The price of shelf companies and formation of new companies with a specific name is the same.
The first directors of the company are normally appointed by the subscribers to the Memorandum of Association. The Directors held an inaugural meeting to adopt the Memorandum and Articles of Association and the common seal of the company, decide on the registered address, deal with the transfer of the subscribers' shares, if necessary, and allot any further shares necessary to meet the beneficial owner's requirements. The registered office of the company must always be situate in Gibraltar.
Shares may also be issued in currencies other than sterling, and in exceptional cases bearer shares may be issued. If bearer shares are required, specific clauses must be included in the Articles of Association which allow the issue of warrants to bearer.
2. Annual statutory requirements
A company registered in Gibraltar must make a return each year, stating the capital structure and the names and addresses of registered shareholders of the company as well as its directors. Each return must be accompanied by a small annual registration fee. The registered shareholders may be nominees acting on behalf of the beneficial owners of the company and, if so, there is no requirement for the return to disclose the identity of the beneficial owners. Any mortgages or charges over company must also be recorded in the Annual Return having been properly registered at the time of the change by the Directors.
There is a statutory obligation on a company to maintain a register of shareholders at its registered office, available for inspection by members of the public, together with a copy of its last annual return.
A company is required to produce annual audited financial statements but there is no requirement for these to be made available for public record.
All non-exempt companies are required to file a copy of their annual accounts with the Commissioner of Income Tax.
A company must hold an annual general meeting of shareholders each calendar year.
3. Company law
The relevant law is the Companies Ordinance 1930. The Ordinance requires that the Memorandum of Association must specify:
- the name of the company;
- the activities that the company may undertake;
- the amount of the authorised share capital.
Amendments can only be made by a special resolution of the shareholders in Extraordinary General Meeting in accordance with the company's Articles.
A private company may have only one registered shareholder whilst seven is the minimum for a public company.
It is permissible for a company to issue different types of shares if authorised by its Memorandum of Association.
Unless otherwise stipulated by the company's Articles, the minimum number of directors is one.
There is a statutory restriction on the borrowing powers of a company in the ordinary course of its business and there are no rules on ratios between capital and debt.
The voluntary liquidation of a Gibraltar company is a straightforward process.
COSTS OF FORMING AND RUNNING AN OFFSHORE COMPANY
Details of fees for services provided by Coopers & Lybrand are available in a separate leaflet.
COMPANIES IN OTHER JURISDICTIONS
In certain circumstances a company incorporated in a jurisdiction other than Gibraltar may be appropriate. Coopers & Lybrand are able to arrange for the formation of companies in other jurisdictions and, if appropriate, for their administration from Gibraltar.
SERVICES OFFERED BY COOPERS & LYBRAND
The Firm is now among the largest providers of the company, trust and related services in Gibraltar. It provides virtually all the services and advice required for the formation and administration of companies, including the following:
- initial advice and liaison with professional advisors in other jurisdictions in order to recommend the most practical and tax efficient arrangement to suit the client's circumstances;
- administration services which include, in certain well defined circumstances, the provision of directors of a company or arranging, if appropriate, for suitably qualified individuals in other jurisdictions to act as directors. As a minimum, administration services include ensuring that all matters required by statute or by Gibraltar's authorities are dealt with in a practical and timely manner and that the company is maintained in good standing. In many cases the services provided by the Firm will encompass the complete administration of a company;
- a registered office as required by law, or an administrative office for companies registered in other jurisdictions but administered in Gibraltar;
- the services of a corporate secretary;
- the services of corporate nominees being Abacus Nominees (Gibraltar) Limited, preserve the anonymity of the beneficial owner, a company wholly owned by the Gibraltar partners of Coopers & Lybrand;
- accounting services, including preparation of the financial statements required by law. If required, more frequent and detailed information can be prepared to suit the client's circumstances (such as computer-produced monthly management accounts or schedules of investment portfolios);
- advice on Gibraltar tax relating to the circumstances of the company and the beneficial owner, including preparation, submission and agreement of tax returns and assessments as appropriate;
- sophisticated trustee services. This aspect is dealt with in more detail in our brochure entitled "Trusts in Gibraltar".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances
Coopers & Lybrand is a member of Coopers & Lybrand International, a limited liability association incorporated in Switzerland.