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When you start looking for European company formation options that provide you with tax or operational benefits, you narrow down the list pretty quickly overall to:

  • United Kingdom

  • Ireland (although not often)

  • Isle of man

  • sweater

  • Guernsey

  • malt

  • Estonia

  • latvia

  • Cyprus

  • Swiss

  • lichtenstein

  • Netherlands

  • Luxembourg

  • Gibraltar

There are many more, but I can’t think of any reason why you’d want to use any of the others when you have the choice, and frankly, there are definite preferences between them depending on what you’re doing. We will cover each one in detail in future posts, but for today we are going to focus on Gibraltar. As it stands today as of this writing, WE LOVE Gibraltar. But when I started looking into offshore jurisdictions, I didn’t really understand why I would love it, even though several people mentioned it to me.

On the surface, Gibraltar is not so spectacular:

  • While supposedly cheap by European standards, the formation or incorporation of a company in Gibraltar generally costs around £850 on the retail market not counting other required documents.

  • There is a 10% tax rate and no tax treaties

  • Company formation takes a minimum of 2 weeks and often takes much longer.

  • Director/ownership details are public

  • There is no national corporate banking to speak of

  • Above a certain level, audited financial statements are required.

Reading through the list it doesn’t seem that convincing to me and unless there are special circumstances I’d say if you’re going to form a Gibraltar resident company you’re probably better off looking elsewhere (alternatives discussed in other posts). It used to be useful for Gibraltar to be a member of the EU but not a member of the VAT regime, but updates to the VAT regime have mostly removed these benefits.

Favorable Tax Treatment

However, Gibraltar is one of only 3, actually only 2, jurisdictions within the EEA (European Economic Area) with a particular nuance to their corporate residency laws. Tax residency in Gibraltar is based on management and control ONLY, which means you can have a non-resident Gibraltar company. What does that mean?

A non-resident company is not subject to any local income tax, except on domestic source income (no income in Gibraltar = 0% corporate tax rate). So we have just gone from Gibraltar being a 10% tax jurisdiction, which is fine but not exceptional, to a fantastic 0% tax regime.

Non-resident Gibraltar companies also benefit from not having the same requirements when it comes to audited financial statements as resident companies.

Non-residence requirements

By default, a Gibraltar company is not a non-resident, so to ensure that it is, you must file a declaration with the local financial authority and meet the appropriate criteria. These include:

  • No funds were remitted to Gibraltar

  • There are no businesses in Gibraltar or from Gibraltar sources (not a big deal as it is a small market of around 80,000 people)

  • Management and control (in general, direction of the company) outside Gibraltar

This raises some questions like:

  • If funds cannot be remitted to Gibraltar (there is a sort of remittance base in their tax system), where should the company bank?

  • If management and control is not in Gibraltar, where should it be?

Banking and Reputation

Corporate banking in Gibraltar is pretty much non-existent anyway, while Gibraltar is quite well known for some of its banking services, it’s private banking, not corporate banking and certainly not for small businesses. The good news is that this means that other jurisdictions, particularly other European jurisdictions, are quite familiar with Gibraltar companies doing offshore banking and, relative to many other offshore jurisdictions, obtaining banking services for a Gibraltar company can be relatively easy.

Unfortunately, even if this is the case, the available jurisdictions that accept non-resident companies with strong banking are few and far between, so it is becoming increasingly attractive to be able to bank locally despite an asset protection argument. against doing so, but that’s for another post. Common places to look would be Malta, Andorra, Eastern European jurisdictions, or Caribbean jurisdictions. There are some gems in there, but many that aren’t particularly attractive.

Gibraltar actually has quite a strong reputation as it is what could be called a mid-coastal jurisdiction that competes within the global incorporation landscape both on reputation as well as taxes and other features. This is very useful in some parts of the world but in Asia it is largely unknown, as a result practical experience has shown that despite a much better reputation it can be more difficult to open a bank account for a Gibraltar company, for example, Singapore. than to say a company from the Marshall Islands, as illogical as it may seem. It is certainly possible to open accounts in jurisdictions such as Singapore and Hong Kong, but it is usually more complicated than doing it in some of the more well-known tax havens or, conversely, more complicated than opening an account in a European jurisdiction where Gibraltar companies are more common.

Constitution in Gibraltar

When actually forming a company in Gibraltar be prepared for a fairly rigorous process, this is not like opening a company in say Delaware or Anguilla where essentially providing the company name and owners is sufficient. To safeguard their reputation, Gibraltar agents will require details of the nature of the business comparable to that required to open a bank account and may refuse applications based on certain types of business, which could negatively affect the reputation of the jurisdiction. If you are aware of this ahead of time and have prepared yourself, the process can be relatively straightforward, but you can expect some hassle compared to more traditional offshore jurisdictions. The bottom line if you’re not prepared is that onboarding can take months instead of the optimal training time of two weeks if you’re organized and prepared.

When forming the company, be sure to make it clear that you are forming a non-resident company (unless for some reason you want the company to be a local resident). Forming a local business is certainly not the end of the world, as they will be subject to a 10% tax and audited financial statement requirements when sales volume exceeds a certain threshold. There is a quasi-territorial tax system which means depending on how the company’s operations are structured, the effective net tax rate can be quite low.

All companies in Gibraltar are “limited”.

Management and Control

For a Gibraltarian company to qualify as a non-resident, it must have foreign management and control. What is the problem with this? That may not be a problem, it could mean that the company may have an essentially stateless tax residency, much like how Apple Inc. has applied with a couple of its Irish subsidiaries in its tax strategy. However, for many of the world’s jurisdictions, determining corporate residency on the basis of management and control could create problems. For example, I would never recommend a Canadian company or individual to form a Gibraltar company unless management and control is exercised elsewhere, as Gibraltar does not qualify for Canada’s favorable tax regimes and is also taxed based on management. and control, meaning that the non-Gibraltar resident company would end up fully taxable in Canada.

In other words, whether to incorporate in Gibraltar is based on a variety of other facts and circumstances other than the merits of the jurisdiction itself.

In a nutshell, if you are going to form a company in Gibraltar and not make it resident there, make sure that foreign management and control does not make the company taxable elsewhere, perhaps in a more onerous place.

Asset protection and confidentiality

Confidentiality rules in Gibraltar are mediocre at best. While there are definite limitations on the exchange of information, which may arise as a result of tax information exchange agreements, FATCA, the EU Savings Directive and multilateral exchange agreements, Gibraltar definitely participates in exchange of information exchange initiatives. and is rated as largely compliant by the OECD. Also, as discussed above, the details of ownership and director are public, making confidentiality directly through a Gibraltar company difficult.

Circumventing this later challenge is accomplished through the use of nominees or corporate directors/shareholders, which are permitted as of this writing.

conclusion

In general, Gibraltar is one of the best European jurisdictions to form an offshore company based on your individual circumstances. Very favorable tax regimes are available, the reputation is good and you get access to European advantages as discussed in other posts. We like Gibraltar and use it quite often to form companies.

If you are interested in guidance on which training agents to use or how to go through the company formation process, please contact us and we will be happy to provide guidance.

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