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17 March 2014
German Federal Fiscal Court ruling potentially provides reduced withholding rates to certain US entities
15 August 2014
28 April 2014
4 December 2013
With Gibraltar’s transition from tax haven to mainstream financial services centre almost complete, Michael Castiel examines the impending changes
Gibraltar has a common law system that is based on English law and is an EU territory as part of the UK member state. Being part of the EU requires Gibraltar to be a well-regulated jurisdiction, meeting all EU requirements. It is also committed to UN anti-money-laundering principles and international cooperation, and its government has entered into 17 tax information exchange agreements, easily surpassing the Organisation for Economic Cooperation and Development’s best practice requirements in this respect.
Additionally, as part of the EU, companies incorporated in Gibraltar have access to the single European market in financial services (banking, insurance and investment services).
Gibraltar has a completely independent tax regime from that of the UK, the acceptability of which has recently been endorsed by EU authorities. This allows companies established in Gibraltar access to the EU single market, which has particular benefits for anyone establishing a European holding company in Gibraltar to hold their investments in other countries within the EU.
The European Commission has in numerous instances reiterated that the Parent/Subsidiary Directive extends to Gibraltar and applies in relation to Gibraltar companies. So, even though Gibraltar does not presently have any double taxation treaties with other countries, provided a Gibraltar company holds at least 10 per cent of the voting share capital of a company of an EU member state (’the subsidiary’), it can receive dividends or any other form of payment from its subsidiary without any withholding being made by the country of incorporation of the subsidiary.
Gibraltar does not tax dividends received from such foreign subsidiaries and on receipt allows those dividends to be paid out by the company to its shareholders free of any withholding tax. By using this structure, dividends can be paid from a subsidiary incorporated in an EU country via Gibraltar to its parent company incorporated outside the EU without the payment of any withholding tax or the payment of any tax to any intermediary jurisdiction - a very tax efficient structure. One should also be aware that this ability for a Gibraltar company to receive dividends and on-pay them to shareholders free of any tax or withholding also extends, subject to meeting certain conditions, to subsidiaries resident outside the EU.
There are further attractions for investors too: there is no capital gains tax in Gibraltar and legislation has been introduced that exempts from tax all savings income such
as interest from recognised banks and dividends or income from financial instruments or quoted companies.
Gibraltar also has a vibrant insurance and financial services industry that takes advantage of the passporting opportunities resulting from EU membership.
Where a Gibraltar company is being used to carry on business in other jurisdictions within the EU, any profits earned by that company outside Gibraltar will not incur tax in Gibraltar as the commissioner of income tax has repeatedly confirmed that he is only entitled to tax income accruing in or derived from Gibraltar.
Gibraltar has no double taxation treaties with any other country but can avail itself of the EU Parent/Subsidiary Directive as explained above. It also has:
- no capital gains tax;
- no wealth tax;
- no inheritance tax;
- no VAT;
- no exchange controls;
- in most instances, no tax on foreign dividends received in Gibraltar;
- no withholdings on dividends paid out of Gibraltar;
- no withholdings on interest paid out of Gibraltar if the situs of the loan is outside Gibraltar;
- no stamp duty or transfer tax payable on the transfer of shares in a Gibraltar company;
- only a nominal amount (£10) of capital tax payable on the creation of authorised share capital or on loan capital and none payable on the issue of share capital.
The government has announced its intention to introduce extensive reform of Gibraltar’s tax legislation, from 1 January 2011. While the new legislation introduces fairly wide ranging anti-avoidance measures and transfer pricing rules, the general view is that these measures are being put in place ultimately to tackle those persons or entities who are flouting internationally agreed standards, principles and ethics, and seeking to obtain unfair advantage.
The anti-avoidance measures and other changes being introduced are not expected to have any negative impact on Gibraltar’s tax competitiveness. Indeed, although corporate income tax across the board has been set at 10 per cent from 1 January 2011, the government has made it clear that only Gibraltar-sourced income will be taxed in Gibraltar. The principle of taxing only Gibraltar-sourced income is established in applicable case law. Accordingly, notwithstanding the 10 per cent tax that will apply on all Gibraltar companies as of January 2011, all income that neither accrues in nor derives from Gibraltar will not be taxable.
Michael Castiel is partner at Hassans