Gibraltar has always had a ‘special status’. A British Overseas Territory located at the southern tip of the Iberian Peninsula, Gibraltar controls all its own affairs, taxation and policies, with the exception of defence and foreign relations. But unlike all Britain’s other overseas territories and dependencies, Gibraltar has also been part of the European Union since 1973.
Gibraltar benefitted from direct access to the huge European Economic Area (EEA) market of more than 500 million people, but was also exempt from the harmonisation of taxes, notably VAT. Over the last four decades, it has transformed itself into a fully compliant financial services centre, specialising in insurance, private clients, asset management, gaming and FinTech.
This ‘special status’ within the EU will end when the UK leaves the bloc. But with the closing of one window, another looks set to open. After Brexit, the UK government has committed to maintain and broaden access to its financial markets from Gibraltar. This means that, on exit day, Gibraltar-based firms will continue to be able to exercise their ‘passport’ rights into the UK.
The UK government has drafted a new statutory instrument – the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 – to enable financial services firms authorised in Gibraltar to continue to provide services and establish branches in the UK until at least the end of 2020.
The two governments have then committed to work to design a replacement framework to endure beyond 2020 similarly based on shared, high standards of regulation, and enforcement of this regulation, and underpinned by modern arrangements for information-sharing, transparency and regulatory co-operation.
The government of Gibraltar will be adopting a similar and reciprocal approach to the UK in its own ‘EU Exit legislation’. As a result, Gibraltar will be the only territory in Europe with automatic access to the UK in banking, insurance, investment services and any other similar area where EU cross-border directives currently apply.
This is highly significant because around 20% of UK motor insurance is currently written through Gibraltar insurance companies, 90% of Gibraltar’s funds operate outside the UCITS and AIFMD directives and as much as 60% of the online bets taken in the UK are taken by Gibraltar online entities. In fact about 90% of financial services and other services sold in Gibraltar are sold into the UK – not into the rest of the EU or the world.
The UK has also provided assurance that gambling operators based in Gibraltar will continue to access the UK market after the UK leaves the EU in the same way they do now and has committed to work closely with Gibraltar in respect of transport arrangements that support Gibraltar’s prosperity.
In addition, the governments of Gibraltar, the UK and Spain have jointly negotiated a landmark Gibraltar-Spain tax treaty that is designed to improve co-operation in the field of taxation and assist in the resolution of disputes as to the proper tax residence of companies and individuals where their place of residence between Gibraltar and Spain may be at issue.
The treaty provides for Gibraltar to keep legislation equivalent with EU law on matters related to transparency, administrative co-operation, harmful tax practices and anti-money laundering after it has left the EU. It also facilitates reciprocal exchange of tax information.
Importantly, the treaty recognises the existence of a separate and distinct tax authority in Gibraltar, as well as the Gibraltar rates of corporation tax. It includes a commitment from the Spanish government that the effective implementation of the treaty will lead to Gibraltar being removed from the Spanish blacklist of jurisdictions in the future.
The treaty also recognises, for the first time, the existence of registered Gibraltarians and of the Gibraltarian Status Act, which determines who can register and describe themselves as ‘Gibraltarians’. Cross-frontier workers will have the benefit of the elimination of double taxation under the provisions of the law of the state in which they are determined to be resident.
In other words, Gibraltar is now positioned to transition from one ‘special status’ to another. There are firms from all over the world that have existing EU operations that are based outside the UK. They face the risk of losing access to the UK’s affluent market of some 66 million people.
We see a substantial business opportunity opening for Gibraltar to act as a gateway for service providers from within the EU and elsewhere in the world to access the UK market and Sovereign is well placed to advise on the various attractive and advantageous options available.
With many of the short-term uncertainties now removed, Gibraltar has enduring strengths that mean it can continue to prosper as a trading and holding platform. A highly developed business services infrastructure where it is possible to passport financial services into the UK market, together with a highly competitive corporate tax rate and a stable Sterling-equivalent currency with few restrictions in moving capital or repatriating dividends.
Like the UK, Gibraltar does not levy withholding taxes on dividends but, in addition, the corporation tax rate is only 10% and this is not charged on income that is derived or accrued from outside Gibraltar. And, of course, Gibraltar was never part of the Customs Union and does not levy VAT.
Gibraltar offers a stable political and economic environment, fit-for-purpose regulations, a legal system that is modelled on the English structure, a highly qualified workforce and one of Europe’s most advanced fibre-optic communications networks. Legislation is also in place to encourage High Net Worth Individuals (HNWIs) and High Executives Possessing Specialist Skills (HEPSS) to establish tax residency in Gibraltar, affording them the opportunity to have the tax payable on their income restricted to a capped amount.
Sovereign was founded in Gibraltar in 1987 and today it is our largest group office and one of the most significant private sector employers in Gibraltar. Sovereign Trust (Gibraltar) Limited is authorised and licensed as a Professional Trustee and Company Manager by the Gibraltar Financial Services Commission.
With our global network, Sovereign is well placed to provide corporate services to both EU and non-EU companies looking at market entry into the UK. The services we provide range from business establishment, director services and company secretarial support, through to employee benefits, corporate and individual pension schemes, corporate and private client insurance, wealth solutions, accounting, payroll, as well as relocation assistance. Contact us to find out how Sovereign can assist your business or that of your client.