Gibraltar: Types of Company
Under the Companies Ordinance 1930 all incorporated companies in Gibraltar are required to prepare accounts and have them audited by independent accountants.
Auditors, who are individuals, are appointed by the directors of a company, must be independent of the company, and must be registered under the Auditors Registration Ordinance.
The European Commission announced in 2001 that it would begin a review of Gibraltar's exempt and qualifying company regimes, but after Gibraltar sued the Commission to prevent the review, the European Court of Justice ruled in Gibraltar's favour in April 2002.
However, in July, 2002, Gibraltar's Chief Minister, Peter Caruana announced the territory's new corporate taxation policy (which was to have been applied from July 2003, but fell by the wayside), which included the abolition of the existing corporate forms which allowed zero taxation, the Exempt and Qualifying companies.
In March, 2003, the EU's Council of Finance Ministers confirmed that the reforms did not constitute harmful tax measures. However, in April, 2004, the Commission argued that the new rules would give companies domiciled in Gibraltar an unfair advantage over their counterparts in the UK, under a principle known as 'regional selectivity'. The Commission also took issue with the fact that since the taxes were to be based on payroll and the occupation of business premises, offshore companies registered in Gibraltar would be unlikely to incur any tax liability. The EC therefore rejected the reforms, effectively suggesting that for taxation purposes, Gibraltar should be considered part of the United Kingdom.
Chief Minister, Peter Caruana slammed the EC for suggesting that the jurisdiction was fiscally part of the United Kingdom, pointing to its 1969 constitution, which gives the territory fiscal autonomy.
Gibraltar dissolved its qualifying companies tax regime in January, 2005, as negotiations continued in Brussels. In a move that cost the Gibraltar government an estimated GIP1.5 million in annual tax revenues, the remaining qualifying companies, of which there were about 80, switched to the 'exempt' companies regime. "Each qualifying company has been dealt with on an individual basis and alternative arrangements made," said the government.
Later in the month, it was announced that Gibraltar had been given until 2010 (2007 for new companies) to phase out its exempt company tax regime after the European Commission ruled that the scheme violated EU state aid rules.
The government of Gibraltar welcomed the European Commission's approval of the Exempt Company Status Agreement as an acceptable compromise.
Then in June 2007, further major changes to Gibraltar's corporate tax regime were announced in Peter Caruana's Budget speech.
Mr Caruana explained that:
"The Tax Exempt Company has been the backbone of the development and growth of both our finance centre and the online gambling industry, and thus of a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."
"In order to comply with EU law we must phase out the tax exempt company in 2010. However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model."
"Since it is no longer legally acceptable to have one tax model for ‘local’ companies and a different one for ‘foreign’ companies it is necessary to have a low tax system for all companies because without a low tax system for overseas companies they will leave, and our economy will suffer hugely. Thousands of jobs would be lost, as well as significant Government revenue. I have therefore already said, and I reaffirm now, that the Gibraltar Government is irrevocably committed to the principle of ‘low tax’ for our economic operators."
"By mid-2010 the Government will have introduced an across the board flat, low corporate tax rate. This will most probably be set at 10%, but in any event not higher than 12%. This will be similar to arrangements that already exist in Ireland, Cyprus, Malta and other EU Countries."
Caruana explained that he envisaged a further cut in the rate next year, before moving to the rate of between 10% and 12% from 2010, adding that: "My strong preference will favour the bottom end of that range."
In December 2008, the European Court of First Instance ruled in favour of Gibraltar, stating that the European Commission was wrong to argue that the tax reforms proposed in 2002/03 were in breach of state aid rules, and effectively giving the jurisdiction licence to set its own tax rules.
The Court dismissed the EU Commission’s case, and stated that although the UK is representative of Gibraltar, Gibraltar does, however, have fiscal autonomy from the UK, and therefore can introduce its own individual tax system (the aforementioned 10-12% corporation tax).
In a statement to the press at the time, Peter Caruana, Gibraltar's Chief Minister, said he was "overjoyed" by the outcome.
"The Court has found in Gibraltar’s favour and has accepted our arguments on each and every issue, relating both to regional selectivity and material selectivity, and has ordered the commission to pay the Gibraltar government’s legal costs.”
In his 2009 budget speech, Caruana confirmed that a 10% corporate tax would apply in the jurisdiction from January 1, 2011, and that the Exempt Company regime would be rescinded by the end of 2010.
"It is essential for Gibraltar’s socio-economic prosperity that our corporate tax rate should be as competitive as is compatible with government’s revenue needs. Without this there would be large scale loss of economic activity and job losses,” he told the House.
“Existing corporate taxpayers will be huge windfall beneficiaries of the need to eliminate tax exempt status, and its replacement with a low rate for all companies. The new rate will be 10%. Energy and utility providers will pay a 10% surcharge and will thus suffer a rate of 20%. These will include electricity, fuel, telephone service and water providers,” he explained.
Caruana reassured that the government would allow existing Exempt Status Companies to keep their tax benefits until 'the last possible minute': "Most Exempt Status companies currently hold exemption certificates that are valid, subject to repeal of the legislation, for 25 years. The Government therefore feels honour bound not to remove the tax benefit provided by the exemption certificate until the last possible moment. That will therefore occur at midnight on December 31, 2010, by means of a repeal of the Companies (Taxation and Concessions) Act.”