Gibraltar: Offshore Legal and Tax Regimes
Tax Treatment of Offshore Operations
See Domestic Corporate Taxation for the general principles of Gibraltar corporate taxation, which also apply to offshore entities except as indicated below.
Offshore Gibraltar companies are taxed as follows:
- Exempt private companies, which can be resident or non-resident, traditionally paid no tax on their income (other than the yearly registration fee of GIP300), and applied no withholding tax to payments made. No stamp duty was payable on any document or transaction relating to the exempt company's shares; however an exempt company did pay, like all companies, GIP0.50 capital duty per GIP100 of its authorised share capital on incorporation. This was the most commonly used corporate form in Gibraltar; Captive insurance companies, for example, would normally be exempt companies. An exempt company must obtain a certificate of tax exemption, which is valid for 25 years, from the Financial and Development Secretary.
- Branches of overseas incorporated companies, which have to be registered with the Registrar of Companies, and pay an annual registration fee of GIP300, can also be exempt and benefit from the same tax exemptions as an exempt company. Branches also must obtain a certificate of tax exemption from the Financial and Development Secretary.
- Gibraltar 1992 Companies, although they are not 'offshore' in the usual sense of the word, and indeed pay normal rates of corporation tax in Gibraltar, were brought into being to allow efficient low-tax passage of dividends through Gibraltar, when the EU Parent/Subsidiary Directive 90/435 came into force. Exempt and qualifying companies could not benefit from the Directive because they were not 'normal' tax-payers, while 'normal' Gibraltar companies deducted high rates of withholding tax. The 1992 company was 'normal' but deducted withholding tax at only 1%; thus as a holding company the 1992 was traditionally a highly efficient means of extracting dividends from EU companies with only 1% withholding tax.
- Qualifying Companies (or indeed branches), registered under the Income Tax (Qualifying Companies) Rules 1983 (cost £250) and paid tax on their profits at the 'prescribed' rate (ie at the rate stated on their certificate, obtained as with exempt companies from the Financial and Development Secretary). The rate could be anywhere between 0% and 35%, as agreed between the company and the Secretary. Withholding tax rates applicable to qualifying companies normally followed the prescribed mainstream rate. The purpose of qualifying companies, which were essentially a form of exempt company, was to pay enough tax to bring them within the 'normality' criteria of CFC (Controlled Foreign Corporation) rules in their home country and/or to obtain beneficial treatment of dividends paid to investors in their home countries. Qualifying companies needed to submit accounts to the Gibraltar Commissioner of Income Tax, and normal income tax legislation applicable to resident companies was applied to calculate the assessable profits of the company. Although the qualifying company is subject to tax at a variable rate, as explained above, most of the current qualifying companies are taxed at 5%. NB: The UK Chancellor announced changes to the UK CFC rules in October 1999, naming Gibraltar as one of the territories affected, but the precise impact of the changes was not immediately clear. NB: Qualifying Companies were abolished in January, 2005.
- Non-Resident Companies are not liable to taxation, other than on income accruing in, derived from or received in Gibraltar, or income arising directly or indirectly through their Gibraltarian agents. However, some types of Gibraltarian income are exempted, including income from the ownership, chartering or operation of any ship, and interest income from bank deposits and tax-exempt Government bonds. Assessments on non-resident companies may be made in their own name or in the name of their agent in Gibraltar.
- Trust income is exempt from tax under the Income Tax (Allowances, Deductions and Exemptions) Rules 1992 if:
- the trust is created by or on behalf of a non-resident person; and
- the income either accrues or is derived outside Gibraltar, or in the case of income received by a trust would, if it had been received directly by the beneficiary, not be liable to tax under the Income Tax Ordinance; and
- except in the case of a trust created before 1/7/83, the terms of the trust expressly exclude residents of Gibraltar (as beneficiaries).
NB: Interest income received from a Gibraltar bank is normally exempt from taxation.