Whenever you start in search of European company formation options that may provide tax or operational advantages you cut the list pretty quickly generally to:
- UK
- Ireland (though rarely)
- Isle of Man
- Jersey
- Guernsey
- Malta
- Estonia
- Latvia
- Cyprus
- Switzerland
- Lichtenstein
- Netherlands
- Luxembourg
- Gibraltar
There are lots more but I am unable to consider any reason you’d need to use any of the others once you’ve got those to pick from and admittedly there are definite preferences amongst those depending on what you are doing. We’ll cover each intimately in coming posts but for today we will give attention to Gibraltar. Because it stands today as of this writing we LOVE Gibraltar. But once I first began studying offshore jurisdictions I didn’t quite understand why I might adore it regardless of it being mentioned to me by several people.
On the surface Gibraltar is not that spectacular:
- While supposedly inexpensive by European standards Gibraltar company formation or incorporation typically costs around 850 GBP within the retail market not counting other required documents
- There is a 10% tax rate and no tax treaties
- Company formation takes a minimum 2 weeks often dragging on for much longer
- Director/ownership details are public
- There is no domestic corporate banking to talk of
- Over a certain level audited financials are required
Reading the list it doesn’t sound that compelling to me and unless there are special circumstances I’d say for those who’re going to form a resident Gibraltar company you are probably higher off looking elsewhere (alternatives discussed in other posts). It was that Gibraltar being an EU member but not a member of the VAT regime was helpful but updates to the VAT regime have mostly eliminated these advantages.
Favorable Tax Treatment
Nevertheless, Gibraltar is one among only 3, really only 2, jurisdictions throughout the EEA (European Economic Area) with a selected nuance of their corporate residency laws. Tax residency in Gibraltar relies ONLY on management and control, which suggests you possibly can have a non-resident Gibraltar company. What does that mean?
A non-resident company is not chargeable for any local income taxes except on domestic source income (no income in Gibraltar = 0% corporate tax rate). So we have just gone from Gibraltar being a ten% tax jurisdiction, which is OK, but not exceptional, to a incredible 0% tax regime.
Non-resident Gibraltar firms also profit from not having the identical requirements on the subject of the likes of audited financial statements that resident firms have.
Non-Residency Requirements
By default a Gibraltar company will not be non-resident so to make sure it’s it’s essential to file according with the local financial authority and meet the suitable criteria. These include:
- No funds remitted to Gibraltar
- No business in Gibraltar or from Gibraltar sources (not a giant deal because it’s a tiny market of around 80 000 people)
- Management and control (generally speaking directorship of the corporate) outside of Gibraltar
This does raise some questions similar to:
- If no funds could be remitted to Gibraltar (there is a type of remittance basis of their tax system) where should the corporate bank?
- If management and control is not in Gibraltar where should it’s?
Banking & Status
Corporate banking in Gibraltar is virtually non-existent anyway, while Gibraltar is fairly well-known for a few of their banking it’s private banking not corporate banking and definitely not for small businesses. The excellent news is this implies other jurisdictions, particularly other European jurisdictions are fairly acquainted with Gibraltar firms banking abroad and relative to quite a lot of other offshore jurisdictions gaining banking for a Gibraltar company could be relatively easy.
Unfortunately, regardless that that is the case the available jurisdictions that accept non-resident firms with strong banking are few and diminishing so it’s becoming increasingly attractive to have the option to bank locally regardless of an asset protection argument against doing so but that is for an additional post. The common places to look can be Malta, Andorra, eastern European jurisdictions or Caribbean jurisdictions. There are a number of gems in there but quite a bit that are not particularly attractive.
Gibraltar actually has a reasonably strong popularity because it is what is likely to be called a mid-shore jurisdiction competing throughout the global incorporation landscape on popularity as much as on tax and other features. This could be very helpful in some parts of the world but in Asia it’s a really unknown because of this hands on experience has shown regardless of a significantly better popularity it will possibly be harder to open a checking account for a Gibraltar company in say Singapore than for say a Marshall Islands company as illogical as that may appear. Opening accounts in jurisdictions similar to Singapore and Hong Kong is definitely possible but typically more of a hassle than doing so with a number of the more well-known tax havens or against this more of a hassle than opening an account in a European jurisdiction where Gibraltar firms are more common.
Incorporating in Gibraltar
When actually forming an organization in Gibraltar be prepared for a reasonably rigorous process, this will not be like opening an organization in say Delaware or Anguilla where essentially just providing the name of the corporate and owners is nice enough. So as to safeguard their popularity that Gibraltar agents would require details concerning the nature of the business comparable to what’s required to open a checking account and will decline applications based on certain kinds of business, which could negatively impact the popularity of the jurisdiction. When you’re aware of this prematurely and have prepared the method could be relatively smooth but expect some hassles as compared with more traditional offshore jurisdictions. The final result for those who’re not prepared is incorporations can drag on months quite than the optimal two week formation time for those who are organized and ready.
When forming the corporate remember to make clear you’re forming a non-resident company (unless for some reason you wish the corporate to be resident locally). Forming an area company definitely is not the tip of the world, while they might be subject to a ten% tax and audited financial plan requirements when the sales volume exceeds a certain threshold there may be a quasi-territorial tax system in place which means depending on how operations of the business are structured the online effective tax rate is likely to be quite low.
All firms in Gibraltar are “limited”.
Management and Control
For a Gibraltar company to qualify as non-resident it should have foreign management and control. What is the problem with this? It won’t be an issue, it would mean the corporate can have essentially stateless tax residency very like how Apple Inc. has applied with a few their Irish subsidiaries of their tax strategy. Nevertheless, for quite a lot of the world’s jurisdictions, which determine corporate residency on the idea of management and control it could create issues. For instance, I’d never recommend a Canadian company or individual form a Gibraltar company unless management and control were exercised elsewhere since Gibraltar doesn’t qualify for Canada’s favorable tax regimes and it also taxes based on management and control, meaning the non-resident Gibraltar company would find yourself fully taxable in Canada.
In other words whether to include in Gibraltar becomes based on quite a lot of other facts and circumstances other than the merits of the jurisdiction itself.
Bottom line for those who’re going to form an organization in Gibraltar and never have it’s resident there be certain the foreign management and control won’t make the corporate taxable elsewhere, perhaps somewhere more onerous.
Asset Protection & Confidentiality
Confidentiality rules in Gibraltar are mediocre at best. While there are definite limitations on information sharing, which could come about because of this of tax information exchange agreements, FATCA, EU Savings Directive, and multi-lateral exchange agreements, Gibraltar does definitely take part in exchange sharing initiatives and is rated as largely compliant by the OECD. Further as previously discussed ownership and director details are public making confidentiality directly through a Gibraltar company difficult.
Getting around this later challenge is achieved through using nominees or corporate directors/shareholders, that are permitted as of this writing.
Conclusion
Overall Gibraltar is among the finest European jurisdictions to form an offshore company depending in your individual circumstances. There are very favorable tax regimes available, the popularity is nice, and also you gain access to the European benefits as discussed in other posts. We like Gibraltar and use it fairly incessantly to form firms.
When you’re keen on any guidance as to which formation agents to make use of or how you can undergo the corporate formation process please contact us and we’ll be glad to offer direction.
