Doing business in Gibraltar 2014
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Doing business in Gibraltar 2014 1
Content
Page
Content 2
Foreword 3
Gibraltar profile 4
Regulatory framework 9
Business entities 10
Trusts 13
Shipping and management 15
Taxation 16
Financial and investment 28
Grant Thornton Gibraltar 33
Grant Thornton around the world 34
Contact us 35
“At Grant Thornton Gibraltar
every client gets a
personalised service which
means the personal advice
and attention of a director.
Not many international
accountancy firms can claim
that, even fewer deliver it”.
Freddie White
Managing Director
Grant Thornton Gibraltar
2
Foreword Established in 1995, Grant Thornton Gibraltar has become one of Gibraltar’s leading professional services firm. Our clients range from private individuals to public companies listed on international stock exchanges. Our firm consists of experienced professionals servicing our local and international client base with particular emphasis on financial services. Grant Thornton is one of the world’s leading organisations of independent assurance, tax and advisory firms. These firms help dynamic organisations unlock their potential for growth by providing meaningful, forward looking advice. Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. More than 35,000 Grant Thornton people, across over 100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work. If you require any further information, please do not hesitate to contact your nearest Grant Thornton member firm. This guide has been prepared for the assistance of those interested in doing business in Gibraltar. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of Gibraltar and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of 1 January 2014. “Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. 3
Gibraltar profile
Basic data
(2013 estimates)
Population 30,000 (approx.)
Area 7 sq. Km
Total GDP GBP £ 1.2 billion
Currency Pound Sterling
Time GMT + 1
Head of state Queen Elizabeth II
Ruling Party Gibraltar Socialist Labour
Party
Head of Government Fabian Picardo
Languages English (official) & Spanish
Unemployment rate 2-3%
Status Self-governing UK overseas
territory
Leading activities Financial Services, Tourism,
Shipping & Online Gaming
4
Geography and climate Gibraltar is a peninsula with an area of approximately seven square kilometres joined to the southern tip of Spain by an isthmus about half a kilometre long. The rock of Gibraltar itself consists of limestone and is almost 425 metres high. The city of Gibraltar is located on the sloping west side of the rock and overlooks the bay of Gibraltar. The coast of Morocco lies some 16 kilometres to the south across the straits. The climate is Mediterranean. Political system Gibraltar is a UK dependent territory, ceded to Britain in perpetuity by the Treaty of Utrecht in 1713. Gibraltar’s sovereignty is assured by the Gibraltar Constitution Order 2006, in which Britain undertakes never to enter into arrangements which would place the people of Gibraltar under the sovereignty of another state against their freely and democratically expressed wishes. The United Kingdom is responsible for Gibraltar’s defence, foreign policy and internal security, and appoints a Governor who is a representative of the Crown in Gibraltar. In all other matters Gibraltar is self-governing with its own elected government. It enacts laws independently of the United Kingdom and maintains an independent tax status. Legal and accounting system Gibraltar has its own legal system which is based on English Common Law and Statute, with variations introduced by local statutes previously termed “Ordinances”, now referred to as Acts. There is a Magistrates Court, a Supreme Court and a Court of Appeal. The local legal profession comprises mostly UK trained barristers and solicitors. Accounting and auditing standards are based on UK standards, amended where necessary to comply with Gibraltar law. The local accounting profession comprises mostly UK trained Chartered or Certified Accountants represented by the Gibraltar Society of Accountants. Statutory auditors must be approved by and registered with the Auditors Registration Board; this board consists of the Financial Services Commissioner and his appointees. Population Gibraltar has 30,000 inhabitants of whom 26,000 are native Gibraltarian, the balance being made up mainly of British expatriates with an additional population of Moroccan, Spanish and other EU nationals. Gibraltar has a diverse history with Romans, Moors, Spanish and British safeguarding and taking custody of the Rock. In 1704, during the War of the Spanish Succession Gibraltar became a British possession. Its cession to Britain in perpetuity was confirmed by the terms of the Treaty of Utrecht in 1713. Communications The official and commercial language of Gibraltar is English although the majority of the population are also fluent in Spanish. Gibraltar has an excellent digital and fibre-optic telecommunications system along with a modern postal service. There are daily scheduled air services to and from London Gatwick, London Luton and London Heathrow. There are also weekly flights to and from Manchester, Liverpool and Birmingham (UK). Direct flights to other destinations are available from Malaga airport, less than 2 hours drive from Gibraltar. The new International Airport terminal was opened in 2011 and is an attractive, mainly glazing and steel structure. The Terminal is in excess of 20,000 square meters in constructed area. Many international shipping lines carrying passengers and freight call at Gibraltar. 5
Economy
Gibraltar’s main industries are finance, gaming, tourism and shipping, with Gibraltar being one
of the busiest bunkering ports in Europe. Gibraltar operates as a free port for goods in transit
and applies a general rate of duty of 12% on household and industrial goods. Gibraltar has a
special import tariff status within the EU. This gives reduced duty rates on selected items.
The official unit of currency is the pound sterling (£) with both UK and Gibraltar notes in
circulation. Gibraltar has no exchange controls and unrestricted currency facilities. Individuals
and companies may hold and operate bank accounts in any currency and may purchase real
estate and personal property anywhere in the world.
Immigration
EU nationals have the right to enter, live and work in Gibraltar on the production of a valid
identity card or passport issued by a member state. A residence permit may be applied for and is
issued for a period of not less than five years as long as the individual satisfies the Gibraltar
authorities that they are self-employed or employed with the period of employment expected to
last at least 12 months from the date of application. Work permits cannot be denied to EU
citizens.
EU nationals who wish to reside in Gibraltar but do not wish to work may also apply for a
residence permit. Following the Rights of Residence Directives, all EU nationals have a right to
residence and therefore even if they are not in employment they will be able to obtain a
residence permit as long as they are able to satisfy the Immigration Department that they will
not become a public burden, have a place to live and have private full risk medical insurance for
themselves and any dependents. Currently, any EU national with the relevant E111 form or
equivalent would be entitled to emergency medical treatment.
Other nationals are required to apply for residency under the Immigration Control Act.
Residence permits may be granted if the non-EC national is in employment and holds a valid
work permit.
The Governor also has the discretion to grant a residence permit to any person who in the
opinion of the Governor is of good character where it would be in the interest of Gibraltar that
such a residence permit be granted. Applications under this section are generally reserved to
wealthy non-EC individuals who are able to offer Gibraltar benefits whether in the form of
investment job creation or otherwise. Non-EC national individuals applying for High Net
Worth Individual taxation status would also apply for residence permits under this section.
“Our economy is
as strong as our
Rock”
6
European Union status
Gibraltar is a member of the European Union (EU) by virtue of Article 227, paragraph 4 of the
Treaty of Rome, which states that the provision of the Treaty “apply to the European territories
for whose external relations a member state is responsible”. Gibraltar is therefore treated as part
of the member state of the United Kingdom.
There are however certain areas of European policy from which Gibraltar is excluded:
• The Common Agricultural and Fisheries Policy does not apply
• VAT does not apply as Gibraltar is not in the Customs Union
• Gibraltar is a third country for the common customs tariff
• The European free movement of goods rules do not apply in Gibraltar
These derogations, in particular with regard to custom tariffs and VAT, enable Gibraltar to offer
taxation advantages in many areas.
Health services
Gibraltar has a scheme funded by grant and by compulsory weekly contributions through social
insurance. The scheme allows entitled persons and their dependants to access health care free of
charge. There are also a number of private doctors and medical centres which provide medical
diagnosis and treatment.
Education
Gibraltar offers free compulsory education to the children of people ordinarily resident of
Gibraltar. Gibraltar generally follows the English system of GCSE’s and A-level and then
students may be given a grant or scholarship for further study in the UK universities.
Private schooling is also available in Gibraltar and Spain.
Leisure
Gibraltar has a state of the art sports facility which includes five-a-aside football pitches, paddle
tennis courts, tennis courts, hockey pitches, squash courts, water sports facilities and much
more. Gibraltar competes in various sports at the International Island Games held every two
years and in 2013 the Gibraltar Football Association was admitted as a full member of UEFA,
European football’s governing body and will be allowed to enter qualifying for the 2016
European Championships.
In 2008 a leisure centre was constructed which includes several cinemas, an ice skating ring, 10
pin bowling alleys and various bars and restaurants. Ocean Village was also recently constructed
which is a major development on the west side of Gibraltar comprised of luxury residential and
commercial units. It also has a stunning marina surrounded by a casino, a five star luxury yacht
hotel, bars, clubs and other leisure facilities.
Gibraltar is only a 30 minute drive away from the renowned Costa de Sol which includes towns
such as Estepona, Sotogrande and Marbella which is well-known for its beautiful beaches and
for having some of the leading golf courses in Spain.
7
Travel and sightseeing Gibraltar is rich in history and offers an array of attractions such as the upper rock (which is famous for the Barbary Apes), the Moorish Castle, St. Michaels Cave, the Great Siege Tunnels, the Gibraltar museum, the World War 2 tunnels, the botanical gardens and dolphin trips to name a few. Business hours Most businesses are open from 9:00 to 17:30 and shops mainly stay open until 19:00. Public holidays Bank and public holidays 2014 New Year’s Day 1 January Commonwealth Day 10 March Good Friday 18 April Easter Monday 21 April Worker’s Memorial Day 28 April May Day 1 May Spring Bank Holiday 26 May Queen’s Birthday 16 June Late Summer Bank Holiday 25 August Gibraltar National Day 10 September Christmas Day 25 December Boxing Day 26 December 8
Regulatory environment
Any individual, partnership or company carrying on business in Gibraltar under a name other
than their own, must register a Business Name at Companies House and the name must be
approved by the Registrar. The words Limited, PLC, SA, AG etc cannot appear at the end of a
business name.
The Trade Licensing Act 1978 requires that certain trades or specified businesses apply for a
trading licence. For the purpose of the Act “trade” means buying and selling, whether by
wholesale or retail, of any goods by way of business, or importing goods in commercial
quantities. All businesses, trades and professions must also register with the Employment and
Training Board.
The Financial Services Act emphasises the importance of investor protection and provides that
a person shall not carry on, or hold himself out as carrying on, any investment business or
controlled activity in or from within Gibraltar except under and in accordance with the terms of
licence issued under the Act. Controlled activities are as follows:
• Collective Investment Scheme Intermediaries
• Collective Investment Scheme Managers and Depositaries
• Collective Investment Scheme Experience Investor Funds
• Collective Investment Scheme – Recognised
• Collective Investment Schemes – Administrators
• Company Managers
• E-Money Institutions
• EU Investment Firms
• Insurance Intermediaries
• Insurance Managers
• Investment Dealers
• Investment Managers
• Professional Trustees
Banks and insurance companies must be licensed under the terms of the Banking Act and
Insurance Act.
9
Business entities
Companies
The law governing the incorporation, constitution and winding up of corporate bodies is
contained in the Companies Act 1930. Under the Companies Act it is possible to incorporate
four different types of company:
• Private company limited by shares
• Company limited by guarantee and having a share capital
• Company limited by guarantee and not having a share capital
• Unlimited company
Companies limited by shares (limited liability companies) are the most common companies
incorporated in Gibraltar.
Incorporation requirements
At the time a company is incorporated it is necessary to register the Memorandum and Articles
of Association with the Registrar of Companies, together with the relevant fees and capital duty.
The rate of capital duty is £10 on the authorised share capital. Shares can be issued at a
premium. Share premium is not liable to capital duty.
A statutory declaration confirming compliance with the various provisions of the Companies
Act must be made and presented with the registration. Prior approval of company name is
recommended to ensure that the proposed name does not conflict with an existing name and is
not undesirable.
Other requirements include:
• One subscriber to the Memorandum of Association, subscribing for at least one share.
• Nominee shareholders may be used and both personal and corporate shareholders are
permitted.
• The Company must have at least one director and a company secretary. Corporate
directors are permitted.
• The Company must have a registered office in Gibraltar with the name displayed.
• The Company must submit an annual return to the Registrar of Companies giving
details of the address of the registered office along with the names and addresses of the
directors and shareholders of the company. This annual return must also show details
of the share capital, including the amount called upon each share and the details of
mortgages and other charges registered. This information is entered into the Public
Register and is available for public inspection.
• Filing of accounts: Accounts must be filed at the Gibraltar Companies Registry in the
prescribed format – dependant on classification.
10Company accounts
The Fourth and Seventh EU Company Directives have been transposed into Gibraltar law by
The Companies (Accounts) Act and the Companies (Consolidated Accounts) Act. They apply to
all limited companies except those which are non- profit making or licensed banks and
insurance companies.
Companies and groups are divided into three categories – small, medium and large.
A small company/group is one where in the relevant year two of the following conditions are
satisfied:
• Net turnover did not exceed £6.5 million
• Balance sheet did not exceed £3.26 million
• Average number of people employed did not exceed 50 in the year.
A medium company/group is one where in the relevant year two of the following conditions
are satisfied:
• Net turnover did not exceed £25.9 million
• Balance sheet did not exceed £12.9 million
• Average number of people employed did not exceed 250 in the year.
A large company/group is one where in the relevant year two of the following conditions are
satisfies:
• Net turnover exceeds £25.9 million
• Balance sheet exceeds £12.9 million
• Average number of people employed exceeds 250 in the year.
A company which at any time during the year was a public company is automatically treated as a
large company.
Small companies which do not have income liable to assessment for tax under the Income Tax
Act, or do not trade or transact business in Gibraltar in such a way as is likely to generate such
taxable income in the future do not have to appoint auditors or prepare audited accounts.
Small and medium sized groups need not prepare group accounts unless they include a listed
company, a bank or an insurance company.
Filing requirements are:
• Small companies – abridged balance sheet only
• Medium companies – profit and loss account may be in abridged form, all other
documents to be submitted in full
• Large companies – to file full accounts
The documents should be filed within 13 months of the financial year end, if a private company
and 10 months in the case of a public company. If the financial year end is the company’s first
then the period allowed is the greater of 18 months from the date of incorporation or 13
months from the end of that financial year.
11Re-Domiciliation The Companies (Re-domiciliation) Regulations 1996 allow companies domiciled outside Gibraltar to apply to establish a domicile in Gibraltar, provided it is permitted to do so by their constitution and by the applicable laws in the jurisdiction of incorporation. A company may be domiciled in a jurisdiction other than that in which it is incorporated. This legislation enables companies currently domiciled in other jurisdictions to re-domicile to Gibraltar, thereby gaining direct access to the European Economic Area. Partnerships In this type of structure, two or more individuals or entities agree to share the risks, costs and responsibilities of being in business. Unlike in a limited company set-up, a partnership has no legal existence distinct from the partners themselves. A partnership thus offers a relatively simple and flexible option for two or more people to own and run a business together, however, partners do not enjoy any protection if the business fails. Company administration Day to day company administration may be carried out by local professional firms on behalf of non - resident beneficial owners. Nominee shareholders, directors and company secretary can also be provided. Grant Thornton clients are provided with company management and secretarial services via GT Fiduciary Services Ltd, the group company licensed by the Financial Services Commission to provide company management and professional trustee services. 12
Trusts
Summary
A Trust is an arrangement by which property is legally owned by one person or a group of
people (the “trustees”) but held for the benefit of another person or group of people (the
“beneficiaries”).
The creation of a trust involves the settlor transferring the legal ownership of assets to trustees
to hold for the benefit of beneficiaries. A trust is normally evidenced by a trust deed, which sets
out the terms on which the trustees hold the assets and identifies the beneficiaries and the
circumstances in which they are to benefit. The deed may only refer to an initial nominal sum
settled, but applies equally to subsequent funds added.
The Registered Trust Act 1999 makes provision for the registering of a trust deed where
registration is required under the terms of the trust deed and for the keeping of an index of
trusts registered under the Act.
The index contains the following specified particulars of each trust deed:
• The name of the trust
• The date of its creation
• The amount of the initial settlement
• The date of its registration
• The name (s) of the trustee (s); and
• The address for service in Gibraltar
The registrar shall give a certificate of the recording of the trust, with the certificate stating the
above details.
As stated above, registering of trusts only occurs if it is required under the terms of the trust
deed, but can be useful in many circumstances as it allows for an official confirmation of the
date of establishment of a trust.
Trust law
Gibraltar’s trust law is similar to that of the United Kingdom and is well established and an
integral part of the legal system. The main statute applicable in Gibraltar is The Trustee Act
which is based on the Trustee Act 1893 of England. This Act outlines the powers and duties of
trustees, the investment of trust funds and the powers of the court. This statutory framework
primarily exists to fill any voids which may be left by a trust deed. Variation of trusts is allowed
by applying the English Variation of Trusts Act 1958 to Gibraltar.
The Trustee Investments Act is similar to the English Trustee Investments Act 1961 and would
apply in circumstances whereby a trust instrument is deficient in detailing the trustee’s powers of
investment. The Perpetuities and Accumulations Act 1986 enables a trust which is not a
charitable trust to continue for 100 years. The Trusts (Recognition) Act 1989 applies the
provisions of the Hague Convention whereby a trust is governed by the law chosen by the
settlor. The Bankruptcy (Amendment) Act 1990, deals with Asset Protection Trusts.
13Types of trust
A variety of trusts can be established in Gibraltar, however the most widely used form of trust is
the discretionary trust whereby trustees are given wide discretion in the trust deed to accumulate
or distribute trust capital and income and to select which beneficiaries are to benefit from the
trust. It is usual for the settlor to express to the trustees in a letter his wishes regarding the
administration and distribution of the trust fund during his lifetime and after his death. This
letter of wishes may be varied by the settlor from time to time.
Gibraltar trust law allows a trust to include a clause enabling a change of the proper law of the
trust and of its place of administration. It is common for an underlying company to be used as a
vehicle to hold the assets of a trust, with the shares of this company being owned by the trust.
Such an arrangement tends to maximise flexibility.
Trustees
An individual or a trust corporation may be appointed as a trustee. A trust company acting as a
trustee in Gibraltar must be licensed by the Financial Services Commission.
Protector
A settlor of a discretionary trust may exercise some control over the trustee’s discretionary
powers by the appointment of a protector. The trust deed may only allow the trustees to
exercise certain powers, such as the addition or removal of beneficiaries, after obtaining written
approval from the protector.
Taxation of trusts
Trusts established for non-residents of Gibraltar are exempt from tax in Gibraltar even where
the trustees are resident in Gibraltar and the trust is administered in Gibraltar, provided that the
following conditions are met:
• The trust is created by or on behalf of non-residents of Gibraltar.
• The terms of the trust expressly exclude residents of Gibraltar as beneficiaries of the
trust.
• The income of the trust is derived from outside Gibraltar, with the exception of bank
interest from deposits with Gibraltar banks and certain other investment income.
Other taxation advantages are that there is no capital gains tax, gift tax, wealth tax or estate duty
and that no stamp duty is payable on the transfer of any assets held by such a trust apart from
immovable property situated in Gibraltar.
14Shipping and management The Gibraltar Registry is constituted under UK law and operates in accordance with International Conventions and Protocols. Gibraltar registered ships are British registered under Part 1 of the UK Merchant Shipping Act 1894. As Gibraltar is within the EU the Register is also considered as a Member State’s Register. Ships registered in Gibraltar but operated by non- resident owned and controlled companies are not subject to tax on ownership, chartering or operation. The Registry will usually accept ships less than 20 years of age, classed with one of the recognised societies and with no major outstanding condition of class. Ships over 20 years (but not more than 25) may only be accepted with the Minister’s approval. All ships are required to submit a synopsis of the ship’s history and the owners or the bare boat charterers also have to submit a declaration that neither the ship nor the owners are subject to any national or international investigation. The ship must hold on board at all times particulars of the owners, managers and charterers if any. It must also hold a proper cargo manifest. Yacht registration is a fast tracked procedure and may be completed within 2 to 3 days. Gibraltar registered boats fly the Red ensign, defaced and are issued with a Blue Book. Any non British national can register their vessel by use of a British Corporate Body – a company registered in England or any other offshore jurisdiction subject to the laws of some part of Her Majesty’s Dominions i.e. Gibraltar. 15
Taxation
Summary
The taxation of the income for both individuals and companies is governed by the Income Tax
Act 2010 (the “Act”) in effect as from 1 January 2011. The Act introduced a system of self-
assessment that requires both individuals and companies to calculate their own tax liability for
any year of assessment as well as make returns of their own income.
Taxable income – territorial basis of taxation
The key concept within the Act is that designated income accruing in or deriving from Gibraltar
will be subject to taxation in Gibraltar. Accrued in and derived from is defined by reference to
the location of the activities which give rise to the profits.
Classes of income
Table A
• Gains or profits of a company or a trust from any trade, business, profession or
vocation
• Any rents, premiums and any other profits (not being capital gains) arising from
any interest in real property
Table B
• Any office or employment, including any allowances, perquisites or benefits in
kind specified in Schedule 8 of the Act
• Any trade, business, profession or vocation all or part of the activities,
administration, marketing or support functions of which are performed in
Gibraltar
Table C
• Dividends, except for dividend i) paid or payable by a company to another
company ii) paid to a person who is not ordinarily resident in Gibraltar iii) paid
by a company whose shares are listed on a recognised stock exchange
• Funds income – In the case of a fund which is not marketed to the general public
• Income from any right to any interest in anything falling within table A
• Royalty income received by a company registered in Gibraltar
• Any pension, charge or annuity that is not maintenance, alimony or other
payment to a spouse or child under a Court Order or Deed of Separation
• Any profits or gains to be treated as income under the anti-avoidance clauses of
the Act
16Income not taxable
• Interest income from listed investments and financial institutes
• Income arising out of Gibraltar by an individual not resident in Gibraltar for a period of
less than 30 days in a tax year
• Benefits in kind valued at less than £250 per employee
• Companies which accrue and derive income from outside Gibraltar
• Rental income from properties situated outside Gibraltar
• Pensions received from an approved pension scheme by individuals aged 60 or over
• Income received by a student from employment during holidays
• Other income specifically exempted by the rules under the Act
Companies which have interest income arising from trading activities (e.g. holders of a banking
or money laundering licence) will have interest treated as income and chargeable to tax.
Interest received by a Gibraltar company and arising from an intercompany loan will be
chargeable to tax in Gibraltar. However, no interest is chargeable where the interest received or
receivable from any company is less than £100,000 per annum.
Companies
Companies are taxed on a territorial basis meaning that only income that is accrued in or derived
from Gibraltar will be subject to taxation in Gibraltar.
Individuals
Individuals are chargeable to tax upon the income specified in Tables A to C on income that is
accrued in and derived from Gibraltar.
Individuals ordinarily resident of Gibraltar are also chargeable to tax upon the income specified
in Tables B & C on a worldwide basis.
Ordinarily resident
Companies
The definition of a corporate residence is decided by the location of the company’s central
management and control.
Individuals
The Act defines a Gibraltar ordinarily resident as being an individual who, irrespective of
whether such individual is domiciled in Gibraltar or otherwise who in any year of assessment –
• Is present in Gibraltar for a period of, or periods together amounting to, at least 183
days; or
• Is present in Gibraltar in any year of assessment which is one of three consecutive years
in which the total of the days which the individual is present in Gibraltar exceeds 300
days.
Tax year
1 July to 30 June
17Filing dates Individuals Individuals are required to file their tax returns by 30 November of each year. Trustees Trustees with income assessable to taxation in Gibraltar are required to file a trusts tax return by 30 November of each year. Companies Companies are required to file their corporate tax returns within six months of the date of their financial year end. Payment dates Employees Tax on the income from employment is deducted from wages and salaries under the PAYE system. Self-employed Individuals are required to make two payments on account (31 January & 30 June) in each year and each payment should be 50% of the tax based on the previous year’s assessment. Final payment of tax should be submitted with the individual’s tax return and will be the tax liability for that year less the two tax payments on account. Companies Companies are required to make two payments on account (28 February & 30 September) and each payment should be 50% of the tax based on the previous year’s assessment. Final payment of tax should be submitted with the company’s tax return and will be the tax liability for that year less the two payments on account. 18
Companies
Only those companies that accrue or
derive income from Gibraltar are required
to file tax returns and supporting accounts
with the Gibraltar Income Tax Office.
Companies with a turnover in excess of
£500,000 (will soon be amended to £1m)
must submit audited 10%
accounts to the Income corporation
Tax Office. Those
companies with a tax!!
turnover of less than
£500,000 must submit
unaudited accounts, but
these must be accompanied
by a report from an
independent accountant.
Losses can be carried forward indefinitely to be offset against future profits, provided that there
is no change in ownership or material change on the nature of the business. There is no
provision for the carrying back of losses or for group relief.
Deductions allowed
Generally, expenses wholly and exclusively incurred for the production of income will be
allowable as a tax deductible expense.
Deductions not allowed
• Expenses not incurred from the production of income
• Expenses of a capital nature
• Expense of a private or domestic nature
• Any tax charged under the Act
• Depreciation and amortisation of assets (although capital allowances are available – see
below)
• Head office expenses which exceed 5% of turnover
• Certain type of entertainment expenses
• Contributions to a non approved pension scheme
Other expenses may also be disallowed as per the anti-avoidance provisions of the Act.
19Capital allowances
Allowance Initial allowance Additional
Plant & machinery (including 100% on first £30,000 15% p.a on reducing
fixtures & fittings) balance
IT Investment 100% on first £50,000 15% p.a. on reducing
balance
Industrial buildings n/a 4% p.a. straight line cost
Parent-subsidiary rules
Effect has been given to European Union legislation 90/435/EEC regarding dividends, interest
payments paid across borders between member states. Any Gibraltar registered company
holding 25% of the voting capital of a company registered in another member state does not
pay corporation tax on any income derived from that company.
Similarly any dividends paid by a Gibraltar registered company to a company in another member
state holding more than 25% of the Gibraltar Company’s voting capital should not suffer
withholding tax.
There is no withholding tax on dividends or interest. The principal requirements for certification
are that the company establish a physical presence in Gibraltar, that its main objective is to hold
relevant participations (at least 10% of the voting share capital) in other companies and that at
least 51% of its income is derived from investments. The company may have Gibraltar resident
shareholders.
Construction Sub-Contractor
The subcontractor’s tax regime operated in Gibraltar is set out in the Income Tax (Construction
Sub-Contractors) Regulations 1994 and is similar to that in place in the United Kingdom and
applies to the construction industry.
At the time of writing the main contractor shall deduct tax, at the rate of 25%, from so much of
the payment as it not shown to represent the direct cost to any person of materials used or to be
used in carrying out construction operations to which the contract under which the payment is
made relates.
A failure to deduct tax or pay tax deducted to the Commissioner is an offence and will result in
fines.
Development aid
The 1981 Development Aid ordinance provides that licences may be granted for certain
development projects. A Development Aid licence entitles the developer to exemption from
income tax in respect of any gains or profits from the relevant development until aggregate
gains less losses first exceed the capital expenditure on the project. In addition, the profits of the
concern may be distributed to the beneficial owner free of any taxes up to the amount granted
under the licence
20Double taxation
There are no double tax agreements between Gibraltar and any other country. However, a
Gibraltar resident who is in receipt of income which is liable to tax in Gibraltar that is derived
from and has already suffered tax in any other jurisdiction, shall be entitled to double taxation
relief in Gibraltar in respect of that income of an amount equal to the tax already deducted or
the Gibraltar tax, whichever is less.
Tax information exchange agreements
Gibraltar is currently on the Organisation for Economic Co-operation and Development
(OECD) ‘white list’ and has signed over 25 tax information exchange agreements with
jurisdictions from around the world.
Anti-avoidance
The Act also includes extensive anti-avoidance provisions such as:
• Thin capitalisation
• Transfer pricing
• Dual employment contracts
• Deemed distributions
• Transfer of assets abroad
21Individuals
Taxpayers may choose between an Allowance Based System (ABS) and a Gross Income Based
System (GIB). Irrespective of the system opted for; on final assessment the Tax Office will
apply the system most beneficial to the taxpayer.
Allowance Based System (ABS)
Taxable income bands Rate % Tax on band
£0 - £4,000 15 £600
£4,001 - £16,000 24 £2,880
Over £16,000 40 -
Principle allowances & relief’s 2013/2014 rates
Personal allowances
Personal £3,000
Spouse £3,000
Nursery school allowance (per child) £,3000
Child relief
In respect of first child £997
In respect of each child educated abroad £1,105
Disabled person £5,000
Dependant relative (Maximum)
Resident £190
Non resident £139
Blind person £3,000
Apprentice £380
Medial insurance (max relief) £2,000
House purchase allowance
Deduction £11,500
Special (£1,000 max p.a.) £4,000
Social Insurance
Employee £335
Self-employed £432
Other allowances and relief’s include:
• Low earners: persons earning less than £10,000 are exempt from tax. In addition an
extra tax allowance is given to tax payers whose earned income is between £10,000 and
£19,500.
• Mortgage interest relief: Interest fully allowable on Gibraltar residential property
occupied by the taxpayer restricted to £350,000.
• Life assurance premiums: premiums fully allowable provided they do not exceed
1/7th of assessable income or 7% of the capital sum assured at death. However, basic
rate of 17% will be applicable to those policies issued after 3 June 2008.
22Gross Income Based System (GIB) Income less than £10,000 Exempt from tax Income up to £25,000 Tax rate First £10,000 6% £10,001 - £17,000 20% Balance at 28% Income above £25,000 Tax rate First £17,000 16% £17,001 - £25,000 19% £25,001 - £40,000 25% £40,001 - £105,000 28% £105,001 - £500,000 25% £500,001 - £700,000 18% £700,001 - £1m 10% Balance at 5% Deductions under the GIB system Mortgage interest of main residential property in Gibraltar £1,000 p.a. Employee contributions to approved pension schemes £1,000 p.a. Approved expenditure incurred on the enhancement of property £5,000 p.a. 23
Social insurance contributions
Contributor % payable on Min payable (per Max payable (per
employee’s gross week) week)
earnings
Employer 20% £15.00 £32.97
Employee (under 60) 10% £5.00 £25.16
Employee (over 60) - - -
Self-employed 20% £10.00 £30.17
Social insurance is only payable to those individuals who are in receipt of earnings.
Benefits in kind
Benefits in kind relate to any gains and profits in relation to an office or employment by means
of salary, wage or fee, gratuity or other profit or incidental benefit in kind obtained by the
employee if it is money or money’s worth, or anything else that constitutes an emolument of the
employment.
Those benefits as highlighted by the Act are:
1) Expense payments
2) Vouchers & tokens
3) Living accommodation
4) Cars, vans and related expenditure
5) Loans
6) Contributions to pension schemes (not approved by the Commissioner of Income Tax)
7) Parties
8) Restrictive undertakings
The Commissioner of Income Tax also has the authority to tax other benefits not specifically
covered by the Act.
The employer may opt to pay the tax on behalf of the employee, in which case no additional tax
will be charged on the employee.
In the case that an employer opts to pay the tax on behalf of the employee and the value of the
benefits is between £250 and £15,000 in any year of assessment, tax shall be paid thereon at the
rate of 20%. If the value of the benefits are above £15,000 in any year of assessment, tax shall
be payable at the rate of 29%.
24VAT
There is no VAT in Gibraltar.
Capital gains tax
There is no capital gains tax in Gibraltar.
Estate duty
There is no estate duty tax in Gibraltar.
Wealth tax
There is no wealth tax in Gibraltar.
Inheritance tax
There is no inheritance tax in Gibraltar.
Stamp duty
Stamp duty is only payable on real estate and capital transactions at the following rates:
• Share capital £10
• Loan capital £10
On purchase of real estate Rate
First and second time buyers up to £250,000 0%
Other purchasers up to £200,000 0%
Between £200,000 & £350,000 2% on first £200,000 and 5.5% on balance
Over £350,000 3% on first £350,000 & 3.5% on balance
25Tax incentives
Category 2 (Cat2) status
Gibraltar offers the opportunity for High Net Worth Individuals to obtain Cat 2 status which
places a cap over the tax liability of that individual. Tax is applied to the first £80,000 of
assessable income (including worldwide income) meaning that a Cat 2 individual will pay a
maximum of £29,080 tax per annum, with a minimum tax payable of £22,000.
What are the advantages of Cat 2 status?
• Tax is capped on assessable income (including worldwide income)
• No requirement to disclose worldwide income (However, individual can opt to declare
worldwide income under their capped taxed income).
• Individual will be fully tax resident in Gibraltar and can demonstrate to other tax
authorities that they are subject to tax in Gibraltar.
• Individual may elect to add the income of a spouse or child under the age of 18 under
their Cat 2 status.
• No VAT, Capital Gains, Inheritance or Wealth tax in Gibraltar.
• No minimum physical presence requirement in order to obtain residency.
Requirements for Cat 2 status
• Must have available for exclusive use approved residential accommodation in Gibraltar
for the whole year of assessment (can be either purchased or rented).
• Must produce two independent references from recognised institutions/professionals –
(1 must be from a bank and the other from a law or accounting firm).
• Must produce valid passport and full Curriculum Vitae (CV).
• Must provide a statement of worth showing a minimum of £2m.
• Not have been resident in Gibraltar for 5 years immediately preceding the Cat 2
application.
26High Executive Possessing Specialist Skills (HEPSS)
HEPSS status is available to those individuals who intend to relocate to Gibraltar and engage in
business activities. This special employment tax status is available for employees as a cost saving
incentive for companies recruiting senior executives.
An individual in respect of whom a HEPSS certificate is issued shall be charged to tax on the
first £120,000 of their assessable income only. This would mean that an individual with HEPSS
status would pay a fixed rate of £29,940 tax per year regardless of how much they would earn in
that employment.
Requirements for HEPSS status
• Must have available for exclusive use approved residential accommodation in Gibraltar
for the whole year of assessment. (Can be either purchased or rented)
• Possess skills that are necessary to promote and sustain economic value to Gibraltar.
• Possess skills that are not readily available in Gibraltar.
• Not have been resident in Gibraltar for 3 years preceding the year in which the
application is made.
• Earn more than £120,000 per annum.
• Must produce valid passport and comprehensive Curriculum Vitae (CV).
• Must produce two independent references from recognised institutions/professionals –
(1 must be from a bank and the other from a law or accounting firm).
27Financial and investment Summary Gibraltar has an attractive tax, regulatory and legal regime within the European Union which combined with its position as a leading European Finance Centre and Mediterranean lifestyle culminates in Gibraltar being regarded as an ideal location for international business. The Financial Services Commission Act 1989 established the Financial Services Commission (FSC) as part of the system set up to supervise and control financial service providers in Gibraltar. The FSC is the central supervisory body for all of Gibraltar’s financial services including banking and insurance. Protected Cell Companies Protected Cell Companies may be established in Gibraltar. The Protected Cell Companies Act of 2001 was designed to boost the captive insurance and funds sector and can also be applied to securitisation. In essence it provides a single company with individual parts – cells – which are separate from each other. Each cell is only liable for its own debts and not for the debts of any other cell within the company. A company may be incorporated as a PCC or converted into a PCC if its articles allow. The provisions of the Companies Act apply in relation to a protected cell company, in so far as the provisions of the Protected Cell Companies Act allow. Legislation stipulates that a protected cell company is a single legal person, and the creation of a cell by a PCC does not create a separate legal person. Section 8 of the Act allows the PCC to create cells and the proceeds of issue (cell share capital) are comprised in the cellular assets attributable to the cell in respect of which the cell shares are issued. It is the duty of the directors of a PCC to keep cellular assets attributable to each cell separate and separately identifiable from non-cellular assets and from those assets attributable to other cells. It is envisaged that PCC’s would be used for insurance companies (principally captives) collective investment schemes and securitisation. A company which is an insurer or a collective investment scheme must obtain the consent of the Financial Services Commissioner before becoming a PCC. Securitisation companies must either seek permission from the Commissioner or the Finance Centre Director. Insurance companies As previously stated Gibraltar forms part of the EU and the current insurance legislation – Insurance Companies Act 1987 and various Regulations, embodies EU directives on insurance. The Insurance Companies Act allows firms in EEA member states to “passport” into Gibraltar without the need to go through full authorisation procedures and sets out provisions to allow Gibraltar firms to passport into EEA member states – freedom of services legislation. Gibraltar insurance companies are able to insure risks in EEA States either by setting up a branch in the appropriate territory or by providing insurance on a services basis, without having the additional administration or cost of being obliged to establish a licensed insurance presence in each of the individual territories where the risks are to be situated 28
A Gibraltar insurer wishing to carry on business through a branch in an EEA state or provide insurance services into an EEA state has to submit to the Gibraltar Commissioner of Insurance (its “home” supervisor) a notification containing information about the risks to be covered. Once the Commissioner is satisfied that the notification is in order and that the solvency position is satisfactory, he notifies the supervisory authorities in the State where the risks are situated (the “host” supervisor) of the company’s intention, providing a dossier of information including a certificate of solvency. No person can carry out insurance business in Gibraltar unless they are a licensee, an EEA insurer or another body from a defined list i.e. member of Lloyds. The use of the words insurance, assurance or reinsurance is also limited by Act. Applications for licences are made to the Financial Services Commissioner through the Insurance Supervisor, who must within six months either grant or refuse the application. The licence is not transferable and will specify the name under which the business is to be transacted and the classes of business authorised. An insurer cannot undertake both long term and general business, and may not undertake any non-insurance activities either in Gibraltar or elsewhere. A licensed insurer must at all times maintain a margin of solvency and must ensure that its liabilities are adequately covered by its assets, such assets being diversified as prescribed by the Act and Regulations. Gibraltar has proved itself to be a particularly attractive location for captive insurance companies as well as insurance companies direct writing within the EEA. . Captives set up, approved and supervised in Gibraltar can, as set out above, underwrite directly in EU member states. This is not possible from many other captive domiciles. In addition, it gives captives considerable flexibility in designing the insurance products they offer their parent companies. The ability to underwrite directly enables them to maximise the savings achievable compared to the more conventional insurance markets and to reduce fronting costs by removing the need for a local insurer to issue the primary cover. Another advantage of Gibraltar as a captive location is its lower cost of professional infrastructure when compared to other jurisdictions. Insurance managers To assist and promote the growth of the insurance sector business in Gibraltar the business of insurance management has been made a controlled activity by the Financial Services Commission Act 1989. A licensed insurance manager can offer its services to insurance companies located and licensed in Gibraltar. In effect its role is that of the undertaking of the administrative functions of the insurer and in acting as agent for the insurer in Gibraltar in respect of the management and running of its business. The skill and expertise expected of the manager is that required by the executive team of the insurance company and must meet the fit and proper criteria as dictated by the Act. Banks The banking sector in Gibraltar provides services to both local and offshore customers. Many banks specialize in providing private banking services and investment services to high net worth individuals. There are 15 authorized banks and 3 building societies in Gibraltar. The majority of these are either subsidiaries, branches of major UK, other EEA or US banks. As at June 2009, the total 29
assets of the banks amounted to approximately £14.2 billion. There are no exchange controls in Gibraltar and therefore bank accounts may be operated in most currencies. Banking legislation in Gibraltar mirrors EU legislation, through the required implementation of the European Banking Directives, and UK banking legislation, mainly reflecting the Provisions of the Banking Act 1987. The main banking legislation in Gibraltar is the Banking Act 1992. The Financial Services Commission implements supervisory practices governing the provision of banking services in and from within Gibraltar. The Banking Act 1992 vests the powers for the day-to-day supervision of banks in the Commissioner of Banking and the Banking Supervisor. Branches of EEA authorised banks may establish in Gibraltar without the need for further authorisation by the FSC provided certain notification requirements are met. Likewise, Gibraltar – incorporated banks have the right to establish in other EEA member states. The minimum capital requirement for a banking licence in Gibraltar is €5 million in line with EU requirements. The FSC is obliged to match UK standards of financial supervision and therefore based on the Basel Committee on Banking Supervision recommendations. The Gibraltar Deposit Guarantee Scheme was introduced in 1999 to satisfy the requirements of the European Directive on Deposit Guarantee Schemes and is designed to compensate depositors in the event of a default by a bank; it mirrors schemes operated in the United Kingdom. It is a condition of the bank’s licence that the bank is a member of the scheme Investment services Many companies have established business operations in Gibraltar providing a range of investment services. All firms operating in or from Gibraltar which fall within the definition of an investment firm must be authorised to carry on business under the Financial Services (Investment and Fiduciary Services) Act. The Investment Services Supervisor within the Financial Services Commission is responsible for the authorisation and regulation of firms offering investment services. The Act contains a comprehensive definition of investments and investment business and details controlled activities as being company management, professional trusteeship, insurance broking as well as establishing and conducting investment exchanges or clearing houses. Regulations made under the Act allow the imposition of requirements as to the conduct of licensed activities, provision for financial conduct, control of the promotion of investment or licensed activity. The Gibraltar Investor Compensation Scheme was brought into effect in 2003 and serves to protect investors of transferable securities, UCITS, money market instruments, financial futures, interest rate and currency swaps and equity swaps in the event of failure of a regulated firm. It is a requirement of an investment firms licence that it be a member of the scheme. Collective investment schemes Collective Investment Schemes fall under the Financial Services (Collective Investment Schemes) Act 2011 and are required to be authorised or recognised by the Financial Services Commission. The Commission recognises schemes which have a UCITS certificate or which are authorised or recognised by the FCA. The regulations give the Commission discretion to vary the requirements where the scheme does not fall within the definition of a UCITS. 30
Experienced investor funds In recent years the global expansion in funds has exerted pressure on established fund centres in order to obtain a segment of this market. Gibraltar enacted specific legislation for the fast tracking of funds for more sophisticated investors. The publication of the Financial Services (Experienced Investor Funds) Regulations 2005 saw the launch of Gibraltar’s Experienced Investor Funds regime. The Regulations implemented a framework for the establishment and operation of experienced investor funds and built upon the framework of the Financial Services (Collective Investment Schemes) Act 2005. The definition of an experienced investor is either a body corporate, unincorporated association, trust or individual whose net worth is in excess of €1 million, individual investors whose normal business activity includes investment related activity or a participant who invests more than €100,000 in a fund. An experienced investor fund (EIF) can be set up quickly and the fund administrator needs only to notify the regulator within 14 days of establishment. An EIF must be administered by a Gibraltar based or approved professional fund administrator, its directors must be pre-approved by the regulator and it must have a custodian or prime broker. The fund must also produce annual audited accounts. A further attraction of the Gibraltar legislation is that not only does it provide for a fast track set up, but also that funds can be established as protected cell companies under the Protected Cell Companies Act 2001. E-money The EU Directive 2000/46/EC on electronic money has been given effect by way of amendment to the Banking Ordinance. This deals with licensing, regulatory requirements and provisions for mutual recognition of e-money institutions across the EU. An e-money institution is only allowed to provide closely related financial and non financial services; the granting of any form of credit is prohibited. At start up an e-money institution must have initial capital of no less than €1 million with ongoing funds sufficient to safeguard the interests of customers. They should at all times have own funds which are equal to or above 2% of the higher of the current account or the average of the preceding six months’ total amount of their financial liabilities related to outstanding e-money. E-commerce Gibraltar has become an attractive location for e-commerce, due to the highly developed telecommunications infrastructure in Gibraltar which provides flexibility of bandwidth and high speed ADSL connections and substantial tax advantages made available to service providers. It is one of the few locations to have E Commerce legislation in place providing a framework for the legal recognition of electronic transactions and determines the activities and liabilities of service providers. 31
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