Gibraltar is within the EU by virtue of its status under Article 227(4) of the Treaty of Rome, it being a territory for whose external relations a Member State (ie the United Kingdom) is responsible.

Furthermore, Gibraltar sees its future as being very much within the EU. As part of Britain's accession to the EU in 1972 Gibraltar was included for all aspects, apart from:
  • the requirement to levy turnover taxes.
  • the requirement to levy a common external tariff.
  • its exclusion from the Common Agricultural Policy.
In all other respects EU Directives are considered to apply to Gibraltar and Gibraltar, in its turn, has been demonstrating a strong commitment to implementing these Directives, most particularly in areas such as banking, fund management and more recently, company law. One of the most interesting Directives, from a fiscal planning point of view to have emerged from Brussels in recent years has been Directive 90-435 which requires most Member States to exempt from withholding tax dividends paid by subsidiary companies to parent companies when both such companies are located within EU Member States.

Furthermore it requires Member States to exempt from further taxation those dividends in the hands of the parent company. Clearly the two principal objectives of the Directive were to ensure that profits earned within the EC were subject to corporate taxation only once, and to remove fiscal barriers to cross-border investment.

The Government of Gibraltar enacted legislation implementing the requirements of this Directive. The criteria imposed by the legislation were as follows:
  • For parent companies receiving dividends from a company of a Member State, that interest in the subsidiary company must:
  • represent an interest in the voting share capital of that company equal to at least 25% of the total of that company's share capital; and
  • have been held beneficially by the company for a continuous period of four months or more prior to the date on which the dividend was received by the parent.
  • In the case of subsidiary companies the only criteria are that the parent must be a company of a Member State (as defined by the Directive) holding an interest in the voting share capital of the subsidiary equal to at least 25% of the total of its share capital.

For the purposes of both the EU Directive and the local legislation, it should be noted that a "parent" company and a "subsidiary" company are not parents and subsidiaries in the strictest sense.

The existence of this legislation, in conjunction with the Gibraltar 1992 Company legislation as discussed below, creates some interesting tax planning possibilities.

The UK Inland Revenue, in a consultative document issued in February 1992, have indicated that as far as they are concerned the Directives are to be applied to Gibraltar and that Gibraltar companies that satisfy the requirements of the Directives are entitled to the benefit of their provisions. It is not certain how other Member States will react and for this reason it is clear that individual rulings would be essential in relevant countries when proposed structures envisage Gibraltar companies taking advantage of the Directive.


The concept of the Gibraltar 1992 Company which has the following characteristics:
  • It is incorporated or registered in Gibraltar under the provisions of the Companies Ordinance on or after 1 January 1992;
  • It is ordinarily resident in Gibraltar;
  • The principal object of the company is to hold interests amounting to relevant participations (defined as interests of at least 5% in the voting share capital of other body corporates);
  • In any year of assessment at least 51% of its income is derived from relevant participations;
  • It has a proper physical presence in Gibraltar (ie minimum of two employees);
  • No resident of Gibraltar has a beneficial interest in its share capital;
  • A reasonable debt/equity ratio is maintained.

Once the above criteria are satisfied the Financial & Development Secretary will issue a certificate to this effect.

Although a Gibraltar 1992 Company is assessable to Gibraltar income tax in the normal way (the current company rate is 35%) its significant attraction is in the area of withholding tax where tax at the rate of 1% shall apply to dividends paid by such companies. Furthermore interest payments are totally exempt from withholding tax.

There is no further liability to Gibraltar tax by the recipient of any dividends or interest paid by a Gibraltar 1992 Company.


Clearly the interaction of both the implementation by Gibraltar of the Directive 90/435 and the 1992 Gibraltar Company may provide significant tax planning opportunities for non-EC companies investing into Europe in that a 1% withholding tax on dividends passing out of Europe should prove particularly attractive especially as dividends received by the Gibraltar 1992 Company from EC subsidiaries will not be subject to corporate income tax in Gibraltar. However, as mentioned above, case by case rulings in Member States will be necessary in order to confirm the viability of any particular structure.

In addition it should be noted that France and Spain have introduced specific anti-abuse provisions with the effect that the exemption from dividend withholding tax will not apply if the EU parent company is controlled directly or indirectly by residents of non-member states, unless the ownership structure exists for genuine business (ie non tax avoidance) purposes.

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