GIBRALTAR: EXECUTIVE SUMMARY

In this Section:

- THE PENNINSULAR OF GIBRALTAR
- THE ECONOMY OF GIBRALTAR
- GIBRALTAR SERVICES DIRECTORY
- MAP OF GIBRALTAR

Gibraltar Is In The EU . . .

Gibraltar is self governing but remains a colony of the United Kingdom, and entered the EU along with the UK. It does not belong to the EU's VAT, CAP or common external tariff regimes. However Gibraltar has implemented much EU financial legislation and can apply Common European Passport regulations in the insurance, banking and fund management spheres. In practice there are sometimes difficulties connected with the long-running row between the UK and Spain over Gibraltar's status.

At a meeting in Barclelona in November 2001, boycotted by Gibraltar, British and Spanish Foreign Ministers agreed on a fast timetable for developing new sovereignty proposals. But by mid-2002 Jack Straw and Ana Palacio, newly-appointed Spanish foreign minister, were battling to save the talks from collapse.

Each side has a non-negotiable position which is unacceptable to the other: for the Spanish it is the need for them to give up their long-term aspiration to regain full sovereignty over Gibraltar; and for the British it is the need to accept some degree of Spanish control over their military base on the Rock.

In a referendum held by the Gibraltar government in November, 2002, nearly 99% of votes were cast against the joint sovereignty being planned between Britain and Spain.

By mid-2003 it was clear that the age-old stalemate between Britain and Spain had been re-established, and British Foreign Office minister Denis MacShane suggested that there is unlikely to be a resolution to the Gibraltar question for at least thirty years. "I don't think the people of Gibraltar will approve any steps on sovereignty until there has been a long period of calm and good relations with Spain," said Mr McShane.

In September 2006, agreement over a number of outstanding issues relating to Gibraltar was reached between the UK's Minister for Europe, Geoff Hoon, Spanish Foreign Minister Migel Angel Moratinos and Gibraltar's Chief Minister, Peter Caruana.

Areas covered by the agreements included the expanded use of Gibraltar Airport, the full inclusion of Gibraltar in EU air liberalisation measures, recognition by Spain of Gibraltar's '350' international dialling code and unblocking by Spain of Gibraltar mobile telephone roaming in Spain.

Meanwhile, in December 2006, Gibraltarians accepted a new constitution for the jurisdiction, which aimed to give it more autonomy from the United Kingdom over its own internal affairs. In a referendum, 60.24% of those who turned out voted 'yes' to the new constitution, while 37.75% voted to reject it. 60.4% of Gibraltar's 20,061 registered voters turned out to vote.

The constitution, agreed in April of that year by then UK Foreign Secretary Jack Straw and Peter Caruana, and between Gibraltar's two main political parties later in the year, saw the UK retaining international responsibility for Gibraltar. However, the new constitution ceded certain powers previously in the possession of the British government to Gibraltar, and allowed the jurisdiction to have its own independent judiciary.

The official language is English but Spanish is widely used. The British military and naval base once dominated Gibraltar's economy but no more, leaving behind a highly-educated population with high unemployment. The excellent port facilities have not yet been fully re-utilised. Tourism has become a major contributor to the economy, particularly visits by cruise ships. The airport connects with the UK and some other destinations, but it's necessary to cross into Spain for wider connections.

. . . But Its Economic Future Is Dependent On Offshore.

Gibraltar was one of the first of the British dependent territories to develop tax-exempt corporate forms for offshore business. It has quite high internal income taxes, but offers low-tax regimes to both companies and individuals, as well as incentives for incoming investment. It is probably the cheapest European offshore jurisdiction in which to operate but is smaller than many of its rivals.

There is a sophisticated business and professional infrastructure. Business sectors with offshore activity include banking, insurance, investment fund management, trust management, shipping, and investment holding companies. Lately there has been an influx of UK betting and gaming operations fleeing high taxes and using the very good telecommunications facilities to offer Internet betting services. It seems likely that Gibraltar will be one of the most attractive offshore locations for e-commerce business aiming at the EU market.

Gibraltar's situation within the EU is unique. On the one hand, its legislative endeavours would seem to have established it as a very cost- and tax-effective base for European trading and financial operations, and unlike some European IOFCs it is not overcrowded; on the other hand, it is vulnerable to pressure from the UK and the EU.

In July 2002 the government announced new tax and company regimes which it hoped would maintain its attractiveness towards business while satisfying the OECD and the EU.

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 are 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 is fiscally part of the United Kingdom, pointing to its 1969 constitution, which gives the territory fiscal autonomy. The United Kingdom government was said to be “100% on-side” regarding the ‘regional selectivity’ debate, and Gibraltar is challenging the EC's view at the European Court of Justice.

In the meantime, the Brussels officials have agreed that the existing situation (confusing as it is) may be allowed to continue - at least as regards Exempt companies - until 2010 (2007 for new companies).

Gibraltar dissolved its qualifying companies tax regime in January, 2005. In a move estimated to have cost the Gibraltar government an estimated £1.5 million in annual tax revenues, the remaining qualifying companies, of which there were about 80, switched to the ‘exempt’ companies regime.

In March 2007, Gibraltar's Chief Minister Peter Caruana travelled to Luxembourg to give oral evidence at the court hearing of Gibraltar’s tax case against the European Commission in the European Courts.