Gibraltar Private Companies

Gibraltar is a popular destination for the registration of both trading and holding companies and in general Gibraltar companies do not pay tax. Throughout this article it is assumed that the company being proposed will not trade in Gibraltar or have local directors, in other circumstances a tax rate of 10% will be applicable. Gibraltar companies can be formed quickly, easily and very cheaply. Their drawback is the close association of Gibraltar with tax planning and Spain’s animosity with Gibraltar means that Gibraltar companies should not be used by Spanish clients or for holding assets (such as real estate) in Spain. In addition Gibraltar companies not having directors in Gibraltar will always need to consider the laws of both Gibraltar and the country where their directors are located, more detail on this point is provided below.

Taxation
Provided a Gibraltar company has no connection with Gibraltar it will pay no tax of any kind. There is no corporation tax, no wealth taxes, no capital gains and no VAT.

Administration
Gibraltar companies must have at least one director and this may be a corporate director. They must have at least one shareholder who may be either a natural or legal person (such as a company). The director should not be resident in Gibraltar. Gibraltar companies must have a company secretary which can be either a natural or legal person but  this must be based in Gibraltar and will be provided by the corporate service provider.

Share Capital
In effect Gibraltar companies do not have a capitalisation requirement however the usual minimum is 2000 GBP with 1 GBP paid up.

Name
The names of Gibraltar companies must end in either ‘Limited’ or ‘Ltd’. Names will be permitted unless a similar name has already been registered or the name implies some sort of regulated activity or the name is offensive.

Timescale
The timescale to formation  (from receipt of fees and diligence) is around one week.

Accounts and Audit
Gibraltar companies must prepare and file accounts but these can be prepared by anyone and are signed off by the directors. Accounts in Gibraltar are not a matter of public record. In most cases an audit will not be required subject to turnover. The exact details are set out in the table below.

Banking
Gibraltar companies should not bank in Gibraltar but can bank elsewhere if a bank account is required. Many service providers can assist with account opening in other locations.

Public Record
The names and address of the officers of the company and its shareholders are public records but the accounts are not.

Nominees
Most Gibraltar companies are formed with local nominee shareholders concealing the identity of the owners. For information about the pros and cons of using nominee shareholders please see our main article about nominee services. Nominee directors can also be used in other countries and can be used to conceal the identity of the persons operating the company though this will not lead to any legal taxation of regulatory benefit and may make banking more complex.

Registered Office
Gibraltar companies must have a registered office in Gibraltar and local providers offer this service for a small fee.

Lack of Substance
One criticism of Gibraltar companies is that since their tax exemption is based on having no presence in Gibraltar they are very insubstantial. This makes business incubation impossible and means that such companies cannot make any reasonable defence to onshore Controlled Foreign Corporation (CFC) rules claiming the arrangement is mainly artificial, lacking in substance or mainly for avoiding tax that would otherwise be due. Other options include the use of 0% tax companies in other offshore countries where local directors can be used (although offshore companies may also come under attack, see our main article on offshore services for more information) or the use of non-offshore low tax countries, such as a Malta (where the effective rate of tax is 5% on trading income). This lack of substance also raises regulatory and dual taxation dangers, explained below.

Taxation Dangers
As a principle of most legal systems companies may be taxed either where they are incorporated and/or where their directors are resident (if different). Since Gibraltar companies have no local directors their directors must necessarily be in another country which could cause the Gibraltar company to be liable for tax in that country also. If the country of the directors residence is a high-tax area this effectively defeats the tax benefit of the Gibraltar company. The solution may be to use directors located in a zero tax country such as the BVI, St Kitts and Nevis or the Isle of Man. These directors may have discretion in their actions or may be mere nominees following instructions from their principals. In this latter cases care should be taken since it may be that the principle is considered a shadow director and the Gibraltar company becomes taxable where they are resident.

Regulatory Dangers
Aside from the tax issues outlined above regulatory systems may also applies to companies 1) where they are incorporated; 2) where they are trading; and 3) where their directors are resident. This means that clients wishing to undertake an activity which is licensable in country A but is not licensable in Gibraltar cannot do so simply by forming a Gibraltar company of which they are directors. In such a case there would be no legal benefit since the Gibraltar company would still require authorisation in country A. This means that is always necessary to consider the regulatory status of any proposed activity in both Gibraltar and the country where the directors are located. This situation can be address to some extent by the use of foreign directors but in the case of regulated entities this may not be practical.

Concerns about Reputation
Gibraltar is strongly associated with tax avoidance, though perhaps not the same extent as the BVI or the Isle of Man. This connection will always exist and any possibility of prejudicial treatment should be considered from the outset.