22.19 GIBRALTAR Gibraltar was the first European jurisdiction to offer the exempt company which allows a company to be controlled and managed from Gibraltar and still be able to enjoy preferential tax status there. It is probably the most cost-effective European jurisdiction. It is not however as well established as its European competitors and as a full member of the EU pressure may be brought to bear at some time in an attempt to force Gibraltar to harmonize its taxes with other member states. There is a long standing dispute with Spain over Gibraltar and as a consequence the citizens of Gibraltar have indicated that they may for full integration into the U.K. This, combined with the fact that Gibraltar is now considered part of the U.K., has certain business advantages for current and future European business planning.

The Gibraltar Tax Exempt Company

A company incorporated in Gibraltar which is owned by non-residents of Gibraltar and does not transact business with other Gibraltar resident companies or individuals is eligible to apply for tax exempt status in Gibraltar. Upon successful application the company is issued a certificate which guarantees exemption from Gibraltar taxation for a period of 25 years, provided that the company complies with the conditions of tax exempt status and pays an annual duty to the Gibraltar Government of GBP 225. At the end of every year, the exempt company must file a statement attesting to the fact that the company has complied with the conditions applicable to its exempt certificate. An exempt company is convenient to administer due to the fact that it may have locally appointed directors and may maintain Bank accounts within Gibraltar. Thus the whole of the administration may be located within Gibraltar which helps to prevent the assumption that the company may be tax resident anywhere else. Companies are registered under U.K. Common 1929 Act, introduced locally as The Companies Ordinance. Registration ttakes 5 to 7 days, bearer shares are not allowed and shelf companies are available.

Non-Resident Gibraltar Companies

A company which is incorporation in Gibraltar, owned by non-residents of Gibraltar and managed and controlled by directors who reside and hold their board meetings outside of Gibraltar will be considered as non-resident. A non-resident company is not subject to Gibraltar corporation tax except on that part of the profit which is remitted to Gibraltar. In practice this means that a non-resident company may be exempt from Gibraltar corporate taxation, except for a minimal GBP 200, provided that it does not maintain Bank accounts within Gibraltar.

The Gibraltar Qualifying Company

This type of company is similar to the exempt company but, instead of being non tax paying, the company elects its own rate of tax as long as that rate is 2% or above. This type of company can be useful where it is necessary to show that a certain minimum level of taxation has been paid in order to gain relief from taxation in another country. For exemple, the taxation systems of certain countries provide that if taxation above a certain minimum level has already been paid on income remitted to the home country then no further taxation will be charged on those profits by the home country. The Qualifying Company can therefore elect to pay the required minimum level which would allow that income to be remitted to the home country without further taxation being suffered on arrival. A Qualifying Company must lodge an amount of GBP 1,000 with the Gibraltar Government as a guarantee against payment of future taxation.

The Gibraltar 1992 Holding Company

This company was specifically created to take advantage of European Union Directive 90/435. In simple terms, this Directive states that dividends may be paid by a subsidiary company located in one EU state to a parent company located in another EU state without the imposition of withholding tax as long as the recipient parent company is not capable of being exempt from tax. The prohibition against tax exemption would mean that the exempt and non-resident Gibraltar companies are not suitable to receive dividends from a subsidiary in another EU state so the 1992 Holding Company was created. The 1992 Holding Company pays 35% tax on all profits except on dividend income received. Dividends paid out of the 1992 Holding Company are subject to a 1% withholding tax. This type of company can be particularly advantageous for non EU countries who are investing within the EU and are expecting to receive dividend income. As can be seen the effective rate of tax on that dividend income will be 1% when remitted out of Gibraltar or zero tax when held within Gibraltar. Gibraltar is unique amongst offshore jurisdictions in incorporating asset protection provisions in the general body of legislation regarding the solvency of individuals. It is generally thought that having asset protection provisions under the Bankruptcy Ordinance gives settlors better protection than if similar provisions were promulgated under a separate trust ordinance or like legislation. To gain the additional asset protection offered under the Bankruptcy Ordinance it is necessary to officially register the trust with the Financial & Development Secretary. However, this does not bring about a loss of confidentiality as the only details which need to be registered are the name of the trust, the name and address of the trustee, the date and duration of the trust and country of ordinary residence of the settlor. Specifically, it is not necessary to register the name of the settlor or details of the trust assets. For a trust to be registered the trustees must show that they have made full inquiry into the financial background of the settlor and are satisfied that the settlor is solvent at the date of transferring the assets into trust and remain solvent after that transfer. These requirements are designed to stop Gibraltar trusts being used when a settlor is already under attack by a creditor or is potentially or actually insolvent. This approach has ensured that only quality trust business comes to Gibraltar which is of benefit to the reputation of the jurisdiction and to all settlors of Gibraltar trusts.

Passporting into the European Union

A consequence of Gibraltar's membership of the European Union is that measures will shortly be introduced which will result in the recognition by other member states of institutions licensed in Gibraltar in certain areas of financial services such as insurance and collective investment funds- Thus, any financial institution which is licensed by Gibraltar will be able to freely market its services without restriction in any other European Union member state and to relatively easily set up branch operations in other European Union member states.

Business Start-Up

Gibraltar enjoys one of the most advanced telecommunications systems of any offshore jurisdiction. The availability of fully digitalised telecommunications is becoming an increasingly relevant factor in the choice of jurisdiction. Operating costs from a communications point of view are comparable with many of Europe's continental telephone systems and this together with the ready availability of cheap office space, excellent tax breaks and attractive southern Mediterranean living style makes Gibraltar an ideal location in which to set up an international business which can easily be marketed via telephone, fax and e-mail.

Ship and Yacht Registration

Its status as an offshore tax haven combined with its British Dependent Territory status render Gibraltar one of the most ideal locations in which to register a ship or pleasure craft. A ship registered in Gibraltar is entitled to fly the Red Ensign. Gibraltar is also one of thefew remaining jurisdictions which issues a 'blue book'. Gibraltar has a very competitive fee structure for the registration of vessels and although Gibraltar is a full member of the European Union it remains outside the European Union VAT area so boats imported into Gibraltar would not be subject to VAT. For these reasons there has been a notable upturn in registration of pleasure crafts in Gibraltar.

Gibraltar Residency
Gibraltar normally imposes high levels of taxation on individual residents but, in an effort to encourage high net worth individuals to relocate to Gibraltar, has introduced the status of High Net Worth Qualifying Individuals. This special status may be granted only to persons who have not otherwise resided in Gibraltar in the previous five years. Upon successful application for this special status only the first GBP 45,000 of that individual's worldwide income is subject to Gibraltar tax with the proviso that the minimum amount of tax paid in any one tax year is GBP 10,000. This results in a maximum tax liability in any one year is under GBP 20,000. To qualify for this status the individual must:
  • have a Gibraltar property available for his use in at least 7 months out of each calendar year. It is normal for property to be purchased but possible for property to be leased;
  • must reside in Gibraltar for a minimum of 30 days each year.

The application procedure is quite straightforward and the status can be speedily granted. For those with substantial worldwide incomes Gibraltar offers one of the lowest rates of tax in the world. Gibraltar is a full member of the European Union so similar requirements are imposed on banks incorporated in Gibraltar as those for U.K. banks. However, Gibraltar has certain distinct advantages:
  • Banks can obtain exempt status and therefore operate completely free of tax;
  • The costs of office space and staff are considerably lower in Gibraltar;
  • There are currently no banking applications pending in Gibraltar so the time-scale between the application for and granting of a banking license can be considerably reduced.
The major part of the costs would be incurred in having to employ two executive directors/managers with the requisite experience and in installing the computers and systems which are appropriate for a banking institution.
(Courtesy of the Baltic Banking Group).

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