Legal System and the European Union
Gibraltar is a common law jurisdiction based on the British legal system with no other legal influences whatsoever. It has the distinction of being the only jurisdiction on mainland Europe which is entirely common law. Unlike Great Britain, however, Gibraltar has a constitution, although this primarily deals with the rights of the people of Gibraltar vis a vis the United Kingdom.
Gibraltar has its own legislature called the Gibraltar Parliament, which presently consists of 17 elected members and all laws passed by the Gibraltar Parliament are styled as ‘Acts’.
The judicial system is modelled on that of England and Wales. Gibraltar has its own courts up to the level of a Court of Appeal. Thereafter, there is a final appeal to the Privy Council in the United Kingdom. The Privy Council is made up of senior judges from England and Wales (including justices of the Supreme Court of the United Kingdom) reconstituted as the Privy Council. UK judicial precedent other than that of the Privy Council is not binding in Gibraltar but does have persuasive effect. Privy Council and European Court of Justice rulings are binding in Gibraltar.
All European Union legislation applies to Gibraltar except that relating to the Common Agricultural and Fisheries policies, turnover taxes (i.e. Value Added Taxes) and the common regime for imports. Gibraltar is outside the Customs Union and, therefore, is a third country to which the Community rules on free movement of goods do not apply. Community rules on free movement of persons apply to Gibraltar. Citizens of countries that appear on the EU Common Visa List require visas to enter Gibraltar. Approximately 100 countries appear on the visa list. These countries are mainly in Africa, Asia, and Eastern Europe.
General – No agreements exist in Gibraltar with regard to Double Taxation Relief (DTR). There are currently 20 Tax Information Exchange Agreements in place with the following countries; Australia, Austria, Belgium, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Iceland, Ireland, Malta, New Zealand, Norway, Portugal, South Africa, Sweden, The Netherlands, UK, and USA. As a result of Gibraltar having signed these agreements, Gibraltar features in the OECD’s white list in accordance with the criteria decided by G20 and OECD in April 2009. Gibraltar also features in the IMF’s and FAFT’s white lists.
Individuals – The taxation of individuals and companies in Gibraltar is governed by the Income Tax Act 2010. For taxation purposes, an individual is either resident or non-resident, and nationality is not a factor in determining tax status. An individual is ‘ordinarily resident’ if he/she is present in Gibraltar for a period of at least 183 days in aggregate in any one tax year, or; is present in Gibraltar in excess of 300 days in three consecutive years. The taxpayer will see that there are two methods of calculating taxation; the Gross Income Based system and the Allowance Based System. With the Gross Income Based system the top rate of tax liability has been reduced from 29% to 28% and the lowest rate falls from 8% to 6%. As for the Allowance Based system, all taxpayers will receive a tax credit equal to the higher of £300 or 2% of their tax bill. The Government is committed to reducing the level of personal taxation to no more than 15% by 2015/16 for those on the Allowance Based system.
Individuals with special status – Gibraltar’s private client tax regime is equally attractive. Its Category 2 status, aimed at high-net-worth retirees with a net worth of at least £2 million, essentially provides for individuals owning approved residential accommodation in Gibraltar to be subjected to tax of between £22,000 and £30,000 on their worldwide income. Category 3 status which applies to High Executive Possessing Specialist Skills (HEPPS) and which taxes only the first £120,000 of an individual’s remuneration (a maximum payable of £32,550) is also highly attractive for high level executives relocating to Gibraltar.
Companies – The introduction in 2011 of the Income Tax Act 2010, provided for a flat rate of taxation on corporate profits of 10% (this excludes those companies which deal as energy and utility providers which have to pay a rate of 20%), replacing the previous ‘tax exempt’ regime. Only those profits accruing or deriving in Gibraltar are taxable and so, properly structured, a Gibraltar company conducting its profit-making activity outside Gibraltar will not suffer taxation on any of its profits.
This is not the only attraction Gibraltar offers in the tax field – Gibraltar has no capital gains taxes, wealth taxes, inheritance taxes or stamp duty (stamp duty is only payable on the transfer or sale of any Gibraltar real estate or shares in a company owning Gibraltar real estate). Capital duty is a nominal £10 on the initial share capital, with a further £10 due on every subsequent increase of share capital. Gibraltar companies can receive dividends free from tax and can pay these onward without suffering withholding. Interest is similarly paid free from withholding taxes and received taxfree. Royalties and savings are not heads of taxation under the Income Tax Act.
Gibraltar company law is contained primarily in the Companies Act which is based almost exclusively on the 1929 Companies Act in England. Various modifications to the Companies Act have ensured the competitiveness of Gibraltar as a financial centre. The Companies Act is in the process of being reviewed to ensure its continued development to meet client needs.
The Companies Act allows for the incorporation of both private companies and public limited companies. There is no minimum authorised/issued share capital. Under the Companies Act it is possible to incorporate a company with a single shareholder. Foreign companies can register to do business in Gibraltar by registering under Part X of the Companies Act in order to establish a place of business locally or where the business undertaken in Gibraltar is significant, under Part XIV in order to set up a branch under Gibraltar law. Once registered in Gibraltar the company is able to benefit from the attractive jurisdictional Company law structure Gibraltar has to offer.
Alternatively companies can seek to re-domicile to Gibraltar, thus moving its place of registration from its jurisdiction of incorporation to Gibraltar. Although not all countries can re-domicile to Gibraltar, all EEA and Commonwealth members are, under Gibraltar law, able to re-domicile. A redomiciliation can take as little as 40 days provided all the company’s documents are in order and upon registration in Gibraltar, will cease to be considered as a foreign company.
Gibraltar partnership law is outlined in the Partnership Act which is based on the English Partnership Act 1890. The Limited Partnerships Act is also drawn from an English source namely the Limited Partnerships Act 1907. The soon-to-be enacted Gibraltar Limited Liability Partnership Act may provide yet another vehicle through which commercial transactions may be structured, in a manner similar to that described above.
Gibraltar Trust Law is essentially English trust law subject to the various statutory differences as have been enacted in Gibraltar. An example of the main differences is that under the Income Tax Act a trust established by a non-resident exclusively for the benefit of non-residents is exempt from income taxes. It is therefore common for Gibraltar trusts to specifically provide that no resident of Gibraltar can be a beneficiary, so as to ensure the tax exempt efficacy of the trust. If a previously non-resident beneficiary moves to Gibraltar, the trust is no longer exempt from income tax unless the beneficiary is a high net worth individual.
The Trusts (Recognition) Act Gibraltar incorporated the provisions of the Hague Convention of Trusts into its domestic law.
With a strong emphasis on effective, robust, management and control, Gibraltar is an ideal jurisdiction for structuring holding companies, trading entities and, increasingly, IP-owning vehicles.
E-commerce and Gaming – Gibraltar has developed into one of the leading e-gambling jurisdictions. It is a thriving financial centre which is host to many of the worlds major gaming operators, including; Betfair, William Hill, Ladbrokes, Bwin.Party and 888 Holdings. Gibraltar is also now host to the world’s largest listed online gaming business when, in 2011, industry giants PartyGaming and Bwin received shareholder approval to undergo a reverse takeover under the cross-border merger directive.
Conditions and licensing requirements at present cover areas such as; advertising, pay-out or prize money, customer privacy and data protection, audit and accounts. To date it has traditionally been the government’s policy to only issue licenses to reputable and well established gambling businesses so that 5 out of the top 10 gambling operators in the EGRs power 50 are Gibraltar licensees. With regards gaming taxation, licence holders are subject to gaming duty at the rate of 1% of the gaming yield, for income generated through poker and casino games, and 1% of the turnover for revenue obtained through sports betting. The total amount of gaming duty payable in both cases is subject to an annual minimum amount of £85,000 and an annual maximum amount of £425,000. A licence fee of £2,000 will also be required by the Licensing Authority upon the granting of the gaming licence and is payable annually thereafter.
Banking – The banking sector is well established in Gibraltar, with a wide range of banks providing both domestic and offshore banking facilities. The banking sector’s total assets are approximately valued at £9 billion, whilst the third party funds under management is valued at circa £9.2 billion. 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, such as Category 2 individuals.
In 2007 the International Monetary Fund (IMF) conducted a review assessment of Gibraltar’s banking and financial facilities. The report showed that Gibraltar had a strong financial centre which met international standards, and was found to be ahead of many onshore – and much larger – finance centres.
Funds – Gibraltar’s fund legislation provides for a range of fund products to be established; products range from private unregulated schemes, to experienced investor funds, to retail funds such as UCITS funds.
Bunkering and the Port – Gibraltar’s port is the 2nd largest bunkering port in Europe servicing over 6,000 vessels in 2011. With a protected harbour and a wide range of shipping facilities, Gibraltar sits at the entrance to the Mediterranean and is at a key location for crew changes, repairs, bunkering, ship chandlery requirements, replenishment and for stays while awaiting instructions. Gibraltar also provides a Red Ensign (Category 1) ship registry and facilities for ship arrests pending enforcements of judgments.
Gibraltar has transformed itself over the past few years to become an exciting, growing, wellregulated and fully EU compliant international finance centre.
The Financial Services Commission (“FSC”) – The FSC mirrors the Financial Services Authority in the UK. The FSC was set up, amongst other functions, to keep under review the operation of Gibraltar legislation and the effectiveness of supervision of financial services and to monitor the extent to which Gibraltar legislation and supervision comply with European Union obligations and supervisory standards governing financial services in the United Kingdom where Community law applies.
Anti-money Laundering – Gibraltar has transposed and given effect to the EU’s 1st, 2nd and 3rd Money Laundering Directives. Gibraltar is also largely compliant with the 40+9 special recommendations of the Financial Action Task Force (FATF/GAFI) and is actively working to update those few areas where international standards have recently changed.
The appropriate law enforcement agency in Gibraltar is the Gibraltar Financial Intelligence Unit (GFIU) which is a joint police and customs unit. The legal requirement on all of these businesses is that the identity and source of funds of their clients is known and recorded before entering into any arrangement. If the business finds or suspects that money laundering has or may be about to happen, the requirements impose upon them an obligation to make a report to GFIU.
Data Protection – In Gibraltar, the processing of personal data is regulated by the Gibraltar Data Protection Act 2004 (the DPA). Personal data is defined as any information relating to a natural person who is the subject of personal data.
Bribery – The new Crimes Act 2011 is not in force yet. It is modelled on the new Bribery Act 2010 that came into force in England and Wales on 1 July 2011.
Insolvency – The current law on insolvency is governed by Part VI of the Companies Act which primarily provides for insolvent companies to be liquidated. Liquidation is a procedure whereby a liquidator has custody and control of the company’s assets. The purpose of liquidation differs depending on whether the liquidator has been appointed by the members, creditors or by the Court.
The Insolvency Act 2011 was passed in September 2011 and while it is not yet in force, it is expected that it will be coming into force shortly.
An Overview of Gibraltar
Gibraltar is a British Overseas Territory situated at the southern tip of Spain, less than 15 miles from Morocco.
The Rock of Gibraltar rises approximately 1,400ft above the Straits of Gibraltar, at a strategic point where the Atlantic Ocean meets the Mediterranean Sea. The Rock’s strategic importance has been fundamental in Gibraltar’s rich history. The Etruscans and the Romans christened Gibraltar as one of the ‘Pillars of Hercules’, demarcating the limits of the known world.
In 711AD the Moors conquered Gibraltar, led by their leader Tariq Ibn Ziyed. Gibraltar was later christened ‘Jabal at Tariq’, meaning ‘Tariq’s mountain’. Through the years this became Gibraltar.
Gibraltar was seized by the Spanish in 1462 before an Anglo Dutch force, commanded by Admiral George Rooke captured the Rock during the War of the Spanish Succession in 1704. Formally ceded to Gibraltar through Article X of the Treaty of Utrecht in 1713, Gibraltar has remained British ever since and has been a vital military staging point, as evidenced during the Second World War, the Falklands War and the Gulf Wars.
In 1805 the Gibraltar Chronicle (the second oldest English language daily journal) was the first British newspaper to report Britain’s success at the Battle of Trafalgar and also the sad news of the passing of Admiral Lord Nelson, whose body was brought to Gibraltar aboard HMS Victory.
Throughout its history Gibraltar, through its unique location has welcomed immigrants from many different countries and cultures and today, the circa 30,000 population of the City is a mix of British, Spanish, Genoese, Jewish, Portuguese, Indian and Moroccan descent.
Visitors are often awed, if not a little confused by Gibraltar’s curious mix of Latin temperament lifestyle away from business and British work ethic. This is evidenced by Gibraltar’s own language, ‘Llanito’ which is a mix of the Spanish and English languages that is often spoken away from the workplace.
Gibraltar’s legal, administrative and educational structure is based on United Kingdom structures and standards with most of Gibraltarian graduates studying at British universities.
Aside from this, an international airport with daily links to the United Kingdom and our proximity to the sights and sounds of the Costa del Sol, Costa de la Luz and major cultural cities of Seville, Granada, Cordoba, Cadiz and Malaga make Gibraltar an attractive location to visit or to live and work. Access to the Spanish and European railway system is about fifteen minutes away by road from the Gibraltar frontier.
In contrast with the Caribbean financial centres, Gibraltar’s time zone is usually on central European time and therefore only one hour ahead of the United Kingdom (GMT +1), depending on the differing daylight savings times.
Gibraltar provides national and international telecommunications services that are on par with those of any major city. Gibraltar’s telephone network operates on a state of the art digital exchange utilising fibre optic technology. Most businesses and professionals operate on the Internet.
Gibraltar’s strategic location at the southern end of the Iberian Peninsula and at the entrance to the Mediterranean means its harbour continues to be a prime port of call for many of the world’s shipping lines. Bunkering and port-related facilities are therefore an important aspect of the Gibraltar economy.
Gibraltar mints its own coins and its currency is the Gibraltar pound (Gib £). The Gibraltar pound is at par with the pound sterling to which it is pegged. English sterling circulates freely in Gibraltar together with the Gibraltar-denominated notes and coinage. There are no exchange control restrictions, as there is complete freedom to remit funds into and out of Gibraltar and to convert funds into other currencies. Gibraltar companies and individuals may purchase real and personal property in the world without restriction.