Gibraltar’s location at the mouth of the Mediterranean makes it the geographical linchpin between two great seas and continents. This strategic location has long been the most vital ingredient of its economic and social history. A good deal of its previous significance in military terms remains, but the commercial potential of its location is now becoming increasingly important. Furthermore, as a peninsula attached to southern Spain Gibraltar has benefited from and complemented the enormous growth and revival witnessed in Andalucia and the Costa del Sol over the last decade.

Gibraltar is a United Kingdom Overseas Territory with a highly developed system of self-government. Essentially, the locally elected parliament, known as the House of Assembly, is responsible for all domestic matters affecting Gibraltar. This includes issues relating to financial services, taxation, company law and commerce generally. The UK retains responsibility in three specific areas, namely, foreign affairs, defence and internal security.

Over the last few years and with the assistance of the UK Government, Gibraltar embarked on the enormous process of transposing EU directives into its domestic legislation. At the same time, the Financial Services Commission (FSC) further strengthened the supervisory infrastructure to ensure that financial services are regulated in Gibraltar to a level matching that in the UK. This process has resulted in Gibraltar having one of the best-regulated financial centres in the world. It is now regarded as a benchmark jurisdiction in respect to many aspects of its supervisory infrastructure.

The Economy

The Gibraltar economy is vibrant and expanding. Since the re-opening of the frontier with Spain in 1985 the economic base has considerably diversified. Apart from financial services, tourism and port activities are its mainstay. There are approximately six million people crossing the land frontier with Spain annually. These are made up of many who live and commute to work in Gibraltar and also of millions of tourists. Cruise liners are also on the increase with nearly 300 ships projected to call at its port this year. Tourism from the UK continues to be important with both British Airways and Monarch providing airlinks to Britain.

Ship repair facilities complement a busy port. Cammel Laird, which acquired the shiprepair yard from Kvaerner in 1998, is enjoying good results. Bunkering to commercial shipping is also on the increase. Gibraltar is in fact the largest bunkering port in the western Mediterranean.

A range of new activities is broadening the economy further. The much publicised relocation of gaming operations such as Victor Chandler and Ladbrokes are good examples. Light manufacturing operations including a state of the art bottling facility has also been established lately. Various telecommunication groups have sought licences to operate satellite control centres from the Rock as Gibraltar’s position provides a good location from which satellites can be controlled and data transmitted or downloaded.

Very recently Gibraltar has seen a significant development of Gibraltar as a location from which investment traders can operate. Both LIFFE and Eurex have established direct links in Gibraltar and are actively considering establishing independent nodes in Gibraltar.

Gibraltar’s Unique Position In The European Union

Gibraltar is the only British Overseas Territory which has full access to the single market by virtue of its membership under Article 227(4) of the Treaty of Rome. The main advantages of this membership are twofold. Firstly, adherence to EU standards acts as an endorsement of the regulatory environment in which the finance centre operates. The second advantage is the potential to access the single market. These are already well advanced in the areas of insurance and banking. Gibraltar is however very keen to finalise its passporting rights throughout the EU, in particular in the area of investment services.

Passporting rights involve two basic freedoms. Firstly, the freedom of establishment, ie the right to set up branch operations, and secondly freedom of services, ie, the right to provide services directly in another EU state. These rights are available to companies without having to go through separate licensing procedures in the host jurisdiction hence the term "passporting".

Attractive Fiscal Environment For Businesses And Investors

Gibraltar offers a number of fiscal incentives, which include: no value added tax, no capital gains tax, no wealth tax, no inheritance, gift taxes or estate duty. There are also opportunities for structuring offshore business through exempt or qualifying companies. Exempt status relieves a company from taxes in Gibraltar as long as it continues to meet certain minimum requirements. The company is subject to an annual fee of £225 per year if it is resident and £200 per year if it is non resident.

The other main corporate vehicle, the qualifying company, is now more extensively used for operations basing themselves in Gibraltar with a permanent presence. Banks, insurance companies and fund management groups would therefore be encouraged to adopt this tax regime. The extremely flexible tax regime would suit qualifying companies for a variety of different uses. The legislation provides for a tax rate of between 0% - 35%.

These corporate regimes are complemented by other favourable tax features. There are a number of specific tax regimes applying to individuals. The most developed is probably a scheme to encourage the establishment of tax residence by wealthy individuals. This scheme is not limited only to those seeking a retirement spot. Under the appropriate regulations a high net worth individual (Qualifying Category 2 Individual) can acquire tax residence in Gibraltar by either buying or renting suitable accommodation and meeting various other criteria. Such an individual is then chargeable to tax on a worldwide basis but his liability is capped to between a minimum of £10,000 to £19,750 per annum. The exemption extends to his spouse and children under the age of 18 or in full time education. An individual is free to own and operate an exempt or qualifying company and thereby to continue conducting international business from Gibraltar.

There are also tax incentives for individuals working in Gibraltar. Under certain circumstances individuals possessing special skills may be granted Qualifying (Category 3) status which restricts the amount of income tax chargeable on their emoluments to £10,000 per annum. Gibraltar has also introduced Qualifying (Category 4) individuals rules where the amount of income tax payable is restricted to £5,000 per annum.

Apart from the reasons already mentioned, there are a number of other factors which together make Gibraltar an attractive finance centre from which to operate. Communications are good, with daily flights to London, and Malaga airport, just over an hour away, providing links to many major cities. The lifestyle available in Gibraltar and the surrounding area is also exceptional. An average of 300 days sunshine per annum, 60 top class golf courses in the region, and a wide availability of entertainment from the exotic to the sublime probably explain why approximately three million expats have decided to live in and around the Iberian Peninsula. All these features make the location of any activity in Gibraltar attractive from a lifestyle perspective in addition to any commercial and technical considerations. This combination of factors makes the process of establishment in Gibraltar pleasurable, as well as profitable.

Further information on the finance centre can be accessed via the Gibraltar Finance Centre web site and the Financial Services Commission web site.

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.