In recent years, Gibraltar has developed into one of the most efficiently regulated offshore finance centres: ‘The Rock’ boasts favourable tax legislation, an English Common Law system and a prime geographical location, and crucially, it is the only offshore centre enjoying full membership of the EU.
These factors have made Gibraltar an increasingly attractive, secure and unique jurisdiction, which in turn has had a positive impact on the local property market. This is particularly evident in relation to high-net-worth individuals and private banking.
In the early 1990s, in an effort to promote its financial services sector and international reputation, Gibraltar introduced legislation to encourage wealthy or high-net-worth individuals to acquire residential property on The Rock. The Gibraltar High Net Worth Individual Rules, promulgated under the Income Tax Ordinance, were enacted in 1992 and have recently been amended.
The new Qualifying (Category 2) Individuals Rules 1999 came into operation on 1 November 1999 and resulted in those persons who had been officially termed as high-net-worth individuals ceasing to be known as such. These persons enjoying this particular privileged tax status are still, de facto, high-net-worth individuals, but legally their status title is now that of Category 2 individuals. Nevertheless, the changes are not merely superficial. Certain alterations have been made to the necessary conditions and procedures, making the new rules an even more attractive proposition for affluent men and women. However, the basis for these low tax limits remains unchanged – that is, to encourage wealthy individuals to establish a residence in Gibraltar.
An individual may be classified under the ‘Category 2’ banner if they meet, or undertake to meet, the vital requirement that approved residential accommodation in Gibraltar is available to them for their exclusive use for the whole of the year of assessment. Significantly, there is now no need for the minimum residency requirement in Gibraltar per annum. This means that, while the individual must buy or rent residential property that is approved by the government of Gibraltar and have that property for their exclusive use for the whole of the year, it is not necessary for them to live in that property for any minimum amount of time.
The other crucial requirement is that the individual should disclose to the government of Gibraltar that they have a minimum of £2m deposited in a reputable bank.
Because Gibraltar has no double taxation treaties with any country (not even the UK), and since it is internally self-regulated in tax and financial matters, a Category 2 individual is not susceptible to regular tax assessments by the UK tax authorities, unlike a high-net-worth individual in other jurisdictions, where such legislation is regulated and controlled by authorities from outside the jurisdiction. Furthermore, there is no need to declare any worldwide income or assets whatsoever. It is also noteworthy that an individual who wishes to relocate to Gibraltar will, upon death, be subject to zero inheritance tax. The Gibraltar government abolished inheritance tax recently and therefore there is no inheritance tax, VAT, capital gains tax or wealth tax in Gibraltar.
Requirements and benefits
As stated above, the vital requirement is that approved Gibraltar residential accommodation is available for the individual’s and family’s exclusive use during the whole year of assessment. This is not the sole condition, since there are prohibited activities to consider. A Category 2 individual may not engage in trade, business or employment in Gibraltar other than duties incidental to any trade, business or employment based outside Gibraltar or duties as a director of an exempt or qualifying company. Such a company may only be owned by non-residents, but Category 2 individuals enjoy the added advantage of being regarded as non-residents for such a purpose, thereby placing them in a privileged position vis-à-vis other residents. These prohibited activities must not have been undertaken within the five years immediately preceding the application, nor may the individual have been resident in Gibraltar during that period.
Provided that these conditions are satisfied, the finance centre director will – upon payment of a £1,000 application fee – issue a qualifying certificate confirming the individual’s new status, thereby ranking them as a Gibraltar resident. Thus, the individual will have successfully relocated to a European jurisdiction, which will in turn simplify the obtainment of visas for third countries. Unlike other Gibraltar residents, however, a Category 2 individual enjoys major fiscal advantages that non-residents benefit from. There is even provision for the income of a spouse or any child under the age of 18 or in full-time education to be deemed to be that of the Category 2 individual.
The Category 2 individual’s liability to tax is calculated in accordance with the ordinary and general tax rules in Gibraltar, which provide that the Rates of Tax Rules 1989 are applicable. This is nevertheless subject to an important proviso – namely that tax will be levied only on the first £50,000 of assessable income and the minimum amount of tax payable will be £14,000 per annum. Consequently, an individual who arranges their tax affairs competently will only have to pay what amounts to a nominal £14,000 in tax annually. It is this same fiscal flexibility by the Gibraltar government that has attracted sports betting leaders Victor Chandler and Ladbrokes to transfer their operations to Gibraltar, with other gaming giants set to follow suit. These major corporations enjoy a very privileged tax status – and so too does a Category 2 individual.
Property for Category 2 individuals
No exchange control regulations exist in Gibraltar on the investment of capital and property may be purchased anywhere in the world without restriction. Prior to this, of course, and in order to satisfy the aforementioned vital requirement, government-approved property in Gibraltar must be acquired.
Admittedly, property prices are notably higher than in the Spanish vicinity, but the level of quality materials and workmanship is high, certainly comparable with that of prime upmarket developments in European capitals. Also high is the standard of living, with the Rock of Gibraltar boasting an Anglo-cosmopolitan spirit, a warm climate, a low crime rate and a pleasant, amiable ambience. This is a successful, vibrant, low-tax finance centre, a sunny Mediterranean territory in the EU. Add to this the availability of a privileged tax status for high-net-worth individuals and the result is a perfect jurisdiction to relocate to, be it for business or retirement purposes.
To conclude, a Category 2 individual will benefit from residence in the EU and will be awarded a tax-paid certificate. In addition, the individual will have the right to exchange an EU driving licence for a Gibraltar equivalent or, should they hold a non-EU licence, they will be entitled to be issued with a Gibraltar driving licence. Very significantly, a Category 2 individual will have no need to declare their worldwide income and will only be subject to a flat rate of £14,000 per annum.
It is therefore understandable that Gibraltar is such an attractive proposition for high-net-worth individuals and that it has managed to attract thus far more than 280 individuals to The Rock through this residency programme.
Ben Marrache is name partner at Marrache & Co