Under the Companies Ordinance 1930 all incorporated companies in Gibraltar are required to prepare accounts and have them audited by independent accountants.
Auditors, who are individuals, are appointed by the directors of a company, must be independent of the company, and must be registered under the Auditors Registration Ordinance.
The European Commission announced in 2001 that it would begin a review of Gibraltar's exempt and qualifying company regimes, but after Gibraltar sued the Commission to prevent the review, the European Court of Justice ruled in Gibraltar's favour in April 2002.
However, in July, 2002, Gibraltar's Chief Minister, Peter Caruana announced the territory's new corporate taxation policy (which was to have been applied from July 2003, but fell by the wayside), which included the abolition of the existing corporate forms which allowed zero taxation, the Exempt and Qualifying companies.
In March, 2003, the EU's Council of Finance Ministers confirmed that the reforms did not constitute harmful tax measures. However, in April, 2004, the Commission argued that the new rules would give companies domiciled in Gibraltar an unfair advantage over their counterparts in the UK, under a principle known as 'regional selectivity'. The Commission also took issue with the fact that since the taxes were to be based on payroll and the occupation of business premises, offshore companies registered in Gibraltar would be unlikely to incur any tax liability. The EC therefore rejected the reforms, effectively suggesting that for taxation purposes, Gibraltar should be considered part of the United Kingdom.
Chief Minister, Peter Caruana slammed the EC for suggesting that the jurisdiction was fiscally part of the United Kingdom, pointing to its 1969 constitution, which gives the territory fiscal autonomy.
Gibraltar dissolved its qualifying companies tax regime in January, 2005, as negotiations continued in Brussels. In a move that cost the Gibraltar government an estimated GIP1.5 million in annual tax revenues, the remaining qualifying companies, of which there were about 80, switched to the ‘exempt’ companies regime. “Each qualifying company has been dealt with on an individual basis and alternative arrangements made,” said the government.
Later in the month, it was announced that Gibraltar had been given until 2010 (2007 for new companies) to phase out its exempt company tax regime after the European Commission ruled that the scheme violated EU state aid rules.
The government of Gibraltar welcomed the European Commission's approval of the Exempt Company Status Agreement as an acceptable compromise.
Then in June 2007, further major changes to Gibraltar's corporate tax regime were announced in Peter Caruana's Budget speech.
Mr Caruana explained that:
"The Tax Exempt Company has been the backbone of the development and growth of both our finance centre and the online gambling industry, and thus of a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."
"In order to comply with EU law we must phase out the tax exempt company in 2010. However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model."
"Since it is no longer legally acceptable to have one tax model for ‘local’ companies and a different one for ‘foreign’ companies it is necessary to have a low tax system for all companies because without a low tax system for overseas companies they will leave, and our economy will suffer hugely. Thousands of jobs would be lost, as well as significant Government revenue. I have therefore already said, and I reaffirm now, that the Gibraltar Government is irrevocably committed to the principle of ‘low tax’ for our economic operators."
"By mid-2010 the Government will have introduced an across the board flat, low corporate tax rate. This will most probably be set at 10%, but in any event not higher than 12%. This will be similar to arrangements that already exist in Ireland, Cyprus, Malta and other EU Countries."
Caruana explained that he envisaged a further cut in the rate next year, before moving to the rate of between 10% and 12% from 2010, adding that: "My strong preference will favour the bottom end of that range."
In December 2008, the European Court of First Instance ruled in favour of Gibraltar, stating that the European Commission was wrong to argue that the tax reforms proposed in 2002/03 were in breach of state aid rules, and effectively giving the jurisdiction licence to set its own tax rules.
The Court dismissed the EU Commission’s case, and stated that although the UK is representative of Gibraltar, Gibraltar does, however, have fiscal autonomy from the UK, and therefore can introduce its own individual tax system (the aforementioned 10-12% corporation tax).
In a statement to the press at the time, Peter Caruana, Gibraltar's Chief Minister, said he was "overjoyed" by the outcome.
"The Court has found in Gibraltar’s favour and has accepted our arguments on each and every issue, relating both to regional selectivity and material selectivity, and has ordered the commission to pay the Gibraltar government’s legal costs.”
“This needs to be clearly understood. Had Gibraltar lost the Regional Selectivity case, we would have had to adopt the UK’s company tax system and company tax rates. That would result in the bulk, if not all, of the finance centre and gambling companies leaving Gibraltar. That would have meant the loss of thousands of jobs throughout our economy, and a very large fall in government revenue. This in turn would have rendered unsustainable our current level of public services and public sector employment.”
“This is a huge and vital victory for Gibraltar. A threat to our economic, social, and thus political well-being, has, once again, been successfully seen off. I believe that the economy of Gibraltar now has the opportunity to forge ahead to the next level of growth and development, to fulfil its great potential and thus to guarantee that we shall bequeath economic and social prosperity and stability to our children, grand children and future generations. “
”Once again, this small community has demonstrated that, when right is on our side, and we hold our nerve and we behave reasonably and intelligently, we have the ability and determination to defend our rights and interests as a people, even when they are challenged by more powerful entities and forces.”
”On behalf of the people of Gibraltar, I wish to thank all those companies in the financial services and gambling sectors and other sectors of the economy that have had the faith and confidence in us to stay with Gibraltar during these difficult and uncertain times.”
“The threat that Gibraltar has faced cannot be understated, nor therefore, can the importance of this victory to Gibraltar and its people and our future.”
In his 2009 budget speech, Caruana confirmed that a 10% corporate tax would apply in the jurisdiction from January 1, 2011, and that the Exempt Company regime would be rescinded by the end of 2010.
"It is essential for Gibraltar’s socio-economic prosperity that our corporate tax rate should be as competitive as is compatible with government’s revenue needs. Without this there would be large scale loss of economic activity and job losses,” he told the House.
“Existing corporate taxpayers will be huge windfall beneficiaries of the need to eliminate tax exempt status, and its replacement with a low rate for all companies. The new rate will be 10%. Energy and utility providers will pay a 10% surcharge and will thus suffer a rate of 20%. These will include electricity, fuel, telephone service and water providers,” he explained.
Caruana reassured that the government would allow existing Exempt Status Companies to keep their tax benefits until 'the last possible minute': "Most Exempt Status companies currently hold exemption certificates that are valid, subject to repeal of the legislation, for 25 years. The Government therefore feels honour bound not to remove the tax benefit provided by the exemption certificate until the last possible moment. That will therefore occur at midnight on December 31, 2010, by means of a repeal of the Companies (Taxation and Concessions) Act."
The remainder of this page deals with the corporate regime prior to the aforementioned changes.
Gibraltar Limited Companies are incorporated under the Gibraltar Companies Ordinance 1930 which is based on the English Companies Act 1929. The basic rules are as follows:
The Company Limited by Guarantee, and its sibling, the Company Limited by Guarantee and having Shares, have the nature of mutual companies, and as such have normally been used essentially for charitable and non-profit purposes.
Lately they have come to be used sometimes for private family foundations in place of discretionary trusts. In addition, they have been used for proprietary and members' clubs in the international leisure and timeshare resort industry, where they meet all the requirements of modern EU (and Spanish) law.
The Exempt Company status ceased from January 1, 2011 - See above for changes to the Exempt Company regime
It was Gibraltar that originated the exempt company form, which has been widely copied by other jurisdictions (see above for details of negotiations with the EC over the future of exempt companies). The low set up cost made them ideal for property and investment holding, international trading and sales agencies, particularly if trade was being carried on between two high tax jurisdictions.
The exempt company was the
main offshore vehicle in Gibraltar.
An exempt company could be
either incorporated in Gibraltar
under the Gibraltar Companies
Ordinance, or incorporated
outside Gibraltar but registered
as an overseas company under
Part IX of the Companies Ordinance.
If a company obtained exempt status, the company was be exempt from corporate tax and stamp duty (save in certain specific instances) in Gibraltar under the Companies (Taxation and Concessions Ordinance) 1984 (as amended).
Shares in an exempt company could be transmitted free of estate and stamp duty on the death of the shareholder. An exempt company paid a flat rate annual fee regardless of profits. A company incorporated in Gibraltar which was ordinarily resident paid a flat rate fee of GIP225 per annum, whilst a non-resident company incorporated outside Gibraltar paid a flat rate fee of GIP200. Fees payable to non-resident directors and dividends paid to its shareholders were not subject to a withholding tax. For a company to obtain and retain its tax exempt status, it had to fulfil the following conditions:
The privacy of exempt companies was protected by Section 14 of the Companies (Taxation and Concessions) Ordinance 1984, which states:
14(1). ... the Financial and Development Secretary and every person having an official duty in the administration of this Ordinance shall regard and deal with all documents, information and declarations relating to the identity of the beneficial owners or persons interseted in any shares, or bearer certificates or coupons issued under the provisions of this Ordinance as secret and confidential.
Disclosure is permitted for the purposes of any criminal or civil proceedings in which such document, declaration, matter or thing is material (Section 14(3)).
A public company is defined as one which is not a private company and which has at the end of its name the words 'Public Limited Company' or 'P.L.C.'. A public company must have a minimum of two members.
The Gibraltar 1992 Company was introduced to implement the EU Parent/Subsidiary Directive 90/435. See Direct Corporate Taxation for details of the considerable tax advantages accruing to a 1992 Company. The 1992 Company is a normal private company limited by shares which conforms with the following conditions:
See above for details regarding the abolition of Qualifying Companies in January 2005.
A company incorporated in Gibraltar or a registered branch of an overseas company was eligible to apply for Qualifying Company status subject to conditions which were largely the same as those applying to an exempt company (see above). A Qualifying Company paid tax on its profits at a rate agreed with the Financial and Development Secretary and stated on a certificate issued to the company. A qualifying company certificate was valid for 25 years from the date of issue.See above for details of the abolition of Qualifying Companies in January 2005.
According to the legislation, a Qualifying Company paid tax at a rate (between 1% and 35%) agreed between the company and the authorities. This type of 'designer' tax arrangement was intended to allow a company to slide under the bar of its home tax regime by paying just the amount of tax required to escape anti-avoidance rules. In practice most Qualifying Companies agreed to pay between 5% and 10% tax, and the form became more the standard Gibraltar low-tax offshore entity for significant trading companies.
A qualifying company had to have a minimum paid-up capital of GIP1,000 and deposit GIP1,000 with the Accountant-General against future tax liabilities. Qualifying companies in the financial sector had to pay annual fees to the Financial Services Commission:
In effect this form broadened the concept of the exempt company and was particularly aimed at helping finance sector companies. See Offshore Legal and Tax Regimes for further details.
Qualifying companies needed to submit accounts to the Gibraltar Commissioner of Income Tax, and normal income tax legislation applicable to resident companies was applied to calculate the assessable profits of the company. Although the qualifying company was subject to tax at a variable rate, as explained above, most of the current qualifying companies were taxed at 5%.
If a foreign company intends to establish a branch or a permanent place of business in Gibraltar, it must within one month deposit with the Registrar of Companies a certified copy of its Memorandum and Articles of Association, a list and particulars of its directors and company secretary, and details of one or more resident individuals authorised to receive notices and communications. Once registered, the foreign company will be treated in the same way as a Gibraltarian company, and can take exempt or qualifying status if appropriate. The annual fee for a branch registration at the time of writing is GIP300.
A company which is incorporated in Gibraltar (whether or not exempt), owned by non-residents of Gibraltar and managed and controlled by directors who reside and hold board meetings outside Gibraltar is considered to be non-resident.
A non-resident company pays Gibraltar corporation tax only on its income derived from or remitted to Gibraltar.
A non-resident company pays an annual tax at the time of writing of GIP200.
Partnerships are governed by the Partnership Act (as updated), which is based on the English Partnership Act 1890. Partners may be individuals or companies. In a general partnership, a partner's liability is unlimited. Under the Business Names Registration Ordinance, partnership names must be registered if they differ from the surnames of the partners. Partnership agreements and financial accounts do not have to be filed although a partnership that is resident in Gibraltar must submit accounts annually to the Commissioner of Income Tax. Partnerships are, of course, fiscally transparent. The minimum number of partners is two, and the maximum number 20, although this does not apply to professional firms.
Limited partnerships are governed by the Limited Partnership Act, which is based on the English Limited Partnership Act 1907. Partners may be individuals or companies. A limited partnership consists of one or more general partners with unlimited liability, and one or more limited partners, who are liable only to the extent of their capital contributions. A limited partner does not take part in the management of the partnership and is not entitled to dissolve the partnership by notice. A limited partnership must file a statement with the Registrar of Companies giving details of general and limited partners, and the amounts of capital contributed, in order to benefit from limitation of liability. A limited partnership must have its principal place of business in Gibraltar.
The business name of a sole trader, who has unlimited responsibility for his liabilities, must be registered with the Registrar of Companies, if it is other than the name of the sole trader. An annual return must be submitted to the Commissioner of Income Tax.
The basic law of trusts is contained in the Gibraltar Trustee Act, which is virtually a copy of English trust legislation. Gibraltarian legislation affecting trusts also includes the Perpetuities and Accumulations Ordinance, the Trustee Investments Ordinance, the Bankruptcy Ordinance and the Trusts (Recognition) Ordinance. Appeal is to the Privy Council.
The Hague Convention has been implemented, but there are no provisions for the exclusion of foreign inheritance laws or for the nonrecogition of foreign judgements.
Under the Bankruptcy Ordinance there is statutory protection against creditors for asset protection trusts, providing the settlor is an individual, and was not insolvent at the time of the disposition, nor became so as a result of it.
Trust documents are in English, and there are no requirements for registration except that Asset Protection Trusts must be registered with the Registrar of Dispositions. There is no stamp duty. The normal perpetuity period of a Gibraltar trust is 100 years. There are no restrictions on the accumulation of income during the perpetuity period.
Legislation has not yet been introduced to provide for purpose trusts.
The Gibraltar Private Foundation Ordinance 1999 was intended to establish a regime for foundations as 'vehicles for the holding of private assets endowed on the foundation for the benefit of identified persons or classes of persons', and was scheduled to become effective from 1st January 2000. This legislation fell by the wayside, leaving the situation with regard to Gibraltar foundations uncertain.
However, the Income Tax Act 2010, in force from January 1, 2011, provides within its definition of a trust for tax purposes 'any disposition, agreement or arrangement of like nature', thus including foundations.