The American insurance company Prudential has long used the Rock of Gibraltar in advertising to convey strength and stability (Flickr via Creative Commons).
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Special Feature

America and Gibraltar: two business-minded melting pots

Most Americans will recognise Gibraltar from the famous Prudential Insurance logo, but a recent US trade mission proved there’s plenty more to learn for those who want to open up shop.

In 1942 General Eisenhower, the future US president, needed to choose a secure and strategic centre for planning European operations during the Second World War. He chose Gibraltar. As The Hon. Ken Salazar, former US Secretary of the Interior, discovered while leading the American Chamber of Commerce’s first trade mission to Gibraltar last May, Eisenhower spent two years commanding operations from a bunker deep within the famous Rock. Secretary Salazar noted that, while it is no surprise that Gibraltar is immensely important as a strategic military position, what is less known is its great value as an entry point for the coordination of business and financial operations into the EU and North Africa.

Many Americans might only know of the jurisdiction in the context of the expression “strong as the Rock of Gibraltar” or by reference to the famous Prudential Insurance logo, which adopted the Rock as its company symbol in the late 19th century. Hence, the Americans’ three day visit was filled with lectures and meetings on Gibraltar’s infrastructure, work force, advantageous tax regime, and particularly on Gibraltar’s unique position in the European Union. Some 22 delegates, representing US companies, wanted to understand why Gibraltar has earned its reputation as a gateway into Europe and Africa. So what did they learn, and what opportunities are out there for US-Gibraltar business relations?

They learned Gibraltar is a British Overseas Territory with a mere 6.8 square kilometres and 30,000 residents, conquered by an Anglo-Dutch force in 1704 and ceded to the United Kingdom in perpetuity under the Treaty of Utrecht of 1713. Because of its position at the southern tip of the Iberian Peninsula, it was traditionally an important British military base, as its location gave it the ability to control entry into the Mediterranean through the Straits of Gibraltar.

Despite its size its economy is thriving, as the latest GDP figures show. But what’s in it for American businesses or investors looking to open up shop in Gibraltar? To help answer these questions and increase commercial cooperation, a Gibraltar American Chamber of Commerce (AmCham) was established earlier this year. AmCham Gibraltar was launched in the presence of The Hon. Francisco Sanchez, former US Under Secretary of Commerce for International Trade, and the Chief Minister of Gibraltar, Fabian Picardo. AmCham’s board includes Marielou Guerrero MBE, former President of the World Federation of Small Businesses, Major General Andrew Salmon OBE, CMG Rtd, former commandant of the Royal Marines, and Juan Verde, a Senior Partner of U.S. consultancy firm Mapa Group and US government adviser, along with other notable American and Gibraltarian business leaders.

Here are a few of the key points covered during the AmCham trade mission:

Financial services

The financial sector is responsible for 15 per cent of total employment in Gibraltar and 20 per cent of the GDP. In 2012, Gibraltar’s insurance industry grew 12.3 per cent with gross written premiums totalling £3.6 billion. Remarkably, over 15 per cent of all auto insurance in the UK is handled by Gibraltar companies. Because of Gibraltar’s position in the EU, it is possible for a bank, insurance company, investment manager, or certain types of funds to offer their services in the entire EU without having to seek further regulatory approval in any other jurisdiction. This is known as the European financial services “passport”.  

Tax advantages

Gibraltar has a tax efficient environment for companies and individuals: a 10 per cent corporation tax rate is only applied to income which is accrued and derived in Gibraltar. Gibraltar’s position in the European Union gives the opportunity for companies that wish to expand their European activities to do so in a fiscally advantageous manner. Although part of the EU, Gibraltar has not become part of the EU Customs Union, and therefore has the advantage of freedom from VAT. In addition, there is no capital gains tax, wealth tax, gift tax or inheritance tax. Furthermore, the personal tax regime in Gibraltar is also competitive, with the highest effective rate of tax being 24.75 per cent. As an OECD white list country, we’re fully transparent and compliant with global information exchange requirements.

Investment incentive system

Gibraltar’s government, like any other, is keen to encourage investment, particularly in those areas with potential to generate significant job opportunities for the local workforce. There are several incentive programs, including the European Union Funds, Development Aid and Joint Venture programs.

Gibraltar is currently eligible for support under the European Regional Development Fund (ERDF) for programs that focus primarily on infrastructure projects, and the creation of businesses and sustainable employment. The European Social Fund (ESF) deals with programs to extend employment opportunities and develop a skilled workforce.

Development Aid licences are issued by the government for development that produces a tangible and substantial benefit to the economy. If a licence is granted, a portion of total capital expenditure is available for deduction against taxable profits. A similar arrangement for joint venture companies of which the Gibraltar government is a member may have an amount offset against assessable income.

US ties: past and present

Gibraltar has had a long standing relationship with the US that has been strengthened and deepened over the last couple of years. For instance, there have been US Honorary Consuls in Gibraltar for over a hundred years. The Gibraltarian ports have serviced American ships, both military and civilian, for generations. American businesses have invested in Gibraltar’s ports, telecommunications, infrastructure, energy and waste industries. More recently, American investment funds have considered Gibraltar as a domicile for their European marketing efforts.

Gibraltar’s multicultural and multi-ethnic society has created a population with a strong work ethic. Much like the US, it is a nation of immigrants that values justice, civil liberties and the rule of law, albeit on a nano scale. In both places, the formula has attracted various groups who have integrated and worked well with each other, while being able to retain their individualities. Gibraltarians tend to feel that they are a little bit English and Irish, Spanish and Scottish, Maltese and Moroccan, Indian and Italian. They see eye-to-eye with the business-minded melting pot of America, and it is the hope of AmCham that both peoples will be able to continue to build on each others’ experience and talent.

About the authors: James Lasry is President of AmCham Gibraltar, and is a Gibraltarian-American and a partner at Gibraltar’s largest law firm. Amy Lathrop Visser is Treasurer of AmCham.

Photo: Getty
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Gibraltar - impact of Brexit

Last week our editor took a general overview of some of the scenarios for Gibraltar if Britain were to leave the Euro. This week, as the atmosphere in the British Conservative Party becomes ever more toxic, Michael Castiel, partner at Hassans lawyers on the Rock, goes into more detail (this piece written before the Iain Duncan Smith resignation and subsequent arguments happened).

However unlikely it may prove, the prospect of Britain's withdrawal from the EU sends shivers through Gibraltar's financial services, gaming and tourism industries, which are at the core of Gibraltar’s economy. For, if Britain leaves the EU, Gibraltar goes too, and, should Brexit occur, it is Gibraltar’s relationship with the UK that as in the past, largely will shape Gibraltar's future.

Gibraltar joined the European Union in 1973 as part of the UK. While rights to freedom of services across borders of EU member states apply between Gibraltar and the rest of the EU, because Gibraltar is not a separate member state (and is in fact part of the UK Member State) those rights do not apply between Gibraltar and the UK. Instead a bilateral agreement, formalised almost two decades ago, gives Gibraltar's financial service companies the equivalent EU passporting rights into the UK. Accordingly and pursuant to such agreement, where EU rights in banking, insurance and other financial services are concerned, the UK treats Gibraltar as if it is a separate member state.

This reliance on the special relationship with the UK is recognised by both the Government and the Opposition in Gibraltar, and when the territory (which in this instance as part of the UK electorate) goes to the polls on 23 June, the vote to remain in the EU is likely to be overwhelming. This may have symbolic significance but realistically seems unlikely to influence the outcome. In actual terms, although some non-EU jurisdictions use Gibraltar and its EU passporting rights as a stepping stone into Europe, almost 80% of Gibraltar’s business dealings are with the UK.

But whether or not Britain maintains the 'special relationship' with Gibraltar, if Brexit becomes a reality, other factors will come into play, with the ever-present Spanish Government’s historic sovereignty claim over Gibraltar topping the list.

Recently Spain's caretaker Foreign Minister Jose Maria Margallo went on record that if the UK voted to leave the EU he would immediately 'raise with the UK the question of Gibraltar.' If this was to come about it could take one or more of several different forms, ranging from a complete closure of the border between Spain and Gibraltar, demanding that Gibraltar passport-holders obtain costly visas to visit or transit Spain, imposing more stringent border controls, or a frontier toll on motorists driving into or out of Gibraltar. The latter idea was in fact floated by the Spanish Government three years ago, but dropped when the EU Commission indicated that any such toll would contravene EU law.

Here, again, imponderables come into play, for much will depend on which political parties will form the next Spanish government. A Spanish government headed by the right wing PP party is likely to take a less accommodating attitude towards Gibraltar (the Foreign Minister having recently indicated that in case of Brexit the Spanish Government may opportunistically push once again for a joint sovereignty deal with the UK over Gibraltar) whereas a left of centre coalition will likely adopt a more pragmatic and cooperative relationship with Gibraltar in the event of EU exit.

The most significant changes to Gibraltar's post-Brexit operation as an international finance centre are likely to be in the sphere of tax, and while Gibraltar has always met its obligations in relation to the relevant EU rules and Directives, it has also been slightly uncomfortable with aspects of the EU's moves towards harmonisation of corporate taxes across member states.

Although it was formed as a free market alliance, since its inception fiscal matters have been at the root of the EU, but Gibraltar's 'special relationship' with Britain has allowed considerable latitude in relation to what taxes it imposes or those it doesn't. However, as is the case with other member states, Gibraltar has increasingly found in recent years its fiscal sovereignty eroded and its latitude on tax matters severely curtailed.

As in Britain, Gibraltar has benefitted from several EU Directives introduced to harmonise and support the freedom of establishment, particularly the Parent-Subsidiary Directive which prohibits withholding taxes on cross-border intra-group interest dividend and royalty payments made within the EU.

As a stepping stone for foreign direct investment, should Brexit come about EU subsidiaries could no longer rely on these Directives to allow tax-free dividend or interest payments to their holding companies based in Gibraltar. In the case of the UK, bilateral double tax treaties will no doubt mitigate the impact of the non-application of any tax related Directives. Gibraltar, however, is not currently a party to any bilateral double tax treaties. Accordingly, Gibraltar would either have to seek from the UK the extension of all or some of the UK’s bilateral tax treaties to Gibraltar (subject of course to the agreement by the relevant counterparties) or it would need to negotiate its own network of bilateral double tax treaties with a whole series of EU and non EU Member States. To say the least, neither of these options would be straightforward to implement at short notice and would need the wholehearted support of the British Government

Whilst Gibraltar’s economy is likely to be adversely affected should Brexit occur, there may be some potential benefits. An EU exit would result in fewer regulations and possibly may provide Gibraltar with greater exposure to emerging economies.

From a tax perspective, an EU exit would probably enable Gibraltar to introduce tax rules and incentives that are contrary to EU tax laws and would provide the Gibraltar Government more freedom to adopt competitive tax regimes that may be considered contrary to EU state aid rules. How possible or effective any such strategy would be is doubtful given the OECD driven anti-tax avoidance climate affecting all reputable jurisdictions whether within or outside the EU.

In this as well as other possible change much will hinge on any post-Brexit relationship with the UK - an issue which the Gibraltar Government addressed recently in a paper sent to Westminster's Foreign Affairs Committee. It stressed not only that 'EU membership has been an important factor in the development of Gibraltar’s economy' but also the importance of 'clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations.'