Unlike most of the world, Gibraltar has bucked the economic trend of the past five years. Employment is close to its all-time high, and, while the pace of economic growth has slowed compared to the first decade of the century, this year the Rock’s economy is forecast to knock out a cracking 6 per cent increase. How has it pulled this off? By doing what it does best and focusing on niche business.
Gibraltar’s economic resilience has been born out of a survival instinct honed by years of maltreatment. Three centuries of antagonism from a large temperamental neighbour has shaped Gibraltarians’ stubborn refusal to succumb to Spain’s intermittent campaigns of hectoring and bullying. The real economic transformation, though, has taken place in the past 30 years or so, when Spain re-opened the frontier as a prerequisite to its joining the EU . With an open frontier, Gibraltar could once more, after a 16-year blockade, promote itself to the millions of tourists visiting the Costa del Sol. And today Gibraltar is the single most popular tourist attraction for holidaymakers on the Costa.
Tourism was one for the first pillars of the economy to be developed once the garrison packed its bags and left the Rock at the end of the 1980s. Tourists come in droves: each year about ten million of them, by car, by air and by sea.
Gibraltar’s position at the western end of the Mediterranean makes it an obvious port of call for visiting cruise ships. As well as the tourists, around 100,000 vessels a year pass through the narrow 14-kilometre-wide Strait of Gibraltar and 10 per cent of them choose the Rock to pick up the low-sulphur fuel needed to operate in the European ports. The advantage which Gibraltar offers visiting vessels is that they do not need to diverge much from their plotted course. These merchant vessels call at Gibraltar’s small but bustling port to pick up fuel (bunkers), supplies and spare parts. With its international airport a five-minute drive from the port, Gibraltar is one of the very few ports in the world where crew changes for merchant ships can happen without a visa. Relief crews are flown out from Heathrow or Gatwick to pick up the visiting vessel and then go on their way.
On land, the Rock’s business community has been hard at work developing the Finance Centre over the past 25 years. Being small, Gibraltar can be nimble and legislation is drafted in consultation with industry practitioners, regulators and the local government. There is bureaucracy but not as much as you find in large jurisdictions like the City of London, Frankfurt or New York. Ready access to the regulator or relevant civil servant is one of the benefits of doing business in Gibraltar. There are protocols and processes that need to be adhered to. And for regulated activities such as financial services, the levels of disclosure and capital requirements are no less onerous that what one would find in the large financial capitals of the world. However, as everything is so much smaller, relation- ships are forged more quickly and decisions can be taken more swiftly. Word of mouth and personal reputation in the small community often count just as much as formal qualifications. Easy personal contact is a hidden benefit of the Rock.
The introduction of the single European passport for insurance in 1998 enabled locally licensed insurers to offer their services across Europe. This led to significant growth in the number of insurance companies setting up in Gibraltar: licences granted have more than tripled in the past decade.
Separately, new legislation was enacted in 2005 in a bid to develop a specific niche in the funds industry. Further amendments were made to update the legislation in 2012 and the number of funds has quadrupled in just four years, according to the GIA, the local industry association.
Gibraltar is home to a growing number of hedge funds and fund administrators. There has also been an increase in the number of family offices run from Gibraltar. The beneficiaries may not live on the Rock all the time, but the pool of professional expertise in terms of investment appraisal, fund management, tax and trust advisory is on a par with anything you would find in St James’s or Georgetown.
It is Gibraltar’s finance sector which has probably seen the greatest change. Affected as it is by legislation created elsewhere, particularly in Brussels, Gibraltar has had constantly to adapt in order to compete. Despite having undergone significant change in the past 15 years, perceptions trail the reality. Gibraltar is labelled (still!) as a tax haven by those who want to follow a more political agenda.
Single tax rate
The dual tax system, where offshore companies paid no tax and onshore companies did pay tax, ceased to exist at the end of 2010. Gibraltar now has a single uniform corporate tax rate for all companies trading in the territory. Corporation tax is a competitive tax and governments set it at rate they hope will attract companies on the one hand and also generate sufficient revenue to fulfil their commitments. Gibraltar’s corporate tax rate is levied at 10 per cent of prof- its. An added attraction is that Gibraltar is outside the EU customs union so there is no sales tax (VAT). Neither is there capital gains tax nor inheritance tax.
While each of these is likely to be attractive both to individuals and to companies alike, they are unlikely on their own to be sufficient for anyone wishing to set up a business in Gibraltar.
Staffing can be an issue for start-ups and the costs of transferring staff from elsewhere can be high. The online gaming industry certainly found this when it first came here 15 years ago. Now the pool of talent with the right experience is fairly stable, but it has taken time to develop.
One of the first contacts most new businesses make is to the local Chamber of Commerce. It is small but well plugged in to the business community. Apart from proving local statistical information, they are able to point new businesses in the right direction to go, what licence they need, and which government department to speak to. Once you are set up they will also lobby on your behalf and keep you informed of what is going on. Be sure to get in contact.
by Christian Hernandez, president, Gibraltar Chamber of Commerce