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Gibraltar – The all-in-one solution

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Gibraltar has many advantages to offer as a jurisdiction.

Gibraltar has many advantages to offer as a jurisdiction. The regulatory regime is excellent; the fund set-up process is quick (Experienced Investor Funds can be set up in days and do not need prior approval to start trading) and cost effective. There are world class and top quality advisers and counter-parties. A number of major financial institutions are located in Gibraltar including the Credit Suisse Banking Group and the Capita Financial Group. Three of the ‘Big Four’ audit firms are also present.

However, one of our major advantages over other jurisdictions stems from the fact that Gibraltar is a member of the European Union, and, as such, is entitled to benefit from the European Parent-Subsidiary Directive (‘PSD’).

The nightmare scenario for a fund is when a fund vehicle causes additional taxation for its investors because the fund usually pays tax in the jurisdictions where it invests and the investors often pay tax on their profits from the fund. The fund itself should always try to be tax transparent. The PSD enables European fund vehicles with a Gibraltar-domiciled parent to eliminate a great part of these tax problems.

The PSD was designed to eliminate tax obstacles in the area of profit distributions between groups of companies in the EU by abolishing withholding taxes on payments of dividends between associated companies in different member states and preventing parent companies incurring double taxation on the profits of their subsidiaries.

Jurisdictions such as Cayman and Jersey have found their own solutions to this problem, but these solutions tend to be complicated, expensive or, in some cases, both. For example, in Luxembourg, if a fund retains dividends for a year no tax is payable when they are distributed. However, this solution may lead to the fund’s internal rate of return suffering. Other methods include liquidating one vehicle when dividends are distributed and subsequently incorporating a new one for future investments; or employing a profit participation loan via a loan vehicle that is a combination of equity and debt.

Gibraltar offers the most straightforward route to fiscal optimisation, since not only will the fund benefit from the PSD eliminating withholding tax from investments in other EU/EEC countries, but in addition, dividends can be distributed to non-Gibraltar investors without any withholding tax.

Gibraltar’s membership of the EU also brings other benefits. Under UCITS III regulations, 130/30 funds which are set up in Gibraltar under the UCITS umbrella can be marketed across Europe, as well as in parts of Latin America and Asia. Investment managers operating from Gibraltar can passport their EU-licences into or out of Gibraltar. However, in order to set up a fund in Gibraltar an investment manager licence is not required.

In addition, although Gibraltar is a member of the EU, it is not subject to VAT. As there are proposals within the EU to impose VAT on fund services, if implemented, Gibraltar would become the only jurisdiction in the EU where fund services would be VAT exempt.

For high net worth individuals resident in Gibraltar (including fund managers) Gibraltar offers attractive tax advantages. In certain circumstances Category 2 tax status is available, which means that although worldwide taxable income is taxed in Gibraltar the maximum tax payable is capped at £20,000 a year. There is no capital gains tax or wealth/inheritance tax in Gibraltar.

As a fund jurisdiction with many advantages Gibraltar has expanded rapidly over the last few years and is uniquely placed to offer promoters a first-class jurisdiction within which to establish their funds.

James Lasry, Robert Koller and David Laderman, Hassans

 

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