Introduction
Gibraltar (a town that is also a country) is a British overseas territory located near the southernmost tip of the Iberian Peninsula overlooking the Strait of Gibraltar. The territory shares a border with Spain to the north. Gibraltar has historically been an important base for the British Armed Forces and is the site of a Royal Navy base.
The total area is 6,2sq km and the population of 28,875 consists of Gibraltarian (of mixed Genoese, Maltese, Portuguese and Andalusian descent), other British, Moroccan and Indian ethnicities. Spanish and
Llanito are spoken, with English being the official language.
The Rock of Gibraltar, as it is commonly known, is a massive limestone rock rising out of the sea to a height of 425m. It is often referred to as the Gateway to the Mediterranean and was originally a Phoenician trading post called Calpe. In Greek mythology it was the northern bastion of the Pillars of Hercules. Abyla (now Jebel Musa at Cueta) was the southern bastion. Hercules is said to have stood with a foot on each “pillar”, pushed them apart, and formed a bridge across the straits. During Phoenician domination of the Mediterranean, it was recorded that Calpe was the end of the world, the point beyond which no trader should venture.
Business Environment
Gibraltar has an excellent business infrastructure with good telecommunications; this coupled with the widespread use of the English language and a legal system largely based on English law makes the island a very convenient and effective business base.
There is a good range of professional services in Gibraltar, particularly for the banking, trust management and mutual fund sectors. The Government has understood the importance of e-commerce for the future of international business and is making a determined attempt to become a centre of e-commerce development.
Economic Environment
Self-sufficient Gibraltar benefits from an extensive shipping trade, offshore banking, and its position as an international conference center. The British military presence has been sharply reduced and now contributes about 7% to the local economy, compared with 60% in 1984. The financial sector, tourism (almost 5 million visitors in 1998), shipping services fees, and duties on consumer goods also generate revenue. The financial sector, the shipping sector, and tourism each contribute 25%-30% of GDP. Telecommunications accounts for another 10%. In recent years, Gibraltar has seen major structural change from a public to a private sector economy, but changes in government spending still have a major impact on the level of employment.
Taxation
Although residents of Gibraltar pay reasonably high income taxes, and there is estate duty, there are several tax-efficient mechanisms for making investments through Gibraltar.
There are no capital gains taxes, gift taxes nor wealth taxes in Gibraltar. The main tax for companies is income tax, as Gibraltar taxation system is similar to that of the United Kingdom and is administered under the Income Tax Ordinance. There are also property taxes and stamp duties on some transactions. Assessment and collection of tax is administered by the Commissioner of Income Tax; the tax year runs from 1 July to 30 June.
Non-residents are taxable on their income received in Gibraltar, but not if it is channelled through a trust or an exempt company (although exempt companies are in the process of being phased out, and will have been removed completely as a corporate vehicle by 2010). Also bank interest is exempt from tax, although the EU’s Savings Tax Directive, which came into effect in July, 2005, means that payments of interest and other savings returns made to EU citizens are reported to their home tax authorities.
Residents have traditionally been able to make use of High Net-Worth Individual (HNWI) status, and some expatriate executives were given tax-privileged regimes; in both cases the total tax bill was capped, so that additional income over the cap was free of tax.
Banking
Under the terms of the 1934 Currency Notes Act, the Government of Gibraltar issues banknotes which are legal tender alongside Bank of England banknotes in Gibraltar. These notes are backed by sterling reserves held by the Gibraltar government and can be exchanged at parity with sterling through a currency board arrangement. Clearing and settlement of funds is conducted in sterling, and Gibraltar banknotes in circulation bear the words “Pounds sterling”. The euro is unofficially accepted in Gibraltar by most retail outlets, though not by the Post Office or by some payphones.
The banking sector is well established in Gibraltar in both the offshore and local market. There were 26 banks in Gibraltar in 1996, but this number had dropped to 17 by 2008.
Most of the banks established in Gibraltar are branches of major UK, European or US banks. Much of the banking activity in Gibraltar is directed to asset management for high-net-worth individuals, not least because Gibraltar has tried hard to attract such people with special tax regimes.
Financial services in Gibraltar are regulated by the Financial Services Commission. The Commission introduced important changes to the way it supervises locally incorporated banks and non-EEA branches in 2002. Within this time the FSC had been rolling out a risk based approach to supervision, where the supervisory team evaluates an institution in terms of the risks posed to an institution in the way it does business or the type of business it is in.
Offshore Banking
Gibraltar was one of the first British dependent territories, which developed tax-exempt corporate forms for offshore business. It has quite high internal tax rates, but for incoming investment it offers low tax regimes. It is probably the cheapest offshore jurisdiction in Europe.
Gibraltar is subject to much EU financial legislation and can apply Common European Passport regulations in the insurance, banking and fund management spheres. However, Gibraltar has not implemented the Common Agricultural Policy (CAP), indirect taxation (VAT) and Common external tariffs.
