Jurisdiction spotlight: Gibraltar

Part nine of the Jurisdiction Spotlight series will focus on Gibraltar, or as it’s affectionately called – The Rock. A thorn in the side of Spain and a shining beacon among offshore financial jurisdictions. But just exactly why are the Spanish authorities so grumpy when it comes to Gibraltar? Let’s find out!

History

GibraltarWhile Gibraltar has a rich pre-historic heritage, we will begin in ancient history with Phoenicians, who considered the caves of Gibraltar as an altar to a protective spirit. Many historical artifacts have been found in Gibraltar’s caves.

The ancient Romans and ancient Greeks considered Gibraltar as one of the Pillars of Hercules.

ibraltar’s role remained largely ceremonial or served as a revered place until in 681 when the Umayyad Caliphate was expanding, entering from North Africa into Europe.

By the early 700s, the Moors (Berbers from the Umayyad Caliphate) had conquered most of the Iberian peninsula, over time taking what is today Gibraltar, nearly all of Portugal, and most of Spain.

The name Gibraltar comes from Arabic جبل طارق, transliterated Jebel Tariq, which means Tariq’s Mountain in reference to the mountain itself. Tariq ibn-Ziyad was an Umayyad general and the leader of the invasion of Iberian peninsula.

The Iberian peninsula remained under Moorish and later Marinid (Spanish Muslims) control until August 1462, when a small force under command of Duke of Medina Sidonia surprised and ambushed the Marinid forces. Not entirely unlike Malta, Gibraltar was used as a gift or bargaining chip throughout Spanish history in the following centuries.

In 1704, after attempts in 1703 by the Dutch to overthrow the Spanish regent and appoint Prince George of Hesse-Darmstadt has king of Spain, the British invaded Gibraltar on the 17th of July. The British forces were joined by Dutch forces.

Gibraltar was declared a free port in 1705 and a governor was installed in 1707.

Under the Treaty of Utrecht, signed on the 11th of April 1713, Spain cedes Gibraltar to the British, among several other territorial changes. Spain did not immediately honour this treaty, making several attempts to take back The Rock. None of them were successful.

Between 1779 and 1783, the Spanish and French made a joint effort to conquer Gibraltar in what is known as The Great Siege of Gibraltar. The Spanish and French forces vastly outnumbered the British forces but were unsuccessful in their siege. During this time, Gibraltar builds up its modern fortifications.

In 1830, Gibraltar becomes a crown colony. This did not change until 1981, when it became a British dependent territory which in 2000 was renamed British overseas territory.

When World War II broke out, Gibraltar was completely evacuated and all residents moved to Great Britain, Jamaica, and Madeira. The border was closed and did not open fully under 1985. The heavily defended port of Gibraltar was an important haven for Allied ships.

In 1967, a referendum was held and 99.64% of the voters voted for Gibraltar to remain a part of the United Kingdom. A 2002 election had the same result, with 99.48% in favour of remaining British.

As of 2006, Gibraltar has a new constitution which gave it a political status more similar to other overseas territories (such as Bermuda and the Cayman Islands).

Today, Gibraltar is a sprawling and wealthy territory. Its economy is surprisingly diverse given its size, relying on financial services, online gambling, tourism and shipping trade.

Gibraltar has a very rich history and it is well worth reading more about. “The Rock of the Gibraltarians” and “The Fortifications of Gibraltar 1068-1945” are two excellent books on the topic.

Overview Data

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Gibraltar Companies

Forming a company in Gibraltar is very easy and tends to cost between 500 – 1,000 GBP, with usually humble renewal and maintenance costs. Companies are required to keep records and make annual returns.

There are a large number of accounting firms in Gibraltar, making outsourcing bookkeeping a relatively simple process.

For a long time, Gibraltar had a regime fairly similar to the Cayman Islands and Bermuda with tax exempt companies that paid 0% tax and non-exempt companies that paid 22% tax. A good summary of events can be found over on Lowtax.net. In short, the tax exempt companies regime came to an end in 2009, with the new tax system applying from 2011.

Today, Gibraltar companies pay a corporate tax rate of 10% – with certain provisions.

Only companies with a taxable income exceeding 1 million GBP are required to be audited. Companies with a taxable income of under 1 million GBP are free to just submit an independent accountant’s report along with their annual financial statement and annual filings.

Gibraltar applies a form of territorial taxation, where companies not controlled from within Gibraltar are not liable for corporate tax. Dividends are only taxed if paid out to Gibraltar resident natural persons, meaning dividends paid from a Gibraltar company to another Gibraltar company (legal person) is not subject to tax. In certain circumstances, though, a declaration must be filed.

Due to Gibraltar’s status as an EU member which isn’t a member of the VAT and customs union, there is no VAT in Gibraltar.

Import duties are low, from 0% to 12%, with some items being completely exempted or charged at a fixed value, such as cigarettes which are charged at 1.5 GBP per carton of 200.

Private companies limited by shares can issue bearer shares, but the shares must be deposited with a bank in Gibraltar. Royalties are tax free in Gibraltar.

Corporate directors and shareholders are permitted.

Business Entity Types

Nearly all companies formed in Gibraltar are formed as private limited companies. These require only one director and shareholder (maximum 50 shareholders) and are commonly used as a part of a larger tax structures, ecommerce, import/export, or consulting.

Public companies are required to have at least seven shareholders.

Partnerships (both General Partnerships and Limited Partnerships) are available but are not commonly used by non-residents.

Gibraltar LLPs must have their principal place of business in Gibraltar, which is a requirement nominees cannot fulfill.

Gibraltar Trusts

The Gibraltar trust legislation is almost a carbon copy of the English law.

Gibraltar trusts are not subject to any taxation if created by and for non-residents.

They are commonly used for asset protection, as a vehicle in a larger tax structure, inheritance planning, and transfer of assets. Trusts are not required to be registered and are thus confidential in nature.

Forming a trust in Gibraltar is comparatively inexpensive.

Gibraltar Igaming

The Gibraltar Gambling Commission has licensed some of the biggest names in the online gambling sector (both operators and software suppliers), such as Ladbrokes, William Hill, IGT, and bwin.

Licensees are licensed under the Gambling Act 2005, which is generally considered to be a solid piece of legislation. It offers a good balance between ease of operation and player protection.

Gibraltar is a whitelisted online gambling jurisdiction, together with for example Malta, Isle of Man, Guernsey, and Alderney.

Gambling licensees enjoy a highly favourable tax regime of 1%, with a minimum of 85,000 GBP and maximum of 425,000 GBP per year.

Gibraltar Financial Services

Gibraltar is home to a reasonably large number of companies that provide financial services, ranging from payment processing to investment funds to insurance companies and intermediaries.

The popularity of Gibraltar for financial services is rooted in the unique status of limited EU membership coupled with a long tradition of being an offshore financial center.

The Financial Services Commission (FSC) is an transparent, active, and responsive regulatory body.

Capital requirements and fees are comparatively low. However, any person interested in engaging in financial services in Gibraltar will need to undergo a Fit & Proper Test to assess their suitability.

Banking in Gibraltar

Regular readers of this blog will be familiar with my mention of Jyske Bank in both the 2012 and 2013 ranking of best offshore banks. And while it is a very good private bank, it is an indication of a problem that spans the entire Gibraltar banking sector: there simply aren’t any good banks for corporate trading banking or personal banking.

You can find excellent private banking in Gibraltar – often at a lower minimum deposit requirement than for example Switzerland – but none of the 15 licensed banks in Gibraltar are suitable for active business banking.

Gibraltar companies instead tend to bank in the UK, Isle of Man, Jersey, and other offshore or onshore financial centers. A reason for this is that banking in Gibraltar may make the company resident and thus liable for tax.

Fortunately, owing to the jurisdiction’s stellar reputation, Gibraltar companies are usually welcome at banks that accept international business.

Some degree of banking secrecy exists. Authorities can only compel banks to disclose information under specific provisions, such as TIEAs, EU Savings Directive, or criminal matters.

Living in Gibraltar

Gibraltar is very attractive for residential purposes, with zero capital gains tax, wealth tax, capital acquisitions tax, inheritance tax, or interest tax.

Income tax is divide into two systems which are tiered. There is a good explanation on the Government of Gibraltar website.

Although nearly all expat workers in Gibraltar live in Spain due to the high costs of living in Gibraltar, it is by no means impossible to take up residence in Gibraltar. There are always apartments available for purchase or rent, with rents being comparable to central London. The difference is that instead of rain and overcast, you get over 300 days of sunshine.

Residence permit is easy to obtain as an employed (including self-employed) EEA citizen.

Persons who are retired or self-sufficient are eligible for residence permit, provided that they can prove that they have sufficient means.

Flying to and from Gibraltar takes nerves of steel. Although there have been very few accidents, airlines usually only let their more experiences pilots land. The landing strip is short and for a what may feel like the longest seconds of your life, the plane will be flying very close to the water surface.

Currently, only flights to and from UK land in Gibraltar. Malaga, a major international Spanish airport, and the smaller Jerez airport are the most commonly used airports to get to and from Gibraltar.

Similar to the UK, Gibraltar is not a Schengen member.

Yes, there are monkeys (Barbary macaques). Yes, they roam freely, but they usually stick to the top of the mountain.

Final Words

All in all, Gibraltar is the one of the lowest-tax jurisdiction in the EU. Combining factors like quality of life, reputability, regulatory responsiveness, and tax, Malta is the only real comparison.

Forming a company in Gibraltar is an excellent way to create a tax neutral company in the EU, which can be used for a wide range of purposes.

Banking in Gibraltar leaves a lot to be desired, with a virtually dormant banking sector other than private banking. Fortunately, the private banking tends to be of high quality.

I personally prefer Malta’s igaming (online gambling) legislation and environment, but Gibraltar’s is very good.

Click here to see other posts in the Jurisdiction Spotlight series.

Further Reading

 


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5 Comments on "Jurisdiction spotlight: Gibraltar"

  1. Has there been any changes/updates to banking in Gibraltar for companies?
    Are any of the sites listed on http://www.fsc.gi/fsclists/bnklist.aspx focusing on Corporate clients now or is it still a case of banking in the UK/elsewhere?

  2. Do you have any comments on Gibraltar’s general policy regarding exchange of information?

  3. Will you review Jersey Channel Islands?

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