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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 weight

The Isle of Man – A Place To Make Things Happen

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As a tax neutral domicile the Isle of Man is perfectly situated geographically, fiscally, politically and constitutionally to form part of a structure that wishes to access Europe or indeed any other part of the world.

The Isle of Man is what is termed a Crown Dependency and thus has the Queen of England as its titular head. The basis of law is common law and statute-based and therefore English case law is usually persuasive. With the ever-increasing international influence on domestic legislation, aspects of EU law can be applicable in relevant areas also.

The Isle of Man service providers – lawyers, accountants, trust and corporate service providers (TSPs), Fund Administrators and investment fraternity – pride themselves on having a proactive approach to business wrapped around a pragmatic, value-for-money and professional approach. This ethos is heavily endorsed by both Government through its marketing body, the Department of Economic Development, and the Regulator (Isle of Man Financial Services Authority) and is encapsulated in the Isle of Man marketing approach strap line of “Isle of Man. Where you can”.

Import and Export
The Isle of Man, by virtue of its unique Customs and Excise Agreement with the United Kingdom and European Law, is treated as part of the UK and European Union (EU) for Customs , Excise and Value Added Tax (VAT ) purposes. The benefit of this is that the Isle of Man Customs and Excise can, through its Entry Processing Unit (EPU) housed within the UK’s Customs Handling of Import and Export Freight (CHIEF) Computer system, provide importers and their agents with the Ability to electronically declare goods imported to or exported from the United Kingdom / Isle of Man. Currently the system allows for electronic clearance without the need for the goods to physically travel to the Isle of Man. It is expected that a system of “Centralised Clearance” will be introduced across the EU.

The Isle of Man has two prime bodies of company law – the Companies Act 1931–2004 and the Companies Act 2006. There is some overlap between the sets of legislation, but essentially a company formed under the 1931 Act is a more traditional style of company with extensive legislative provisions. The 2006 Act company legislation is designed to be more flexible and modern. That being said, 2006 companies are being used for a comprehensive variety of transactions including listing on exchanges throughout the world, owning property, trading and general investment vehicles. Both vehicles can be registered for VAT as mentioned above.

There are no restrictions on who can own the shares in Isle of Man companies and there are no permissions required for the raising of capital. There are applicable provisions in respect of the public distribution and promotion of the shares in Isle of Man companies. The 1931 provisions are more formalised in the traditional prospectus sense whilst the requirements under the 2006 Company in simple terms require the prospectus to contain sufficient information for an investor to make an informed decision.

The Isle of Man also has Limited Partnership legislation, limited liability companies and Protected Cell Legislation which can be very useful for structuring.

As a Common Law jurisdiction Trust law is well established in the Isle of Man and can be part of the structure to hold shares. The Isle of Man also has the concept of Purpose Trusts which works well for structuring joint venture arrangements. Foundations are another vehicle that can be very useful for structuring as an alternative to a trust or company. The foundation is a statute based entity and is a favourable option for certain jurisdictions which are familiar with the concept.

Taxation Generally
The Isle of Man does not tax the income or capital gains of companies domiciled on the Isle of Man if they are owned by non-IOM residents.

Additionally, there is no stamp duty, inheritance tax or withholding tax. Probate fees are minimal.

However, there are various tax considerations regarding remittance of income that are imposed by the UK tax authorities. The advice in respect of any structure would need to be tailored according to the details of the structure.

Multi-Jurisdictional Structuring
There are no prohibitions on an Isle of Man company or other structure either being owned by non-IOM structures or individuals and similarly there are no restrictions on what an Isle of Man structure can own.

Isle of Man structures are involved in many structures and there are some well-established examples involving Canada, Ireland, UK Mauritius, Delaware, Hong Kong and Singapore, as well as European companies to name a few.

The reasoning can be both legal and for fiscal efficiencies as well as simply being pragmatic. For example, an investment may be in a company and it could be more efficient to buy the company rather than the investment directly.

Recent changes in the regulatory approach in the Isle of Man have seen the combining of the former pensions authority and financial services commission into one body known as the Isle of Man Financial Services Authority (FSA). This move is part of a response to the legal and financial services industry support for a commercial and progressive environment to support growth sectors while maintaining and enhancing the Isle of Man’s reputation as a jurisdiction of excellence.

FSA is now responsible for the Captive Insurance Industry which will not be governed by Solvency ɪɪ as well as the Life Industry that will be subject to Solvency ɪɪ. This two tier approach is indicative of the pragmatic and resourceful approach of the Government and the FSA to meet industry needs.

A product which has had strong legal input has been the development of a crowd funding regime and new banking model to support traditional banking partners.

The Isle of Man has a lot to offer: a well-run regime with strong growth and forward-thinking that makes it the place to make things happen.