Constitutionally, Gibraltar is a Crown Colony with internal self-government. It has its own House of Assembly of 15 elected ministers and two nominated members. There is also a Council of Ministers consisting of the Chief Minister and seven other ministers responsible for domestic matters such as trade and economic development, housing, education, public works and services. Defence, foreign affairs, financial stability and internal security remains the responsibility of the UK.
Gibraltar is a member of the EU, however, has a special position in that it is excluded from the Common External Tariff, the Common Agricultural Policy and the requirements to levy Value Added Tax.
The population of Gibraltar is made up of 30,000 inhabitants of which 26,000 are native and the rest are British expatriates and service personnel. The official language is English although Spanish is also widely used, and most Gibraltarians are fluent in both.
The currency is pound sterling although there is also a local currency which is at par with sterling. There are 21 banks in Gibraltar holding a full banking licence, the majority of which internationally well known. The services they provide cater for both domestic and offshore clients.
Tax concessions for certain types of companies non-resident individuals and trusts for non-residents together with the absence of any exchange control restrictions, has created a financial environment suitable for many offshore investors.
Legislation introduced by the Financial Services Commission regulates all aspects of the financial services sector to protect investors effectively. The Financial Services Commission is appointed by the Governor of Gibraltar acting with the approval of the Foreign and Commonwealth Secretary. The Commission staff are all solicitors, actuaries or accountants or have experience in the field of financial service regulation. Three members are local and four are from the UK.
There are a number of structures available in Gibraltar to satisfy a wide range of client requirements, the most common of which is the tax exempt company which entitles the company and beneficial owner to exemption from all income tax and estate duty in Gibraltar. Such companies cannot trade or carry on business in Gibraltar, nor can any Gibraltarian or Gibraltar resident have a beneficial interest in these companies, but there are no restrictions on the appointment of directors, which can be corporate.
The company can be managed and controlled locally and can maintain office premises in Gibraltar for the purposes of transacting business with non-residents or other exempt or qualifying companies. The minimum share capital of a tax exempt company is L100 and whilst either a director or the secretary of the company must be a Gibraltar resident, meetings may be held in Gibraltar or elsewhere.
The disclosure of the details concerning the beneficial owners of the company is prevented by an appropriate clause in the Ordinance. The fixed annual taxation of this type of company is L225.
Similar regulations exist for qualifying companies but tax is charged on the profits at not less than 2% and not more than 35% (the standard taxation rate for local companies). Overseas incorporated companies may register a branch in Gibraltar and apply for registration as a tax exempt or qualifying company.
Non-resident companies are not liable to company taxation on profits in Gibraltar provided that they do not trade, earn or remit income to Gibraltar. However, there is a liability to stamp duty on transfer of shares.
The Gibraltar 1992 Holding Company takes advantage of the EU legislation regarding dividends paid across borders between members States. Such a company, holding more than 25% of the voting capital of a company registered in another EU Member's State, does not pay corporation tax on any income derived from that company and will pay only a 1% withholding tax on dividends. Where a company in another Member State owns 25% of a Gibraltar company's voting capital, withholding tax is not due on dividends paid by the Gibraltar company. A qualifying company may not have Gibraltar resident shareholders, its main objective must be to hold shares (a minimum of 5%) in other companies, at least 51% of its income must be derived from investments and physical presence must be established in Gibraltar. Taxation of any income not exempted under the Parent-Subsidiary Rules is at the standard tax rate for resident companies of 35%.
Gibraltar is one of the few jurisdictions to actively promote and use companies limited by guarantee and one of the even fewer jurisdictions that uses companies limited by guarantee and having a share capital (hybrid companies). The former is useful for associations and other similar bodies, the latter gives some of the benefits of a trust (e.g confidentiality of the members - but not shareholders) whilst retaining the benefits of a corporate entity.
Gibraltar trust law is based very closely on the relevant English statutes as well as Common law, thus making Gibraltar an ideal centre with many tax and estate planning advantages for trusts.
Additionally, Gibraltar is one of the few jurisdictions to pass effective legislation overriding the Elizabethan Statute, thus making asset protection style trusts available under Gibraltar law.
Further legislation is now being drafted clarifying Gibraltar's position with regard to other countries' forced heirship rules.
As long as no Gibraltarian or Gibraltar resident is a beneficiary of a Gibraltar trust, then the trust will be tax exempt for all tax in Gibraltar, including tax on income received by any trust or a beneficiary under a trust formed in Gibraltar. This relates to income earned outside of Gibraltar or earned on bank deposits within Gibraltar.
Additionally, there is no requirement for trusts to be registered in Gibraltar (other than those defined as asset protection trusts) and therefore total confidentiality of the settlor and beneficiaries is assured. The register maintained for asset protection trusts is non-public and therefore partial confidentiality is secured for these particular types of trust also.
Companies which are incorporated in EU member countries can be redomiciled in Gibraltar and, if registered under Part IX of the Companies Ordinance, can benefit from favourable tax concessions.
It is intended that the power to redomicile in Gibraltar will be extended to countries outside of the EU in the future.
Gibraltar is one of the few jurisdictions within Europe which can offer captive insurance companies the ability to write one insurance policy for EU risks. The tax advantages of setting up a captive in Gibraltar are numerous, one of the most beneficial aspects being that captives in Gibraltar can be set up as tax exempt companies and therefore pay just L225 tax per annum to the government. Therefore, there is not local tax on investment or trading income or any corporation tax payable. Alternatively captives can be set up as qualifying companies and therefore pay tax between 2%-35% (see appropriate section above).
Applications must be made to the Financial Services Commission where consideration will be given to the manger's expertise, skill and experience. Other aspects will be reviewed including the captive insurance company's ability to adhere to the prescribed EU guidelines on solvency margins, and the reinsurance arrangements will be examined.
Licensed insurers in Gibraltar must maintain a minimum guarantee fund which can vary from 200,000ECUs to 400,000ECUs. The statutory cost of incorporating a captive in Gibraltar will be a one-off payment of 0.5% duty on authorised capital, insurance licence application of L500 and L2,000 annual authorisation fee together with the annual filing fee of L26.
FURTHER TAX ADVANTAGES
There are further tax advantages in Gibraltar for certain individuals who qualify as being "high net worth" and who obtain a certificate to this effect from the Financial & Development Secretary. To obtain such a status the individual must have residential accommodation in Gibraltar available for their exclusive use for at least seven months of the year, and they must live in this accommodation for at least 30 days of every year. Acceptance as a high net worth individual can limit the personal taxation paid to less than L20,000 per annum.
Gibraltar has no double tax treaties and no agreement to exchange fiscal information unless criminal fraud can be proved to the satisfaction of the Gibraltar courts.
With its international airport, harbour, and highly sophisticated digital telecommunications systems, Gibraltar is easily accessible, making it one of the leading offshore jurisdictions today.
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.