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Gibraltar High Net Worth Individuals Residency Changes…

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Only two things in life are certain, death and taxes…How often have we heard this saying before? Well in Gibraltar since 1992 the High Net Worth (“Category 2”) Individual has not had to worry about taxes. For over 20 years individuals have been relocating to Gibraltar to enjoy the Mediterranean climate, cuisine and way of life.

The Category 2 rules allow individuals who meet certain criteria (including the purchase or rental of a suitable property and a minimum net worth of £2 million) to cap the tax on their worldwide income at an amount of less than £30,000 per annum.

One of the common and more restrictive features of the Rules to date has been that Gibraltar employment and trade has been specifically discouraged. Whilst the Finance Centre Director is able to waive this restriction where he feels that doing so would be of benefit to the economic development of Gibraltar, this has been, and remains, very much the exception.

Over the years, much like Gibraltar itself, the profile of the Category 2 individual has changed. When it was first introduced the typical Category 2 individual was a wealthy individual who had chosen to relocate to Gibraltar to enjoy the Mediterranean lifestyle as well as the tax free returns from their pension or investment portfolio. When in 2005 taxation on investment income was abolished for all Gibraltar residents followed shortly after by the exemption from taxation of pension income, the Category 2 status was no longer necessary for many of these individuals.

However, Gibraltar continued to attract a younger Category 2 individual, one who was not relocating to Gibraltar to retire here but was alternatively a much more entrepreneurial individual with active business interests. The Gibraltar Government recognising this trend issued guidance to the industry clarifying what activities Category 2 individuals could in principle carry out locally. The guidance was welcomed by the industry as it provided a number of clear examples of what a category 2 individual could do. Unfortunately though there were still restrictions with what could be done physically from Gibraltar.

In the autumn of last year the Gibraltar Government created a working group of industry professionals to review the Category 2 status and advise on how this product could be expanded and improved. The group is engaging with professionals experienced internationally in this area (including current Category 2 individuals) and is considering all aspects of the status from its process and application through to its functionality and practical application.
The recommendations, some of which have already been published in the Income Tax Amendment Bill 2015, will allow Category 2 individuals who have the necessary approval from the Finance Centre Director, to carry out or exercise any trade, business, profession or employment in Gibraltar. The intention is that the jurisdiction will benefit from the additional inward investment and from having these entrepreneurs using their business skills and expertise locally. The income from such activities will be taxed locally to the extent that the income is accrued and derived in Gibraltar. The challenge for the working group continues to be achieving the right balance in terms of the effective tax rate that these individuals should be subject to, in order for Gibraltar to retain its attractiveness as a low taxed jurisdiction.

An additional benefit of this new “opening of the doors” approach is the additional substance that it provides to the individual’s residency position. Substance is high on the global tax agenda and the weight that having an individual’s economic interests physically located in the jurisdiction gives to their residency position should not be underestimated. Many high net worth individuals, travel and have business interests in other jurisdictions therefore potentially there is a risk that another country may claim that the Category 2 individual is resident in their country. The more established the individual is in Gibraltar the better their defence against a claim for residency from another country will be.

Individuals affected by the change may be able to structure or plan their affairs to minimise the tax impact from the change. With its low corporate tax rate of 10% and its system of no taxation on capital gains, no wealth tax and no inheritance tax Gibraltar really is starting to feel like paradise in the sun.

So, only one thing in life is certain…….


Isle of Man: The Final Piece in the Private Client Jigsaw

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The Isle of Man continues to be recognised as an international finance centre of excellence, no more recently than during the Professional Advisor International Fund and Product Awards 2015 where they won ‘Best International Finance Centre’, fending off strong competitors like Jersey, Guernsey, Dublin and Luxembourg.

Having successfully encouraged diversification of its economy over the years, the Island is currently home to a number of high performing sectors, one of the most successful being its financial services industry. This is due to having a proactive government, a robust regulatory framework and the ability to recognise that engaging with its stakeholders and forming positive relationships with professional service providers, such as Abacus, helps for a successful business environment in which all can flourish.

Abacus is one of the Island’s longest established and reputable service providers currently celebrating 40 years of excellence in providing a range of financial and professional administration services. Delivering value through the provision of corporate, trust, funds and tax solutions, our longevity and success is predominantly due to our underlying principles of integrity, independence and insight.

However, some of our success can be attributed to being ideally located in a jurisdiction that is home to a politically stable and proactive government, a robust regulatory framework and evolving industry sectors – one of its biggest and most successful being Financial Services, a sector which offers all of the pieces in the Private Client jigsaw…well almost!

What does a Private Client jigsaw look like…? Firstly, there is no ‘typical’ private client – anyone working in the financial services industry knows that each and every client has bespoke needs and requirements. However for the purpose of this piece, a private client could be an ultra-high net worth individual who has acquired his wealth through the family business which is involved in UK property development; he owns a private jet and is currently looking to purchase a yacht.

So which pieces of the jigsaw does the Isle of Man have to offer? And where does Abacus fit in?

Firstly, the Isle of Man is the perfect jurisdiction for the establishment and operation of property holding structures, offering efficient and cost-effective arrangements for all types of property acquisition through various vehicle types, ranging from private wealth structures to collective investment schemes that can facilitate a commercially effective pooling of investor capital and a convenient reporting mechanism. With the right advice and structuring it can be a tax effective solution, particularly for UK non-resident and non-domiciled individuals.
At Abacus, we establish and administer property holding structures designed to meet our client’s individual objectives and requirements and provide a range of support services to ensure that the structure is correct and runs efficiently.

Secondly, the Isle of Man is a one-stop shop for private global aviation business. Not only does it have an aircraft register which has been voted the best in the world in a survey of leading aviation lawyers from around the globe, it offers owners a neutral nationality registration prefix, a secure mortgage register and a professional infrastructure with experience in aviation finance. The Isle of Man Aircraft Registry is renowned for its high customer service ethos and its focus on safety and service…what more could you want for your aircraft?

With strong relationships across the Island’s aviation industry, we assist owners and their representatives in understanding the diverse requirements associated with owning and operating an aircraft, whilst providing tax efficient ownership structures that facilitate aircraft operation on a private and/or commercial basis.


Thirdly, is the Island’s strong history and heritage in shipping – it has one of the fastest growing ship registers in Europe and a Registry that provides a high quality and fast response customer service with a low cost scale of charges. It is also favourably on the much sought after ‘White List’ of the Paris Port State Control Memorandum of Understanding and has been a popular register for yachts, with a significant number currently waving the Isle of Man Ensign.

As a highly experienced corporate service provider, Abacus has significant experience in a wide range of international ownership structures and administration services for yacht owners, making us well placed to assist with the complexities of yacht ownership. We work with our clients to ensure that custody and management of their prized vessel stays on an even keel, from establishment of the structure through to its ongoing administration. We also offer yacht registration services but understand that choosing a flag for a vessel is very much a personal choice and that the Isle of Man may not always be the most practical or effective place for a client. It is here that our office in Malta, a jurisdiction which is growing rapidly in popularity amongst the yachting industry, can offer a full range of yacht ownership, registration and administration services in an alternative EU jurisdiction.

Another is that the Isle of Man is a cost effective alternative for private clients and their investment, fund management and administration requirements. With a well-established fund sector, supported by a range of professional service providers including investment managers, fund administrators, legal firms, custodians, auditors and fiduciaries, the Island offers a compelling and cost-effective alternative for the domicile of investment funds.

As an established fund services provider, Abacus offers a fully cross-border administration solution to fund managers and intermediaries establishing and operating fund structures for clients internationally. We deliver support by providing market leading technology customised to provide added value and improve our client’s relationship with shareholders, promoters and other service providers. Our proposition includes an efficient and effective cost base coupled with a client service ethos designed to add speed, quality and flexibility to the fund administration service.

As we come closer to completing the puzzle, we come to the Island’s Residence and Citizenship opportunities. The UK Tier 1 (Investor) Visa is aimed at High Net worth Individuals and their families who are looking to obtain alternative residence and citizenship by making a qualifying investment into the Isle of Man. An applicant must meet the eligibility and due diligence requirements and complete the application process but if successful can obtain British citizenship.

With understanding and experience of citizenship programmes, we are able to advise and assist individuals and their families wishing to apply for citizenship in an alternative EU jurisdiction. We can help clients choose an appropriate programme and country of residence (we can also offer three Maltese residence and citizenship programmes) and guide them through the application process to ensure that preparation and submission of their application is correct and processed in an expedient manner.

So now the picture is near complete, what is Abacus’ part in the puzzle? Simply, we are the final piece…we utilise the Island’s capability and apply our knowledge and experience to develop and provide solutions that keep pace with change and ever more sophisticated tax planning, to ultimately assist private clients in the effective structuring and management of their wealth. We are the piece that holds it all together and make the Private Client jigsaw complete!


Gibraltar Budget 2016

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The Key Economic Highlights for Businesses & Individuals

In his first budget address since the EU referendum result, Chief Minister Fabian Picardo set out what he described as “a budget designed with prudence in mind”, with a view to providing “a continued level of prosperity to all sectors of the community”, stimulating new business, and continuing to make Gibraltar “the most attractive commercial environment in the Mediterranean.”

The Gibraltar Chamber of Commerce have supported the Government’s notes on the need for a cautious approach to future public expenditure in the current post-Brexit environment. In the same vein, the Chamber have welcomed the announcement that there will be no material increase in the cost of doing business in Gibraltar, as well as the introduction of a new incentive scheme for start-up companies and newly-established Limited Liability Partnerships (LLPs) in Gibraltar.

Key Economic Highlights

The Gross Domestic Product (GDP) forecast for 2015/16 is now estimated to be £1.77 billion, representing a 7.5% increase compared to the previous year.

The GDP per capita for 2015/16 is forecast at $90,165 placing Gibraltar in 4th position, down one position from last year, just overtaken by the Macao Special Administrative Region of China, but still ahead of Singapore ($85,253), Switzerland, Hong Kong, the UK ($41,159) and Spain ($34,819).

The recurrent budget surplus for the last financial year 2015/16 is the third highest on record, at £38.8 million.

The overall recurrent expenditure budget for the year is £570 million, reflecting a 5% increase over the 2015/16 Budget Estimate.

Expenditure stands at 32% of GDP- a similar comparison for the United Kingdom, Spain and Germany would be in the region of 43/4%, and the Euro area as a whole at 48%.

Business Incentives

The introduction of an incentive scheme for start-ups and newly-established LLPs which will afford any eligible new business setting up in Gibraltar a tax credit equal to the tax due up to a maximum of £50,000 over each of its first three financial years of trading.

10% corporate tax rate will remain unchanged.

No material increase in the cost of doing business in Gibraltar with electricity and water charges not being increased this year and General Rates payable by businesses also remaining unchanged, and discounts for the early payment of rates continuing to apply.

Following the Brexit result, reforms to the social insurance system have been deferred and will be revisited over the remainder of the year with any new increases being introduced on 1st January 2017.

For telecommunication companies, company tax at the current higher rate tax of 20% shall apply only to the profits and gains arising from the telecommunication activities which are specifically mentioned in the Income Tax Act and the lower 10% rate of tax shall apply to the gains and profits arising from their non-telecommunication business activities.

Incentives for local businesses in the marine sector include import duty reductions on: propellers and related spare parts from 12% to 0%; sails from 3% to 0%; and electronic equipment and spare parts for use exclusively in boats, including fish finders, marine radios, radar and GPS plotters from 12% to 0%.

Import duty has also been exempted on: vision correction aids including spectacles, spectacle lenses and contact lenses; and essential items and personal care products such as perfumes, tampons and shaving cream.

Personal Tax

Taxpayers with an assessable income of £11,050 or less will be brought out of the taxation system altogether and will pay no income tax. This applies to taxpayers on both the Allowance Based System and the Gross Income Based System.

There are a number of inflationary increases in allowances for taxpayers under the Allowance Based System (ABS) including: Personal Allowance and Spouse/Civil Partner’s Allowance; One Parent Family Allowance; Nursery Allowance; Child Allowance; Child Study Abroad Allowance; Dependent Relatives Allowance; Disabled Individual Allowance; Blind Allowance; and Medical Insurance Allowance.

Other Measures to Note

Ongoing consultation is taking place between the Government and Unite the Union, the Federation of Small Businesses and the Chamber of Commerce, in respect of the potential introduction in Gibraltar of pensions in the private sector. Following the Brexit decision, however, the Government has taken the decision not to progress this process during this financial year.

The general level of Public Sector pay will rise by 2.75% with effect from 1st August 2016. An additional 0.25% will be payable to officers of the Royal Gibraltar Police, Customs, the Prison Service, the Gibraltar Fire Service, the Airport Fire Service, the Borders and Coastguard Agency, and the Ambulance Service.

The statutory minimum wage will increase from £6.25 to £6.28 per hour with effect from 1st August 2016. This represents an increase of around 0.5%, which is above the rate of inflation (0.3% average for the first two quarters of 2016).

Last year’s tax amnesty has been extended for a further 6 months on somewhat less advantageous terms: income remitted from abroad which would otherwise have been subject to taxation in Gibraltar will now be liable to a 7.5% levy on the total amount remitted to Gibraltar, or 7.5% of the value of any assets purchased abroad from the proceeds of the income accrued and derived in Gibraltar on which tax should have been paid.

Old Age Pensions will increase this year in line with the rate of inflation so that the single rate for Old Age Pension would increase from £438.78 to £440.54 and the couple rate would increase from £658.22 to £660.85. At the same time, the cash differential will be maintained with the Minimum Income Guarantee.



Improving Performance Reviews In The Workplace

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Creating a performance review system which doesn’t demotivate the employee through negative feedback is a challenge for all employers.

Researchers at Kansas State University, Eastern Kentucky University, and Texas A&M University have come up with some insights that could transform performance reviews in the future and increase employee engagement. Firstly, the researchers identified 3 different types of employees, all with different goal orientations:

1) Performance-Prove Goal Oriented Employees – Always striving to prove their competency in their job.

2) Learning Goal Oriented Employees – Who seek to learn and improve at every opportunity.

3) Performance-Avoid Goal Oriented Employees – Who simply to try to avoid looking incompetent or foolish.

Despite an initial hypothesis by researchers predicting that Learning Goal Oriented people would like negative feedback, unlike the other two groups, because it would constitute a learning experience for the individual; the study found that all three groups disliked negative feedback. Assistant professor of management at Kansas State University, and lead author, Satoris Culbertson, stated:

“Nobody likes to get negative feedback — even those individuals who aren’t trying to prove anything to others, but instead are just trying to learn as much as possible.”

It means employers should be a lot more careful in terms of performance reviews and appraisals as they can have a detrimental effect on performance and motivation. Culbertson recommends adapting performance reviews so that they are not just annual or bi-annual events but an ongoing process:

“Instead of limiting ourselves to formal performance appraisals conducted once or twice a year, we need to think about performance management as a system that is linked with the strategy of the entire organization.”