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Newsletter | Articles Gibraltar tax-exempt companies to go The long awaited decision by the EU on Gibraltar’s tax-exempt company regime has now been made and looks like the end for these popular companies. Chief Minister Peter Caruana in a major speech said that the tax-exempt company agreement, "while not containing everything that we wanted, delivers sufficient certainty and stability to avoid the worst consequences for Gibraltar. Compared to what the economic position would have been if we had not reached an agreement, this is an excellent agreement." Under the agreement reached with the European Commission, tax-exempt companies will end by 2010. New entrants will be allowed only until June next year under certain conditions. The tax-exempt system is considered by the EC to be in breach of State Aid rules. It remains to be seen if any companies will want to leave before time and also if new entrants will be willing to enlist in the knowledge that the system will end within a few years. A further difficulty arose in that the territory’s alternative plan to introduce a zero tax rate fell foul of the EC’s regional selectivity rules. A committee has been formed by leading lights in the local finance industry to attempt to minimise their impact of the proposals. The decision in a nutshell: The Commission had previously asked that the Gibraltar tax-exempt company be repealed. The Gibraltar government did not agree. The tax-exempt regime violates the EC Treaty's ban on State Aid liable to distort competition, the EC says. The Commission wants to put a definite end to the last offshore tax regime in Gibraltar. The scheme must be phased out within the next 5 years, with 31 December 2010 as the final deadline. The number of beneficiaries that are to remain in place until then is capped at 8,464, which is the number of such companies that existed at the end of 2003. If those beneficiaries change ownership/activity before 30 June 2006, their benefits will be curtailed to 31 December 2007. If there is a change of ownership/activity after 30 June 2006, benefits will cease immediately. New entrants shall be limited to 60% of companies leaving in 2005 (limited to maximum of 823) and 50% for the first half of 2006. Such new entrants will have benefits until 31 December 2007. No new entrants shall be allowed after 30 June 2006. More information on Gibraltar companies is on our website.