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Newsletter | Articles   FOCUS ON GIBRALTARChief Minister Peter Caruana spoke at the Gibraltar Day celebrations in London in October and reaffirmed the colony's commitment to zero tax. He made what was probably the most important contribution of this year's celebrations when he gave an assurance that whatever the outcome of the European Commission's eventual ruling on Gibraltar's proposed new corporate tax regime, the Government was determined to maintain a zero tax rate for customers of the Rock's financial services industry. In the current limbo of uncertainty generated by Brussels' delay in ruling on the alleged State Aid implications of the measures, this undertaking will be welcomed by local service providers, by their existing overseas clients and by potential investors. "The government is absolutely committed to the concept of zero taxation for customers of the finance centre," said Caruana. BACKGROUND The origin of Gibraltar's burgeoning financial services sector dates back to the enactment of the Companies (Taxation and Concessions) Ordinance in 1967, which made provision for a special tax regime for international business. The industry has made great strides since those early days, and now includes a broad spectrum of professional services, ranging from private banking to captive insurance management. Recent developments include the establishment on the Rock of a number of Swiss portfolio managers, the commencement of direct trading on Eurex, Liffe and other exchanges, and the pioneering use by Deutsche Bank of Gibraltar as a domicile for securitisation/repackaging. Four other major investment banks including UBS Warburg have since followed suit. Recent legislative developments include the enactment of new laws governing e-commerce (Gibraltar was one of the first EU territories to implement the relevant directives), telecoms liberalisation and, most recently, the Protected Cell Companies Ordinance 2001. PCC legislation, in particular, is expected to boost the captive insurance and funds sectors. As the only British international financial centre within the EU, Gibraltar has a common law framework, a highly-educated workforce, and UK-trained professionals. It is renowned as one of the best- regulated finance centres in the world, and as such, has been held up as a benchmark jurisdiction by both the former UK Foreign Secretary Robin Cook, and by Andrew Edwards in his Review of regulation in the Crown Dependencies. A Deposit Protection Scheme came into effect in 1999 and an Investor Compensation Scheme will soon be in place. As part of the European Union, Gibraltar implements all relevant EU directives, and the Financial Services Commission, established in 1989 as a statutory body totally independent from Government, goes further by matching UK standards in financial regulation and supervision. In order to give a further boost to this important sector of the Gibraltar economy, the Finance Centre Division was established in 1997 within the Department of Trade and Industry, renamed 'Department of Trade, Industry and Telecommunications' (DTI&T) in 2000 reflecting the increasing diversification of the economy, and the emergence of telecoms and e-business as a fourth pillar (after shipping, tourism and financial services). The Finance Centre Division of the DTI&T is charged with the marketing and promotion of the financial services sector on the Rock, as well as strategic planning. Spacious offices in the prime development of Europort, which include a conference room with a spectacular view of nearby Spain and Morocco, are used as a meeting place for all the various financial services associations as well as their umbrella body, the Finance Centre Council. The Finance Centre Division of the DTI&T acts as the first point of contact for new financial services businesses wishing to establish a presence on the Rock. One important development to further the concept of a 'one-stop shop' for financial services was the move to adjacent offices in 1999 of the Finance Centre Licensing Unit, which is responsible for issuing certificates to exempt and qualifying companies, and qualifying individuals. James Tipping, who was appointed Finance Centre Director in September 1999, heads the Finance Centre Division including the Licensing Unit. Tipping, a Gibraltarian with 14 years' investment banking experience in London, New York and Latin America, has launched an aggressive rolling programme of marketing initiatives that has further raised the profile of the Gibraltar finance centre and attracted substantial new businesses, including well-known names such as insurance giant ACE, to the Rock. Further announcements on new entrants to the Gibraltar finance centre are imminent. Recent changes in tax legislation ...... CURRENT SITUATION Several different types of companies are currently available in Gibraltar. These include resident, non-resident, qualifying and tax exempt companies. The exempt companies further diversify into exempt non-resident and exempt resident companies. There is also a special status for holding companies and for branches of foreign companies. Substantial differences currently exist in the tax treatment of all of these various company types. Resident companies are subject to income tax of up to 35%. Non-resident companies are not subject to tax at all. Exempt companies pay a fixed annual government duty in lieu of tax (GBP 225 or GBP 200 depending on the company type), qualifying companies elect to pay a rate of income tax suitable to their planning, usually ranging from 5% to 15%. REFORM The new tax reform was initially intended to come into effect from July 1, 2003. However, the implementation of it was somewhat hindered by its review in several institutions of the European Union. In March 2003 the tax reform got approved by the EU's Council of Finance Ministers (ECOFIN), which confirmed that the tax reform does not constitute harmful tax measures. The government of Gibraltar has said that the EU's decision is highly significant, and a government spokesman affirmed that ECOFIN's judgement represented "a high level endorsement of its reforms". Still, the European Commission is supposed to make a ruling on the tax reforms according to the State Aid criteria. The new tax reform envisages that there will be only one type of company taxation in Gibraltar, applicable to all. There will no more be any difference between resident and non resident companies. The existing exempt status and tax qualifying status will be abolished. The income tax for all Gibraltar companies will be zero, and this will be applicable to all companies registered in Gibraltar, regardless of whether they trade locally or not. In order to maintain the income base for the Government, a new Company Payroll Tax and a Business Property Occupation Tax will be introduced. The Company Payroll Tax will be payable by those companies actually employing personnel in Gibraltar. The Business Property Occupation Tax will be payable by those companies actually using business premises in Gibraltar. Obviously, most of the current non-resident and exempt companies will not be subject to these two special taxes, because such companies usually neither employ anybody in Gibraltar, nor they use business premises. Therefore, all such companies will effectively remain zero-tax. All types of companies will, from the commencement date of the new law, be subject to a unified annual companies registration fee of £300 (if the company has income) or £150 (if the company has no income) inclusive of all current annual return filing fees. Only two local sectors of the economy will pay a tax on profit. These sectors are financial services providers and utility companies. The intended rate of profits tax for financial services providers is 8%. PURPOSE This tax reform very successfully neutralises the pressure against the so-called "harmful tax competition" exerted by organisations like OECD and the EU. In particular, the EU claims on grounds of the "illegal state aid" rules have been countered by this reform, as there will no more be a differentiated treatment between local and offshore companies. Perhaps most importantly, the reform leaves Gibraltar competitive as a tax haven and an offshore finance centre. This reform shows beyond any doubt that, unlike many other low-tax jurisdictions, Gibraltar will continue to stand strongly as a tax haven and will do everything to maintain it's leading competitive position among the offshore financial centres. BENEFITS
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