The Lawyer global offshore report – Gibraltar

Gibraltar’s legislature has been busy recently, introducing a myriad of changes to its indigenous legislation in order to protect and enhance its burgeoning financial centre.

In 2004 Gibraltar, or the Rock, celebrated 300 years of its union with the UK. The Rock, thanks to its status as a Crown Colony, employs the English common law system. The law in Gibraltar follows developments in the law of England and Wales as closely as its peculiarities as a small dependency allow it. Its legislature consists of the governor (acting as representative of the Crown) and the House of Assembly, a body of 15 elected members. It therefore stands as a veritable microcosm of the legislative system of
the UK.

In the early 1990s, Gibraltar noted the financial potential of encouraging high-net-worth individuals to acquire residential property within its borders. To this end legislation was drafted in order to grant such individuals an attractive tax-planning package. This venture has enjoyed a very healthy response since its conception, with more than 250 individuals currently registered under the scheme. This has led to a plethora of recent legislative changes on the matter, geared towards streamlining and improving the scheme.

In 1999 the term ‘high-net-worth individual’ was dropped in favour of qualifying (category two) individual? The change was not merely superficial: the Qualifying (Category 2) Individuals Rules 1999 removed the former 30-day residence requirement and relaxed the once heavy restrictions on commercial activities on
the Rock by such individuals. Further development occurred in 2003, when the minimum amount of bank deposits required in order to qualify as a category two individual was raised from £1m to £2m.
July 2004 saw the minimum annual tax payable by this group increase from £10,000 to £14,000. The registration fee also doubled from £500 to £1,000.

At the same time, the maximum amount of assessable income was raised from £45,000 to £50,000. These increases reflect the popularity and demand for the scheme, which still presents a very attractive tax-planning package. They also more realistically reflect the time and resources dedicated to this product. The government of Gibraltar has been careful to back these legislative amendments
with exciting new residential property developments, specifically designed for the category two individual. These include the impressive Eastside Project, which is a marina/residential complex that will accommodate hundreds of new affluent residents wishing to take advantage of their category two status.

Such developments in the finance centre have not detracted importance from the Port of Gibraltar. Gibraltar, known as the key to the Mediterranean, has long been a cardinal naval fortress to the UK and other nations for centuries. More than 80,000 vessels transit the Strait of Gibraltar each year. This has prompted a concerted effort over the last few years to modernise, revamp and boost the efficiency of the commercial port, and ultimately turn it into a self-sustaining, successful commercial enterprise. The legislature has played its part in this venture by instituting the new Gibraltar Port Authority in November 1999. Its aim is to gel all areas of Gibraltar’s maritime centre into a cohesive unit, therefore achieving new and dynamic common goals.

The last couple of years have also seen major legal developments in the banking and financial services spheres. The Investor Compensation Scheme Ordinance 2002 ushered in the Gibraltar Investor Compensation Board, a body created to compensate participants who carry out business in Gibraltar and who have suffered financial grievance. This is a testament to Gibraltar’s ethos of protecting its investors. 2002 also saw legislation on the handling and use of electronic money within Gibraltar, thus putting the Rock in line with the latest banking methods. New regulations enacted in 2004 mean that Gibraltar’s insurance law now matches fully that of the UK and is fully compliant with the latest EU directives.

Nicholas Pinero is an associate at Marrache & Co, Gibraltar