Gibraltar offers an alternative to the usual IFC candidates with an international, mainstream finance centre that is located next to Africa but is part of the European Union. It also boasts other attractions such as its strong regulatory regime, low taxes, business infrastructure and Mediterranean climate.
Gibraltar is a part of the EU as an Overseas Territory for whose external relations a Member State is responsible, in this case the UK. Therefore, Gibraltar companies are able to “passport” their services throughout the EU. However, Gibraltar is not part of the EU VAT or Customs Union and so there is no VAT in Gibraltar. Gibraltar has signed up to both UK and US FATCA, the multi-lateral convention with the G5 on exchange of information, and numerous Tax Information Exchange Agreements, and is on the OECD whitelist for internationally agreed tax standards.
Company Tax Rate: 10%
From 1 January 2011, in Gibraltar the majority of companies pay tax at a rate of only 10 per cent on their taxable income, except, according to the legislation, for certain companies such as “utility” companies that are taxed at the rate of 20 per cent.
The territorial basis of taxation operates in Gibraltar so companies are only taxed on income that “accrues in or derives from” Gibraltar. When considering if income is “accrued in or derived from” Gibraltar reference is made to the location of the activities which generate the income, although for companies that are licensed and regulated in Gibraltar, the activities giving rise to the profits are deemed to be undertaken in Gibraltar. This extends to branches and permanent establishments of entities, which are licensed in another jurisdiction but enjoy ‘passporting’ rights into Gibraltar and which would otherwise be required to be licensed and regulated in Gibraltar. However, a branch or permanent establishment of a Gibraltar company undertaking activities outside of Gibraltar would not be subject to tax in Gibraltar.
Companies are not subject to tax on certain investment profits, including dividends and capital gains, and there is no withholding tax on dividends, royalties, and generally, interest payments made by a Gibraltar company.
Individuals benefit from low taxes generally and special tax regimes for certain categories of persons.
The Gibraltar Companies Act 1930 sets out the requirements for the incorporation, registering, constitution, operations and the winding up of corporate bodies registered in Gibraltar. Subsidiary legislation such as the Gibraltar Companies (Accounts) Act and the Companies (Consolidated Accounts) Act cover the accounting and filing requirements of Gibraltar companies and groups. The legislation is based on the UK Companies Act 1929 with subsequent amendments to reflect all relevant EU Directives.
A Gibraltar company can usually be incorporated within two to three days. However, same day incorporation can be effected.
A Gibraltar company is required to maintain a registered office in Gibraltar, where the statutory records must be kept. In the case of a private company, a sole director is permitted. A public company, on the other hand, must have at least two directors.
In December 2013, the Government issued a Command Paper on a draft bill to revise, reform and consolidate relevant legislation on companies into a new Companies Act. It is expected that the new Companies Act 2014 will be enacted during the first half of 2014.
A company domiciled in another jurisdiction is permitted by the Gibraltar Companies (Re-domiciliation) Regulations 1996 to re-domicile to Gibraltar provided it is permitted to do so by its constituting documents and by the applicable laws in the jurisdiction of incorporation.
The Fund Industry
In August 2005, the Experienced Investor Fund (EIF) legislation was introduced, which allows certain funds to be set up in a matter of days. Since then, Gibraltar has provided the perfect environment for the industry due to ease of entry, good regulation, low taxes and access to the European Union.
The EIF, as the name suggests, is aimed at experienced investors or high net-worth individuals. These funds have the advantage of protective regulation, speed of establishment and competitive set-up and running costs. There are certain criteria for investing in an EIF: the investor must have in excess of €1 million in net assets, or be a professional/experienced investor, or be investing in excess of €100,000 into the fund.
Another advantage of using Gibraltar in setting up a fund structure is the ability to use a Protected Cell Company (PCC). A PCC is a company, which allows the segregation of assets and liabilities between different cells, so that in the case of a fund each cell can serve as a sub-fund. Sub-funds can then be used by separate investors or by one investor wishing to promote several investment strategies. The segregation of assets means that if one cell incurs liabilities such that the obligations cannot be met, the creditors of that cell cannot satisfy their debt from the assets of another cell.
The use of a PCC must be approved by the Financial Services Commission prior to the fund being launched.
Directive on Alternative Investment Fund Managers
As noted above, the funds sector is one of the key strengths of Gibraltar’s financial services industry and, as such, activity in respect of the EU’s Alternative Investment Fund Managers Directive is being closely monitored and responded to by Gibraltar’s Financial Services Commission.
Compliance with the Directive requires affected fund managers to apply for authorisation in order to manage alternative investment funds and with compliance will come the ability to passport management and marketing services for these funds into the EU. The FSC has issued the Financial Services (Alternative Investment Fund Managers) Regulations 2013, which came into force on 22 July 2013. These Regulations set out the scope of the Directive and also detail the authorisation process as well as what will be required from an operational perspective. The FSC’s website has a range of papers to assist licence holders in understanding the requirements, thereby ensuring that the Gibraltar funds sector continues to be able to respond proactively and positively to regulatory developments.
FATCA & Exchange of Information
Gibraltar, like many other jurisdictions around the world, has had to take action to enable its financial institutions to address the requirements of the US’ Foreign Account Tax Compliance Act (FATCA). Whilst FATCA has its genesis in the exchange of information on US citizens, Gibraltar, as an Overseas Territory of the UK, also has to comply with what is known as UK FATCA ie, the exchange of information requirements introduced by the UK’s HMRC in respect of UK residents.
UK FATCA applies to all of the UK’s Crown Dependencies and Overseas Territories. Gibraltar has signed an Inter-Governmental Agreement with the UK which will enable information to be exchanged with HMRC by financial institutions in Gibraltar. The signing of a similar agreement with the US is still pending. The implementation of both agreements will be subject to local regulation and the industry bodies are working closely with the Gibraltar Finance Centre to ensure that there is a cohesive approach to the requirements, particularly for those financial institutions which may have a multi-jurisdictional footprint.
The Gibraltar Government has taken steps to position Gibraltar’s finance centre in the mainstream EU financial services market but with a favourable tax system. Taking into account all of the above, Gibraltar makes for a highly attractive location for both individuals and businesses.
Darren Anton Senior Tax Manager
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