Gibraltar – Finance on Rock Solid Foundations by @PhilipVasquez

By Philip Vasquez, StretLaw Associate

Gibraltar – The Key to Becoming a Leading Finance Centre in a Climate of Dire Economic Straits is The Rock’s Solid Foundations of Diligent Compliance and Regulation.

The Rock

At present, aside from boasting a climate of warm weather and a welcoming community, the iconic Rock of Gibraltar increasingly hones an ideal setting for business and investment opportunities. The rapid transformation of Gibraltar’s progressively powerful reputation for doing international business is rapidly breaking through the carapace of the tarnished business image once associated with the peninsular in the millennium forgone. Despite its trivial size, Gibraltar has fast become a leading entity in international business. At the core of Gibraltar’s emergent success as an exciting and growing international finance centre lies a deep ethic on diligent compliance and regulation.

Financial Integrity

Over the past 15 years Gibraltar has progressed tremendously. Gibraltar’s upward reputation may be described to have dispelled the arduous convoluted misconceptions, as although it was once renowned for being an offshore tax haven, Gibraltar has become an onshore Finance Centre with full EU approval and international accreditation. Gibraltar’s journey to becoming a jurisdiction of full financial integrity is attributable to Gibraltar:

  • abolishing its former ‘tax exempt’ regime;
  • signing 26 Tax Information Exchange Agreements (hereby referred to as a ‘TIEA’);
  • keeping in full compliance with its obligations of the European Union (hereby referred to as the ‘EU’);
  • being recognised by international finance bodies such as the Organisation for Economic Co-operation and Development (hereby referred to as the ‘OECD’), the International Monetary Fund (hereby referred to as the ‘IMF’) and the Financial Action Task Force (hereby referred to as the ‘FATF’) as being fully compliant with international standards;
  • tightening up its criminal legislation in relation to tax and money laundering.

Tax

Gibraltar’s increasingly new-found status as a jurisdiction for doing business may arguably be attributable to its lucrative tax regimes which boast a 10% corporate tax rate and attractive tax residency regimes whereby income tax is capped at set amounts for high and ultra net worth individuals and executives. Such regimes have been found to be fully compliant with EU obligations and international standards.

Corporate Tax

Gibraltar’s new Corporate Tax rate of 10% commenced in 2011 following the introduction of the Income Tax Act 2010. The Income Tax Act also introduced the advent of the ‘tax exempt’ regime by the 31st of December 2010. Gibraltar’s ‘tax exempt’ regime, based in the Companies (Taxation and Concessions) Ordinance 1967, was a lucrative system of taxation whereby foreign entities were able to be liable to a maximum taxation of £225 in Gibraltar. The ‘tax exempt’ regime functioned on the premise of opening an ‘exempt’ company in Gibraltar. For such companies to be awarded an ‘exempt’ status, there could be no beneficial ownership in the company attributable to a Gibraltarian resident, and that very company could not carry out business in Gibraltar. Such a system also allowed for individuals to avoid inheritance tax and capital gains tax on properties purchased in Spain and Portugal. In contrast to such a system, Gibraltar’s new Corporation Tax is fully compliant with its EU obligations and has been found to be fully compliant to international standards.

Gibraltar Compliant with EU Obligations and its TIEA Repertoire

Gibraltar’s new Corporation Tax has been found by the European Court of Justice to be legal and compliant with the EU, for enshrined in Gibraltar’s constitution is the caveat which provides that Gibraltar holds full financial autonomy over matters of taxation. Gibraltar has also kept to all of its EU obligations, especially those that relate to financial services. But to give examples of such compliance, Gibraltar has transposed the EU Savings Directive (2013/48/EC 3) which gives regard to the taxation on savings income, the Exchange of Information directive (2011/16) which has been recognised by the OECD to be equivalent to a TIEA and most recently the Alternative Investment Fund Managers Directive to attract Funds managers, which is to be implemented this summer.

As a matter of fact, Gibraltar has signed 26 TIEAs with Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Malta, the Netherlands, Poland, Portugal, Sweden, the United Kingdom and other major OECD Member countries such as Australia, India, Mexico, New Zealand, South Africa and the USA.

Gibraltar Recognised as a Highly Compliant Jurisdiction

In addition to Gibraltar’s EU compliant nature and numerous TIEAs, the Rock’s purged image has been recognised by internationally accredited bodies. The IMF has repeatedly held Gibraltar’s regulatory and supervisory practices in banking and insurance, anti-money laundering and counter-terrorist financing regimes to be meeting international standards and to be ‘at the forefront of the development of good practices’. Over the same period, Gibraltar has pledged its commitment to transparency by implementing all of the recommendations contained in the OECD’s report of 2011, duly placing Gibraltar on the white list of jurisdictions which are compliant with the OECD’s internationally agreed tax standard.

Gibraltar has not only become a beacon of compliance, but Gibraltar has also become a pioneering jurisdiction in regulating financial practices, for it has placed itself in the European pilot scheme for automatic exchange of information. In addition to being compliant with all of its EU and international obligations, Gibraltar has increasingly taken a hard-lined approach to criminalizing tax and money laundering practices.

Gibraltar’s Hard Line against Tax Evasion & Money Laundering

Gibraltar’s commitment to curbing illegal tax evasion and monetary laundering practises may be evidenced in recent measures taken to criminalize such conduct. Tax evasion, for example, is an indictable offence in Gibraltar under the Income Tax Act 2010 section 67(3), which holds such conduct punishable with a maximum prison sentence of 7 years. Since 2008, Gibraltar has also shown its willingness to eradicate illegal tax conduct by opening itself to letters of request from other Member States in order to exchange information on criminal tax matters. Most recently, the Government of Gibraltar reiterated its firm view by stating that ‘tackling tax evasion and fraud is rightly a global priority’ and that it wishes to commit to such an ethic by cooperating with the United Kingdom and other EU member states, including Spain, as well as its TIEA signatories. Gibraltar is also presently preparing the ground for the implementation of the United States’ FACTA model to counter tax evasion by US residents using foreign accounts.

Hard Line Against Tax Evasion

In addition to Gibraltar’s hard line against tax evasion, legislation has been in place since 1988 to counter money laundering, mostly apparent in the Drug Trafficking Offences Act 1988 and the Crime (Money Laundering) Act 2007 which ensures compliance with EU requirements. The credibility of Gibraltar’s diligence to money laundering is evident in the Financial Action Task Force’s review of 2000 (hereby referred to the ‘FATF’) which classified the peninsular as a co-operative jurisdiction which was ‘close to complete adherence with the 40 FATF recommendations’. Gibraltar’s Financial Intelligence Unit was also formally admitted as a full member of the Egmont Group, the international network of Intelligence Units which strive to improve cooperation between Units in order to fight against money laundering and the financing of terrorism, in 2004.

Conclusion

Gibraltar’s ascent to a reputable jurisdiction of high financial integrity has evidently been achieved through a rapid and evolutionary trajectory of legislative regulation, international compliance and the diligent criminalization of certain practices. There is no secret to Gibraltar’s enviable success as an international finance centre. Apart from being able to host a high quality of life with almost 300 days of sunshine, Gibraltar’s financial regulatory and compliance repertoire are rock solid. Gone are the days of questioning Gibraltar’s integrity, for now in 2013 all aspects of Gibraltar’s business follow legal frameworks and procedures, therefore negating any suggestion that Business in Gibraltar is unregulated. Truthfully, as in the words of Gibraltar’s Chief Minister Fabian Picardo, “the culture of compliance is an essential prerequisite of how we do business in Gibraltar”.

© Philip Vasquez, 2013

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