Whipping boy.
But in the last ten years the island has also come under a huge amount of scrutiny from its European neighbors, and largely become a whipping boy in their battle against tax evasion. It's closest neighbor, Spain, as led the campaign within the EU to end the jurisdiction's lucrative tax system - backed by France, the UK and the US.
In 2002, the government of the island had to commit to ending the distinction between tax free offshore companies - who paid little or no tax - and their onshore counterparts, who paid a rate above 30% - by the end of 2010. Gibraltar has found that the deadline has come about quickly, and in the middle of 2010 are rapidly setting about salvaging what they can of their offshore industry - the jurisdictions biggest earner and employer.
That said, Gibraltar's Chief Minister, Peter Caruana, is determined that the island's offshore industry will remain strong, and instead of competing with the rapidly diminishing number of zero tax jurisdictions, will instead offer low rates of income tax to compete with other European jurisdictions such as Jersey, Guernsey and the Isle of Man. Following on from the recent G20 meeting in Toronto, this may well prove to be a sensible choice. As the rest of Europe's low tax jurisdictions seek to go legitimate, Gibraltar does not want to be left out. "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," Caruana said. "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 But under the new tax code that comes into effect next year all companies will be required to pay corporate taxes although the rate will be slashed to 10 per cent from 22 per cent currently. The territory's government said its new tax code "completes Gibraltar's 14-year transition from tax haven to mainstream European financial services centre." "Thousands of local jobs, much government revenue and thus our public services, depend on Gibraltar having an internationally competitive tax system," said Caruana. "Many previously tax exempt banks, insurance, investment, gaming and other companies will begin to pay profit tax in Gibraltar for the first time on the same basis as all other companies.
These companies are vital to our economy and to the social prosperity of all of us in Gibraltar." "In order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model." Peter Caruana, Chief Minister
Property investors.
Despite these changes, Gibraltar continues to offer much to investors seeking to minimize their tax exposure in the high tax economies of Europe. The backbone of Gibraltar's offshore services sector has been for property investors, who are able to purchase property in the name of a Gibraltar company and avoid paying taxes on revenues made from it - although the rate used to be zero, it will now qualify under the 10% tax bracket.
Residents have traditionally been able to qualify for high net worth individual (HNWI) status, meaning that their total tax bill was capped, so that income made over the cap was free of tax. HNWIs are permitted to hold shares in an exempt company and to hold deposits in Gibraltar banks, and income from these sources made by the company have only been taxable if paid to the HWNI for his own use in Gibraltar.
Added to that is Gibraltar's lively investment management sector, with about 30 licensed portfolio management firms and assets under management totaling GPB10.7 billion in 2009. 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. Non-resident holders of units or shares in funds held under trust will receive distributions untaxed.
Positive force.
After a 14 year battle with Europe over its tax system, it remains to be seen just how the Rock will fare in the new world of regulation and oversight of the dealings of offshore finance centers. But the fact that it is not just Gibraltar that is being force to reform is undoubtedly positive for the jurisdiction. Jersey, Guernsey, the Isle of Man, Cyprus and Malta have all been under the cosh in the year following the financial crisis, and all the European financial centers are now keen to demonstrate that they are more than just tax havens. In this post-crackdown world, it will be both the most regulated and versatile of jurisdictions that survive, and Gibraltar - in its history as well as in its existence as a low tax jurisdiction - has long demonstrated that it doesn't give in easily.
