Gibraltar Law of Offshore

Gibraltar Table of Statutes

This is a non-exhaustive list of the main Gibraltar statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order – click on the statute for a fuller description of the statute or the legal regime it forms part of.

Banking (Accounts Directive) Regulations 1997
Banking (Auditors and Information) Ordinance 1997
Banking Ordinance 1992
Bankruptcy Ordinance
Companies Ordinance as amended
Companies (Taxation and Concessions) Ordinance
Deposit Guarantee Scheme Ordinance 1997
Development Aid Ordinance
Estate Duties Ordinance
Financial Institutions (Prudential Supervision) Ordinance 1997
Financial Services (Accounting and Financial) Regulations
Financial Services (Collective Investment Schemes) Regulations 1991
Financial Services (Conduct of Business) Regulations 1991
Financial Services (Experienced Investor Funds) Regulations, 2005
Financial Services (Insurance Mediation) (Amendment) Ordinance 2004
Financial Services Ordinance 1998
Immigration Control Ordinance
Income Tax Ordinance 1984 as amended
Income Tax (Allowances, Deductions and Exemptions) Rules 1992
Income Tax (Qualifying Companies) Rules 1992
Insurance Companies Ordinance 1987
Limited Partnership Ordinance as amended
Partnership Act 1890 (UK)
Perpetuities and Accumulations Ordinance 1986
Private Foundation Ordinance 1999
Qualifying (High Net-Worth Individuals) Rules 1992
The Registered Trust Ordinance 1999
Trust Recognition Ordinance

EU Directives having direct effect in Gibraltar:

Directive 78/660/EEC (The Fourth Directive) as amended
Directive 83/349/EEC (The Seventh Directive) as amended
Directive 83/350/EEC (sharing of confidential banking information)
Second Banking Co-ordination Directive 89/646/EC (passporting)

In addition, the Financial Services Commission Act 2007 (FSCA) repealed and replaced the Financial Services Commission Act of 1989. The 2007 legislation, in addition to other changes, placed some of the powers previously held by the UK in the hands of the local authorities

Further information on implemented directives affecting the financial services sector can be found here.

The Financial Services Commission website provides comprehensive access to legislation affecting the banking, funds, investment services, and insurance sectors.

In January, 2005, Gibraltar’s Financial Services Commission welcomed the publication of a statutory review of Gibraltar's Financial Services Commission, conducted by an HM Treasury review team.

This was the third review commissioned under the Financial Services Commission Ordinance 1989, and was requested by the FSC in view of the rapidly changing regulatory environment in the United Kingdom, as the Commission is obliged by the founding Ordinance to match UK standards of supervision.

According to the FSC, four key areas of its work were considered by the review team, these being: anti-money laundering, banking, insurance and investment services.

The report concluded that the Commission’s supervisory activities, for both insurance and investment services, established and implemented standards that substantially matched UK legislation and practice. Recommendations were made by the review team as to how the FSC could readily make the remaining adjustments necessary to bring it fully into line with recently introduced UK regulatory developments.

The team was also satisfied that the Commission’s approach to banking supervision had succeeded in developing an effective supervisory structure that established standards which met its obligations under the Financial Services Commission Ordinance to match those required by UK legislation and supervisory practice.

Gibraltar’s anti-money laundering regime was judged more robust than that of the UK in a number of areas, “even taking into account the different risks posed by the business”.

In November 2006, the Gibraltar Financial Services Commission announced a comprehensive review of the jurisdiction's anti-money laundering measures.

The review saw the GFSC redraft the anti-money laundering guidance notes for the finance industry from top to bottom, with the proposed changes intended to clarify the existing laws while reducing paperwork and bureaucracy, and also encouraging finance industry participants to take a more active role in combating financial crime and terrorist financing.

Importantly, the revised rules aimed to bring Gibraltar into compliance with the third money laundering directive, which comes into 2007r, and the latest Financial Action Task Force (FATF) recommendations.

The finance industry was asked to contribute to the review process by the regulator, as part of a consultation lasting until January 1, 2007.

Commenting on the review, Marcus Killick, Gibraltar’s Financial Services Commissioner, told the Gibraltar Chronicle that there was a need to move away from a “tick and bash” approach to anti-money laundering towards a more proactive strategy that anticipates new trends, as criminals use ever more sophisticated methods and complex transactions to cover their tracks.

“It’s like a game of chess. We have to think ahead and anticipate what they are going to be doing in two moves' time," he told the paper.

In May 2007, following a review undertaken the previous year, the International Monetary Fund endorsed Gibraltar’s robust regulatory environment, according to the jurisdiction's government.

The report was the result of the visit by a team of nine evaluators from the IMF to Gibraltar in March 2006. The team conducted an extensive review of the Financial Services Commission’s regulatory and supervisory practices in the fields of Banking and Insurance, as well as a jurisdiction-wide review of the Anti-Money Laundering and Terrorist Financing Regime, which also included the FSC, as well a large number of enforcement agencies and Government Departments.

In all three areas Gibraltar was found to be meeting international standards, and was found to be ahead of many onshore - and much larger - finance centres.

However, the report made a number of recommendations for further improvements, which the government said had mostly been identified and were being actioned.

Commenting, Chief Minister Peter Caruana, who is responsible for financial services stated that: “Government is committed to continuing to pursue a policy of proper balance between demanding the highest regulatory standards from the providers of financial services and providing an attractive jurisdiction for the conduct of profitable, safe and competitive financial services."

"In this connection the Government welcomes external assessments such as the IMF Review to maintain an independent view of Gibraltar’s performance and to identify what we need to do to stay at the front of the pack as a leading jurisdiction in this ever changing industry. I congratulate all those in the Finance Centre Department, in the Financial Services Commission and in law enforcement agencies, for this excellent result from which our finance centre will benefit still further.”

Gibraltar Banking Law

Financial services in Gibraltar are regulated by the Financial Services Commission. The Commission introduced important changes to the way it supervises locally incorporated banks and non-EEA branches in 2002.

Within this time the FSC had been rolling out a risk based approach to supervision, where the supervisory team evaluates an institution in terms of the risks posed to an institution in the way it does business or the type of business it is in. This new approach to supervision aims to focus supervisory resources on the areas deemed to be high risk for an institution in order to ensure that the right controls and procedures are in place to mitigate the risks or where corrective action is required by an institution.

Banking regulation is exercised under the Banking Ordinance 1992 (as updated).

Banks with licenses issued by other EU jurisdictions have only to notify the Gibraltar authorities before commencing business there; banks which require Gibraltarian authorisation and licenses must conform to criteria set out below.

Licensed banks must maintain a solvency ratio of 10%. There is an annual fee of G£5,000 (at the time of writing) payable to the Financial Services Commission.

Banks providing local services are taxable on their profits in the same way as ordinary companies (see Domestic Corporate Taxation); banks working 'offshore' can apply for a 'qualifying' certificate (see Offshore Tax Regimes) allowing them to pay tax at a rate between nil and 35% as agreed with the authorities.

Licensing and Supervision

The Banking Ordinance 1992 (as amended) repealed the previous distinction between 'A' onshore and 'B' offshore licences, and introduced a single banking licence. Thus Gibraltar licensed banks can in theory take advantage of 'passporting' opportunities and branch out across the EU and EEA without the need for further authorisation (except for notification). Difficulties which remained with regard to EU recognition of local regulatory authorities will hopefully were eased by the Anglo-Spanish agreement in April 2000 which unblocked the relevant EU legislation.

The minimum capital required for the issue of a banking license in Gibraltar is (at the time of writing) Euros 5m, in line with EU requirements, and the supervisory regime follows EU and Basle Committee guidelines. In considering the issue of a banking license, the Commissioner applies a number of guidelines, including the following:

Directors, controllers and managers to be fit and proper persons: the Commissioner takes into account probity, experience, skills, judgement and likely degree of diligence; good reputation and the absence of a criminal record are also important; and the nature of a person's other business interests is also considered;
'Four eyes principle': the Commissioner will want to be assured that at least two individuals contribute on a continuing basis to the formation and execution of policy, so that every signifcant decision reuslts from the exercise of at least two persons' judgement;
Business to be conducted in a prudent manner: applicants for a license are required to provide sufficient information about the proposed business and its conduct and development, including the availability of capital to support planned levels of lending or investment, for the Commissioner to be able to form a view of the stability of the institution; it is normally unlikely that a new banking formation will be able to achieve the right level of credibility unless it has the support of an existing and soundly-based bank;
Paid-up capital and reserves will be adequate to protect the interests of depositors; large exposures to a single entity are a major negative factor;
Liquidity must be maintained at a satisfactory level in relation to the schedule of liabilities;
Adequate provision is and will be made for bad and doubtful debts and for contingent liabilities;
There will be adequate accounting and other records and control systems to ensure stability and predictability in the business;
The necessity that the institution itself will behave with the highest professional, ethical and business standards;
The Head Office needs to be in Gibraltar - meaning that the majority of board meetings will take place there, and that the management and direction should be exercised there; regular influence on managerial decisions by a dominant shareholder would be a negative factor, especially if the shareholder was not resident in Gibraltar.

During 1997/98, supervisory procedures for banks were strengthened in several respects mainly in order to match United Kingdom standards by transposing all outstanding EC banking directives.

These included the 'Post BCCI' Directive to reinforce prudential supervision (95/26/EC) which was implemented for banks by the Financial Institutions (Prudential Supervision) Ordinance 1997 and the Banking (Auditors and Information) Ordinance 1997; and the Bank Accounts Directive (86/635/EEC), implementation of which was completed by the Banking (Accounts Directive) Regulations 1997.

In March 1998, an Administrative Notice came into effect setting out how the Commissioner of Banking expects Gibraltar-incorporated licensed banks to comply with the requirements of the Capital Adequacy Directive (93/6/EC); and another Administrative Notice has been issued setting out how banks should meet the notification requirements of the Post BCCI Directive. This includes more comprehensive reporting forms and the introduction of a Reporting Accountants Regime. Under the latter, all licensed banks are required to obtain reports each year from an approved accountant, usually their auditor, on the adequacy of systems and controls and the accuracy of supervisory returns. These reports are then discussed with management and the banking supervisory staff.

In 2004 the Financial Services Commission promoted amendments to the Criminal Justice Ordinance 1995 which require auditors, external accountants, tax advisors, real estate agents, notaries, legal professionals, dealers in high value goods and casinos as well as providers of company managerial services, professional trustees, insurance intermediaries and insurance managers to comply with the anti-money laundering systems of control. The FSC seeks to update the Know Your Customer systems of financial institutions with a more risk based approach and to provide more user-friendly guidance for the industry.

Confidentiality

Within the general statutory duty of confidentaility, authorised institutions, and their controllers and subsidiaries, and institutions of which authorised institutions are controllers, are permitted to exchange between each other information about their customers necessary to facilitate supervision of institutions on a consolidated basis in accordance with Council Directive 83/350/EEC (as extended, where applicable, by the EEA agreement) or any successor thereto.

In December 2005, it emerged that an agreement had been reached between the governments of Gibraltar and the United Kingdom over the Rock's obligations under the EU Savings Tax Directive, which came into force in July of that year.

The jurisdiction had come under fire from the Channel Islands, as its legal status in relation to the UK and European Union meant that the Directive did not apply to it in quite the same way.

However, under the deal announced by the UK's Paymaster General, Dawn Primarolo and Gibraltar's Chief Minister, Peter Caruana , Gibraltar and the UK exchange information about the returns on savings under the Directive, or, in Gibraltar's case only, if the savers so choose, impose a withholding tax on returns on savings of UK residents with accounts there.

The rate was set at 15% from April 1 2006 to June 30 2008, following which it will rise to 20% for the next three years, and 35% thereafter.

Statutory Codes of Conduct

The Financial Services (Conduct of Business) Regulations 1991 contain a statutory Code of Conduct for Financial Institutions. Part Two (Statements of Principle) is laid out under a number of headings, including the following:

Integrity - Skill, care and diligence - Best market practice - Know your customer - Information for customers - Conflicts of interest - Customer assets - Financial resources - Internal organisation - Relations with the Commission

Part 3 (Core Rules) deals with:

Independence - Advertising and Marketing - Customer Relations - Dealing for Customers - Market Integrity - Administration.

Depositor Protection

Gibraltar has introduced a deposit guarantee scheme to satisfy the requirements of the EC Directive on Deposit Guarantee Schemes (94/19/EC). The Deposit Guarantee Ordinance 1997 was implemented in stages and a Gibraltar Deposit Guarantee Board has been appointed.

The compensation arrangements, are broadly similar to those available to depositors under the United Kingdom's deposit protection arrangements. The scheme covers qualifying deposits in EEA currencies (qualifying deposits are defined in the Ordinance).

Gibraltar Insurance Law

Gibraltar insurance companies, including captives, are regulated by the Financial Services Commission under the Insurance Companies Ordinance 1987 (as updated) and the Financial Services Ordinance.

The 2nd and 3rd EU Insurance Directives have been implemented in Gibraltar, and the UK Government has agreed that Gibraltar's insurance regulatory regime matches UK practice; therefore the Single European Passport applies - EU insurers may write direct business into Gibraltar, and Gibraltar insurance companies can write direct business into other EU states.

Insurance companies in Gibraltar, including branches or subsidiaries of foreign insurers, require a license from the Commissioner of Insurance. The Commissioner will take into account the expertise, skill and experience of the proposed management team, the ability of an applicant to conform with prescribed EU guidelines including solvency margins and guarantee fund levels, and the availability of adequate reinsurance.

The cost of an application is currently G£500 and an annual fee of G£2,000 (at the time of writing) is payable to the Commissioner. Licensed insurance companies are required to conform to the following ongoing supervisory regime:

A place of business must be maintained in Gibraltar at all times;
Insurance and accounting records must be maintained in Gibraltar;
Financial statement must be submitted to the Commissioner within six months of the end of the insurer's financial year;
Solvency margins and minimum guarantee funds must be maintained at all times; and
Approval must be sought for all changes of director, manager or controller.

There are a number of sets of regulations dealing with the detailed conduct of insurance business in Gibraltar, some of them implementing EU legislation. The seven main sets are as follows:

The Insurance Companies (Valuation of Assets and Liabilities) Regulations 1996;
The Insurance Companies (Accounts and Statements) Regulations 1996;
The Insurance Companies (Prescribed Particulars) Regulations 1996;
The Insurance Companies (Accounts Directive) Regulations 1997;
The Insurance Companies (Solvency Margins and Guarantee Funds) Regulations 1996;
The Insurance Companies (Conduct of Business) Regulations 1996;
The Insurance Companies (Prudential Supervision) Regulations 1997.

Insurance companies providing local services are taxable on their profits in the same way as ordinary companies (see Domestic Corporate Taxation); insurers working 'offshore' could traditionally apply for a tax exemption certificate (no tax payable at all) or a 'qualifying' certificate (see Offshore Legal and Tax Regimes) allowing them to pay tax at a rate between nil and 35% as agreed with the authorities.

Protected Cell Company Legislation

The Gibraltar parliament, the House of Assembly, passed a bill for a Protected Cell Companies Ordinance on 3 July 2001.

The legislation, which was expected to boost sectors such as captive insurance and funds, in essence provides for a single company with individual parts, known as cells, which are kept separate from each other. Each cell is only liable for its own debts and not for the debts of any other cell within the company.

Part I - Part I of the Ordinance describes the formation and attributes of a protected cell company. A company may be either incorporated as a PCC, or converted, if so authorised by its articles, into a PCC. The new law stipulates that, for the avoidance of doubt, “a protected cell company is a single legal person,” and that “the creation by a PCC of a cell does not create, in respect of that cell, a legal person separate from the company”. The provisions of the Companies Ordinance apply in relation to a protected cell company (subject to the provisions of the PCC Ordinance, and unless the context requires otherwise).

Separation Of Assets - Particularly noteworthy is Section 5 of Part I, which describes the duty to keep the assets of each cell separately identifiable. “It shall be the duty of the directors of a protected cell company – (a) to keep cellular assets separate and separately identifiable from non-cellular assets; and (b) to keep cellular assets attributable to each cell separate and separately identifiable from cellular assets attributable to other cells.” Directors may “cause or permit” cellular and non-cellular assets to be held by or through a nominee, or by a company whose shares and capital interests may be cellular assets, non-cellular assets, or a combination of both. Such assets may be collectively invested, or collectively managed by an investment manager, provided that the assets in question remain separately identifiable. Sections 6 and 7 make it clear that the rights of creditors are limited to the assets of the cell of which they are creditors.

Cell Shares, Cellular Capital And Cellular Dividends - Section 8 provides for a PCC to create and issue shares (“cell shares”) in respect of any of its cells. The proceeds of the issue (“cell share capital”) are comprised in the cellular assets attributable to the cell in respect of which the cell shares are issued. A protected cell company may pay a cellular dividend. Section 9 provides that except in the case of a PCC which is authorised by the Financial Services Commissioner as a collective investment scheme, and which is redeeming units or shares in accordance with its scheme particulars, no reduction of cell share capital may be made without an order of the Court. Section 10 provides that a protected cell company must state that it is one i.e. the name of the PCC must include “Protected Cell”, “PCC”, or any cognate expression approved in writing by the Registrar. The memorandum of a PCC shall state that it is such, and each cell shall have its own distinct name or designation.

Insurance Companies, Collective Investment Schemes And Securitisation - Section 11 states that a company which is a Gibraltar insurer as defined in Section 2 of the Insurance Companies Ordinance, or a collective investment scheme authorised under the Financial Services Ordinance 1989 must obtain the consent of the Financial Services Commissioner before becoming a PCC. In the case of securitisation companies not requiring a licence under the Financial Services Ordinances 1989 or 1998 established principally for the purposes of issuing bonds, notes or other debt securities or instruments, secured or unsecured, in respect of which the repayment of capital and interest is to be funded from the company’s investments, consent must be sought from the Finance Centre Director. Sections 13 to 18 deal with the liability of cellular and non-cellular assets of the company. “The cellular assets attributable to a particular cell shall be primarily used to satisfy a liability, and the non-cellular assets shall be secondarily used, provided that the cellular assets have been exhausted. However, any liability not attributable to a particular cell of a PCC shall be the liability solely of the company’s non-cellular assets.”

Parts II and III deal with the effects of receivership and administration orders on each individual cell and on the company as a whole. Part IV covers offences under the Ordinance.

The passporting of insurance and reinsurance mediation from Gibraltar throughout the EEA came into effect on January 15, 2005.

Passporting rights arise under the single market directives, and grant a person in the designated jurisdiction the right to establish a branch in another EEA state or to do business there on a cross-border basis, subject to the fulfillment of the conditions in the directive in question.

This was the fourth passporting badge awarded to Gibraltar, following insurance in 1997, banking in 1999, and investment services in 2003.

According to the Rock's financial services authorities, the passporting of insurance and reinsurance mediation was enabled by the passing of an amending ordinance, the Financial Services (Insurance Mediation) (Amendment) Ordinance 2004 in the House of Assembly on December 22, 2004. The Ordinance amended the Financial Services Ordinance 1989 in order to transpose into the law of Gibraltar Directive 2002/92/EC of the European Parliament and of the Council of December 9, 2002 on insurance mediation.

The Ordinance provides for the regulation of insurance and reinsurance mediation, including such activities as:

Introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance or reinsurance;
Concluding contracts of insurance or reinsurance; and
Assisting in the administration and performance of such contracts, in particular in the event of a claim.

Gibraltar Investment Fund Management Law

The Financial Services Commission is responsible for the regulation of investment funds in Gibraltar under the Financial Services Ordinance (as updated); the Financial Services (Collective Investment Schemes) Regulations 1991 set up regulatory regimes for different types of fund, and implemented the EU UCITS Directive (85/611/EU).

Investment funds in Gibraltar are usually formed under a trust deed either as unit trusts or mutual funds, or under the Companies Ordinance as private or public companies. A public investment company (PIC) must have a minimum paid-up capital of G£50,000 (at the time of writing) and if it is not listed on a recognised exchange its head office must be in Gibraltar.

Funds formed to be UCITS (Undertakings for Collective Investment in Transferable Securities) which under EU rules can be freely marketed throughout the Union under the Single European Passport provisions, must be open-ended and are limited to certain types of transferable security:

those listed on a stock exchange in the European Union;
those traded on another regulated market in the European Union;
those listed on an approved stock exchange or traded on an approved, regulated market outside the European Union;
recently-issued securities; and
approved, publicly-traded debt instruments.

The authorities do not demand that the administration of a fund must be carried out in Gibraltar, as long as there is a sufficient strength of management in Gibraltar to allow for effective supervision. There is a requirement however that the trustee of a fund and the manager should be in separate organisations and should act independently, even if they have a common parent.

The charge on application for a license is G£500, and there is an annual license fee of G£1,500 (at the time of writing). Fund managers have traditionally been able to apply for a tax-exemption certificate (no tax payable) or for a qualifying certificate (tax payable at a rate between nil and 35% as agreed with the authorities (however, for changes to this, see Offshore Tax Regimes).

In 2005 Gibraltar introduced Experienced Investor Funds (EIFs) under the Financial Services (Experienced Investor Funds) Regulations, 2005. See a full description of this and other fund regimes provided by Gibraltar law firm Hassans.

In April 2005 it emerged following the 30th Annual Conference of the International Organisation of Securities Commissions (IOSCO) that the Gibraltar Financial Services Commission’s application to be accepted as an Ordinary Member of the Organisation had been approved.

IOSCO members regulate more than 90% of the world's securities markets, and IOSCO is seen as the world's most important international cooperative forum for securities regulatory agencies.

In December 2005, the Gibraltar Government and the UK Government concluded an agreement relating to the passporting of Investment Services.

The agreement enables investment services firms established in Gibraltar to passport (that is to market and sell) their products and services into the UK market. The investment services passporting agreement was expected to come into effect by March 2006 when Gibraltar had passed some necessary legislation.

Gibraltar Trust Law

The basic law of trusts is contained in the Gibraltar Trustee Ordinance, which is virtually a copy of English trust legislation. Gibraltarian legislation affecting trusts also includes the Perpetuities and Accumulations Ordinance 1986, the Trustee Investments Ordinance, the Bankruptcy Ordinance and the Trusts (Recognition) Ordinance which implemented the Hague Convention. Appeal is to the Privy Council.

There are no provisions for the exclusion of foreign inheritance laws or for the nonrecogition of foreign judgements. Legislation has not yet been introduced to provide for purpose trusts.

As in the UK, in Gibraltar the essential requirements of a trust are that it is created orally or in writing and that a settlor conveys legal title to real property (land) or personal property (property other than land) into the name of one or more trustees to be administered in accordance with the wishes of the settlor for the benefit of one or more beneficiaries.

Trust documents are in English, and there are no requirements for registration except that Asset Protection Trusts must be registered with the Registrar of Dispositions. There is no stamp duty. The normal perpetuity period of a Gibraltar trust is 100 years. There are no restrictions on the accumulation of income during the perpetuity period.

Gibraltar's asset protection trust legislation falls under the provisions of the Bankruptcy Amendment Ordinance 1992. This is unusual for offshore asset protection , which is dealt with under the law on fraudulent conveyancing laws in most offshore jurisdictions, as for instance in the Cayman Islands and the Bahamas.

Fraudulent conveyancing laws depend for their effect on the statutory definition of 'intent' to defraud. By contrast, under bankruptcy law, which contains no definition of intent, the only direct action which can be commenced is a bankruptcy proceeding, which has a significantly tighter test of intent.

For a bankruptcy proceeding to succeed, it is necessary to show that the target (the settlor) is resident or domiciled in the jurisdiction, and that an 'act of bankruptcy' was committed there. Since most asset protection trusts are settled via exempt companies, whose owner (= the settlor) cannot be resident and a beneficiary, this will be difficult or impossible in many cases.

Gibraltar International Law

Gibraltar has not entered into any bilateral Mutual Assistance Treaties. However, the 1997 EU Directive on the Exchange of Tax Information with Member States applies to Gibraltar.

The Criminal Justice Ordinance 1995 (implementing EU Directive 91/308) provides inter alia for the confiscation of the proceeds of drug-trafficking. Neither it nor any other piece of Gibraltar legislation deals with tax evasion.

In the year 2000 various international organisations issued 'offshore lists' in which Gibraltar fared quite well:

In June 2000 the Gibraltar Government wrote a 'Letter of Commitment' to the OECD's Financial Action Task Force in which it promised to comply with international standards of transparency and mutual assistance.
Gibraltar did not feature on the FATF's blacklist of jurisdictions that were considered to have inadequate money laundering controls.
It was in the middle group of the Financial Stability Forum's "could cause instability" list along with Bermuda and Malta.
However, three of its offshore company types were included in the Primarolo Committee's list of 'harmful tax practices' in the EU. This is perhaps the most serious of the offshore lists for Gibraltar but it was thought politically improbable that the Code of Conduct Committee was going to achieve much considering that virtually every member state figured on the list, mostly with quite significant low-tax regimes.

Nonetheless, in July, 2002, Gibraltar's Chief Minister, Peter Caruana announced the territory's new corporate taxation policy, with effect from July, 2003, which would include the abolition of the existing corporate forms which allowed zero taxation, the Exempt and Qualifying companies.

Further major changes to Gibraltar's corporate tax regime were announced in Caruana's June 2007 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."

"In the intervening period, the Government will engage in an intensive, detailed and lengthy process of consultation with the different economic sectors."

"In order to signal the Government’s seriousness of purpose in this respect I am today taking the first step in the process of reducing corporate tax rates in Gibraltar, by 2% for the year of assessment 07/08 from 35% to 33%, and with effect from the year of assessment 2008/09 by a further 3% from

GIBRALTAR: LAW OF OFFSHORE