Let’s talk a little bit about Gibraltar. So, on the surface Gibraltar has a 12.53% corporate tax rate, they don’t tax capital gains, that’s fairly appealing, they do have CFC rules, they do have management and control rules, and they used to have a 10% tax rate. But to be honest with you, typically when you’re using Gibraltar companies, we would never actually pay the 10% tax rate, so how does that 10% work? This is one of the more interesting places in this regard and was one of the most attractive places for e-commerce companies, for quite a while probably globally, but certainly in Europe. Just to give you some contrast I used to kind of vehemently defend it as an alternative to Cyprus and Hong Kong.
Gilbraltar Versus Another Countries
Cyprus, Hong Kong and Malta all have some reasonable similarities, you can see well now Cypress 12,5% corporate tax rate, 12,5% corporate tax rate in Gibraltar. Certainly eight and quarter to 16,5% in Hong Kong, but the offshore exemption is available in Cyprus you were able to have a non-resident company and that was also true in Gibraltar, you could have a non-resident company whereas the other two had audited Financial requirements. Gibraltar also has audited Financial, requirements on companies. But there’s an exemption up to a certain threshold and so that was attractive.
Unlike Cyprus, Gibraltar has no VAT, so not part of the VAT regime, that was more attractive and Gibraltar it is part of the European economic area, have access to EEA Payment Processing, which happens to be some of the lowest costs in the world.
What are the advantages to site a company in Gibraltar?
So, you could get low-cost Payment Processing, not have to deal with VAT, not have to deal with tax and potentially depending on the size, not have to deal with annual audit requirements. So that was a pretty nice combination, it is a little bureaucratic setting up a company in Gibraltar, they’ll tell you know it’s cheaper than a bunch of other options and it’s faster, this might be true in terms of the actual mechanics of it but the due diligence is stronger there than in either the other two places and so you have to go through that first which makes it slower and more expensive in a lot of cases.
What Happened with Gibraltar in Terms of Banks?
What ended up happening with Gibraltar that made it less attractive and we started moving away from it quite a bit was Banks got stricter with Gibraltar. So they were more willing to open for Hong Kong companies, more willing to open for US llc’s, more willing to open for UK llp’s, more willing to open for Cyprus companies and Estonian companies and things like this, and as a result that became less attractive because if you have banking, you have, if you don’t have banking, you have nothing! It has since gotten a little bit better, there are more Banks now who are willing to work with Gibraltar companies and so I think that opens it up as somewhat of a reasonable possibility, as I’ve said you have a situation where the corporate tax rate has risen from 10% to 12,5%, so a little less attractive in that regard. However, still no tax on capital gains, CFC rules not typically that relevant to you unless you’re using it as some sort of a particular holding company.
What Makes Gibraltar Attractive to Investors?
The interesting thing is it remains one of the very few places in the world where you could have a local registered company that is not resident. So this was the famous thing that Apple used to have in Ireland, it’s been gone now for a number of years, but we would have an Irish registered company that was not tax resident there, they (Apple) would manage and control it from the U.S and until the U.S well it’s not a U.S tax resident company because they didn’t have management control rules in the US, and it’s not an Irish tax resident company because it’s not vanished and controlled there. Similar idea for Gibraltar, you could do the same thing.
Cyprus has been the other one that had the same thing. Cyprus just closed this at the end of last year, now you have to formally state that your tax resident somewhere and so this creates some greater complications. They’re kind of trying to force you into their 12,5% regime, which becomes competitive when now you can compare it to Bulgaria, now you can compare to Hungry, you can compare it to potentially Estonia, Romania, maybe Malta. So, it gets no longer as attractive as it used to be.
In the case of Gibraltar, you’re in a situation where you have an added benefit which is this quasi-territorial remittance-based Taxation, and so potentially you could end up not having tax on the income of the company, a large portion of it or maybe all of it depending on kind of the details of your country or your business operation rather. That’s pretty appealing. iIt’s not to go to good network of tax treaties at all, in a couple cases there are certain treaties that it is covered under the UK, because it is a part of the UK as a crown dependency, and so that’s beneficial, but certainly you know Cyprus has, for example, a better network of tax treaties depending on where you’re looking at.
What Is the Meaning of Tax Treaties?
A tax treaty is a bilateral (two-party) agreement made by two countries to resolve issues involving double taxation of passive and active income of each of their respective citizens.
Hong Kong may have a better network of tax treaties, some other places may have a better network of tax treaties, so case by case depending on the type of income you’re receiving and which countries you’re dealing with. This is definitely a drawback for Gibraltar, as I said, it isn’t the easiest place for Bank, there is more banking options available now for it than there has been in the past and so that opens up some Alternatives, it does have access to EEU Payment Processing.
What is Payment Processing?
Payment processing is the series of actions that occur when digital payment transactions are initiated by a business.
The payment processing thing is somewhat of a big deal, because you’re in a situation where the rates for payment processing vary based on the region that you’re in, so for example, Hong Kong has higher rates than the US, the U.S typically has higher rates than the EU, this is basically a function of the fact that the EU has sued Visa and MasterCard repeatedly into lowering what is called interchange, which is the base rate that gets charged and so that everybody marks that up in interchange, plus of some form or another. As a result, if you can save money that’s really good, and again you kind of stepping outside of the VAT regime is a little bit helpful.
Is Gibraltar Good for e-commerce and Online Business?
In practice I noticed that what has changed a lot in e-commerce is we’re primarily tied in to something like Shopify today, I don’t see a lot anymore of e-commerce, or custom solutions, and so you are more limited in the payment gateways that are available to you in your business. Therefore, that could play a role in whether it’s a good fit with Gibraltar or not.
Gibraltar also has had some specific rules that were favorable to certain types of Industries, for example, they appealed to the online gaming space for quite a period of time and so, there are some advantages for certain types of Industries.
Overall, I think it’s a reasonable place to have a company, in some situations it’s one that tends to fly under the radar. I definitely do not use it that off often anymore, we used to use it a lot. There’s a reasonable number of cases where it’s I would say the majority of cases is not the best fit, but that being said every situation is unique and so I always tell some everybody there is no one size fits all, do not go with what your friend got, that was probably about a bad idea they may have messed up and be your situation is different than theirs, so you have to evaluate case by case.
