This news, which follows hot on the heels of the decision of the European Court of First Instance in December last year that Gibraltar is independent for all fiscal purposes, means that Gibraltar is once again open for ‘business as usual’ in relation to the use of Gibraltar companies as tax planning and corporate structuring special purpose vehicles. Companies established after 1 July 2009 will have the 10% Corporate Tax rate applied to them from the date of establishment.
The general 10% corporate tax rate will come into effect on 1 January 2011. This particular move is evidently designed at extending to the fullest permissible (by the EU) extent, the period of tax exemption enjoyed by exempt companies in Gibraltar till 31 December 2010. The exempt company had been the bread and butter of the Gibraltar economy until 2001 when the EU Commission challenged the legality of the exempt company tax regime which they found to fall foul of both EU material and regional selectivity rules.
Following a protracted legal battle, the new 10% rate of tax re-opens certain doors that, for some time, had been closed to the local financial services industry. For some time now it had been close to impossible for local professionals to market the Gibraltar company when other jurisdictions continued to offer significant advantages over the local solution. The reality today is that those jurisdictions offering zero tax and levels of regulation below the standard we have achieved in the local industry are growing increasingly anachronistic and will, without doubt, eventually have to toe the international regulatory line. It is true that a tax rate of 10% puts Gibraltar, in taxation terms, at a slight disadvantage to these other jurisdictions but, importantly, it’s crucial to note that Gibraltar’s offering is so much more than just low tax. A sophisticated and dynamic industry offering modern and relevant solutions through the medium of a highly qualified, dedicated and determined body of professionals, working together with a regulator that understands the need to balance regulation with the development of the product, results in something that is more than just the sum of its parts.
Gibraltar is experiencing significant growth in its funds industry, one which is developing into a real-world alternative to the established Caribbean jurisdictions. Our residency products, particularly relevant in times when the UK and certain Swiss cantons are targeting high net worth individuals through the abolition of certain tax schemes and the introduction of higher taxes, also generate a not insignificant amount of business for Gibraltar. Add to that the fully developed insurance, banking and gaming sectors and the picture for the future of Gibraltar’s economy takes on a distinctly rosy complexion.
None of this has happened by chance. Monitoring the wholesale change in the global financial services industry following the September 2001 attacks on the World Trade Centre, the focus on terrorist financing and, more recently, the economic crisis, Gibraltar has, over the years, been responding to the realities of the new economic climate. In a gradual move from offshore finance centre to specialist ‘onshore’ finance centre, Gibraltar has risen to all challenges, including the abolition of the exempt company; in spite of this, the economy has continued to grow unabated. According to the latest budget, Gibraltar’s economy grew 8% in the period 2007/2008 and, in the year to end of March 2009, approximately grew another 6%. Results like that, in the current economic environment, are certainly to be celebrated but, in the interests of the long-term stability of the local economy, there will be no champagne corks flying yet. Gibraltar’s financial services community is acutely aware of both how hard it has had to work to achieve such stability and the work it’s going to take to protect it.