When you start looking at European company formation options that provide you with tax or operational benefits, you narrow the list pretty quickly generally 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 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 that spectacular:

• While supposedly cheap by European standards, a company formation or incorporation in Gibraltar usually costs around GBP 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.

• Owner/manager details are public

• No national corporate banking to speak of

• Above a certain level audited financial statements are required

Reading through the list I don’t find it all that convincing and unless there are special circumstances I would say that if you are going to form a Gibraltar resident company you are 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 particular nuance to its corporate residency laws. Tax residency in Gibraltar is based on management and control ONLY, which means you can have a non-resident Gibraltarian company. What does that mean?

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

Non-resident Gibraltarian companies also benefit from not having the same requirements for audited financial statements as resident companies.

Non-residency requirements

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

• No funds were sent to Gibraltar

• No business in Gibraltar or from Gibraltar sources (not a big problem as it’s a small market of around 80,000 people)

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

This raises some questions like:

• If funds cannot be remitted to Gibraltar (there is a sort of remittance basis 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 practically non-existent anyway, while Gibraltar is quite well known for some of its banking services, it is 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. it 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 plenty that aren’t particularly attractive.

Gibraltar actually has quite a strong reputation as it is what you might call a mid-coast jurisdiction that competes within the global incorporation landscape on both reputation and tax and other characteristics. This is very useful in some parts of the world but in Asia it is largely unheard of, 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 e.g. 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 this is often more complicated than doing so in some of the better known tax havens or, conversely, more complicated than opening an account in a European jurisdiction where Gibraltar companies they are more common.

Constitution in Gibraltar

When you actually form 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 business comparable to those required to open a bank account and may reject applications based on certain types of business, which could negatively affect the jurisdiction’s reputation. If you are aware of this ahead of time and have prepared, the process can be relatively straightforward, but you can expect some hassle compared to more traditional offshore jurisdictions. The end result if you’re not prepared is that onboarding can take months instead of the optimal two-week training time if you’re organized and prepared.

When forming the company, be sure to clarify 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, while they will be subject to a 10% tax and audited financial statement requirements when sales volume exceeds a certain threshold. There is a quasi-land tax system which means depending on how the company’s operations are structured, the net effective tax rate can be quite low.

All companies in Gibraltar are “limited”.

Management and Control

For a Gibraltarian company to qualify as non-resident, it must be foreign managed and controlled. What is the problem with this? It may not be a problem, it could mean the company may have an essentially stateless tax residence, 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, which determine corporate residency on the basis of management and control, it could create problems. For example, I would never advise 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 also taxes based on management and control, meaning that the non-Gibraltar resident company would end up fully taxable in Canada.

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

Simply put, 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 somewhere more onerous.

Asset protection and confidentiality

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

Circumventing this subsequent 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 depending on your individual circumstances. There are very favorable tax regimes 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 formation agents to use or how to go through the company formation process, please contact us and we will be happy to provide guidance.