Gibraltar’s recent development as a Jurisdiction for Funds has had two main driving factors. Firstly, the sophisticated, dynamic and exacting standards of regulation in Gibraltar which comply with all EU directives and are recognized internationally by entities like the IMF (IMF Report on the Gibraltar, May 2007) , which are a source of much comfort for managers and investors . Secondly, the introduction of the Experienced Investor Fund (‘EIF’) through legislation introduced at the end of 2005, has brought to the jurisdiction an innovation which is helping Gibraltar to further enhance its reputation as a genuine alternative to established and traditional funds centres.
The EIF is designed for professional, high net worth (more than EUR 1,000,000) or experienced investors, with a minimum investment of EUR 100,000 qualifying the investor as ‘experienced’ for the purposes of the legislation. The key advantages of the Gibraltar EIF is the speed and ease of set-up, as well as the flexibility of the vehicle, which allows for the EIF to be used for alternative investments, or smaller sized funds, hedge funds, real estate, private equity or fund of funds solutions.
In order to have the Fund licensed, the Gibraltar Regulator must be notified within 14 days of launch, and provided with the relevant documentation. As such it is not an application procedure but rather a notification one so there is no regulatory delay affecting the funds’ launch. The reason this can be done is that accompanying the notification must be an opinion from counsel stating that the Fund complies with the EIF Regulations which set out the legal requirements for the Fund. Similarly, the Fund is required to have a Gibraltar-based administrator (that is, itself, licensed and regulated in Gibraltar) and auditor, two ‘authorised EIF directors’ who have been approved by the Regulator to act as such, and a custodian or prime broker (located anywhere in the world). On the basis of the security that is offered by the regulation of the counter-parties to the Fund, the Fund itself can be set up quickly and launched without delay.
Although the EIF product is itself not unique in the Funds industry, the advantages that the Gibraltar solution offers as a domicile for funds are. As a member of the European Union Gibraltar companies are entitled to benefit from the European Parent Subsidiary Directive (‘PSD’). This allows Gibraltar funds, when structured correctly, to enjoy receipt of profits from European subsidiary companies without withholding tax implications, and without the threat of parent Gibraltar Company incurring double taxation on the profits of its subsidiaries. The use of the PSD in various scenarios provides a straightforward solution for fiscal optimization for the Fund.
Once the Funds have been remitted to Gibraltar, the next benefit is that dividends from the Fund can be distributed to non-Gibraltar investors without withholding tax. In addition there is no capital gains tax, wealth, or inheritance tax in Gibraltar, as well as no VAT. Gibraltar Licensed Investment Companies also have the right to passport investment services throughout Europe. This allows managers who set up operations in Gibraltar to have access to the European Market and increase the scope for the promotion of their products. The Protected Cell Company legislation in Gibraltar can offer further value for Fund managers looking for a vehicle to implement multiple strategies without the risk of cross liability between the cells or sub-funds.
The recent growth in the Fund industry in Gibraltar is undeniable. Across the board from service providers, whose numbers have increased dramatically in the last few years in order to service the growth, to investment managers and fund promoters looking for solutions for their clients, Gibraltar has come onto the radar as an alternative jurisdiction for funds. In particular for those who wish to launch smaller boutique or start up funds that are unable to raise the capital required to employ the services, or indeed receive the services from larger providers with sometimes prohibitively high thresholds and requirements.
With over 300 days of sunshine, proximity to the United Kingdom and easy access from the rest of Europe, a fairly unique position within the EU, and development of the Funds services industry, as well as the products in place to service this industry, it is not difficult to see that there is an extremely bright outlook for Gibraltar.