Gibraltar business

Gibraltar tax exempt companies

Tax exempt Company

A regular Gibraltar company can acquire tax-exempt status, provided that it is not owned by Gibraltarians and does not derive income from within Gibraltar. The tax-exempt status is granted by the Gibraltar Finance Centre upon individual application by the company. The tax-exempt company pays a GBP 225 fixed annual duty to Gibraltar government. The exemption certificates are issued for the duration of 25 years. The special tax treatment of the Gibraltar exempt company is prescribed by the Gibraltar Companies (Taxation and Concessions) Ordinance of 1967. A particular benefit for a Gibraltar exempt company is that it can have locally appointed directors and administration, while remaining de-facto tax free in Gibraltar. This is a very important feature, because the location of the management in Gibraltar helps to prevent the assumption that the company may be tax resident anywhere else.

Why is it important?

Most high-tax countries have tax laws whereby any company, regardless of where it is incorporated, will be tax-resident in that high-tax country, if it is actually managed and controlled there. For example, if a Gibraltar company had directors resident in Germany and actually managing the company from there, such company would be obliged to register for tax purposes in Germany and pay full tax there from its worldwide income. Failure to register for tax purposes in such case may lead to serious legal consequences for the directors and owners of such company. Most high-tax countries have similar provisions within their tax legislation so it will rarely be advisable for onshore resident clients to act as the directors of an offshore company. Similarly, while evaluating for tax purposes a transaction between a domestic company and an offshore company, a domestic tax officer will often ascertain the aspect of management and control of the foreign company. For example, where and by whom are the contracts executed, where are invoices and correspondence sent from, where is the bank account of the foreign company located? If it occurs that all business dealings of the offshore company are actually carried out by an individual residing locally in that high-tax country, the transaction may be considered as carried out between “related parties” and punitive tax consequences may apply. A Gibraltar tax-exempt company is a perfect solution for this problem, because it allows for being completely managed and controlled in Gibraltar. The fixed annual exemption fee qualifies as “tax”, therefore, formally, a Gibraltar exempt company is also tax-resident in Gibraltar. The exempt company may have local directors, route all contractual documents, invoices and correspondence through Gibraltar and maintain local bank accounts there, while at the same time remaining tax-exempt. When evaluated from outside, a properly managed Gibraltar exempt company would look completely “local” – and this may be important when a transaction done by a Gibraltar company is evaluated somewhere else for tax purposes. In other words, in this time and age it is often important that an offshore company has an ability to demostrate that it is real, and not merely a fictional “shell” company. A Gibraltar tax-exempt company is a very suitable instrument for that purpose.

Detailed features of the Gibraltar tax-exempt company

For a company to obtain and retain its tax-exempt status it must fulfill the following conditions:

  • The minimum paid-up share capital of the company must be no less than £100.
  • No resident of Gibraltar must have a beneficial interest in the shares of the company. (This does not preclude residents of Gibraltar from formally holding shares on behalf of the non-resident client.).
  • The company may not trade or carry on business in Gibraltar with residents of Gibraltar. It may however trade with other exempt or qualifying companies or non-resident persons.
  • The company must maintain its Company Register, Registered Office and Resident Secretary in Gibraltar.
  • No shares are issued or transferred without the approval of the Gibraltar Finance Centre Director. At application, the beneficial ownership of the exempt company must be disclosed to the Gibraltar Finance Centre Director. This information will remain strictly confidential.

Subject to the above conditions, a company incorporated in Gibraltar or a registered branch of an overseas company may apply for a Tax Exemption Certificate. Possession of such certificate will, in return for the payment of a fixed annual tax, exempt the company or branch from further taxation in Gibraltar. A Tax Exemption Certificate is issued for a period of 25 years. The fixed annual exemption tax is:

  • £225 if the company is ordinarily resident.
  • £200 if the company is not ordinarily resident.
  • £300 in the case of a registered branch of an overseas company. Upon payment of the annual exemption tax, the tax-exempt company will not be subject to any further corporate taxation on profits. It will also be exempt from any estate duties, stamp duties, withholding taxes on interest, fees and other payments to non resident directors or to other persons, and on dividends paid to its shareholders.

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