GIBRALTAR – PRIVATE INTEREST FOUNDATIONS
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SYNOPSIS – This self-governing British Overseas Territory located on the southern tip of Spain is world famous for its Rock, caves and defensive history. As with Jersey, Guernsey and the Isle of Man it is an English-speaking common-law jurisdiction with an excellent safe and stable regulatory environment provided by the Gibraltar Financial Services Commission. According to the World Bank, its current population is 39,329 but this is greatly increased on a daily basis due to the influx of both Spanish workers and tourists. Apart from tourism and selling tax free goods, the Territory has also developed a world-renowned reputation in international tax planning and as a provider of financial services including the introduction of private interest foundations under the Private Foundations Act in 2017. With respect to Private Interest Foundations, it is probably one of the most attractive in the world due to its combination of excellent regulation, safety, cost, legal system and proximity to the UK. However, due to its tax treaty with Spain it is generally not advised for those with assets or residency in Spain. However, unlike Mauritian PIF’s they do not have access to a double taxation treaty network. This may be a consideration where trading is involved or where dividends, royalties or interest payments are being received directly by a foundation.
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THE PRIVATE FOUNDATIONS ACT, 2017
The Private Foundations Act, 2017, was introduced to afford the benefits of what was historically a civil law concept to Gibraltar in a similar way to that of the Isle of Man, Jersey and Guernsey which are also common law jurisdictions. The primary benefit of private interest foundations (PIF’s) over trusts is that they are often more flexible, secure and allow the retention of certain powers and controls for their founders. This often makes them an ideal tax planning and mitigation vehicle especially for those with promising business concepts (IP) and/or those wanting to protect assets.
Some of the key benefits of PIF’s over trusts include:
- Foundations are considered separate legal entities – Under Karl Weiss Stiftung v. Rayner & Keeler Limited [1967] 1 AC 853, it was made clear that PIF’s would be considered as equivalent to limited liability companies with their own separate legal identity. However, unlike a limited liability company, a PIF is literally self-owing and operates for the benefit of its beneficiaries per its Charter and ‘Rules’ or Regulations.
- They have greater flexibility with founders and protectors often having the ability to determine (end) a PIF’s existence and/or amend/change its ‘Rules’, beneficiary list etc. which is not the case with most trust instruments.
ADMINISTRATIVE STRUCTURE OF A GIBRALTAR PRIVATE INTEREST FOUNDATION (GPIF)
Gibraltar PIF’s are governed by their Charter and Rules (sometimes known as Regulations) subject to the Private Foundations Act, 2017. A Council of Counsellors (sometimes known as the Foundation Council) will manage the PIF for the benefit of its beneficiaries be they specifically listed or part of a class of beneficiaries. There will generally also be Guardians or Protectors to ensure that the PIF is run properly and per its written instruments which will ensure that no inappropriate, imprudent or ultra vires actions are taken against the interests of the beneficiaries.
ADVANTAGES OF A GIBRALTAR PRIVATE INTEREST FOUNDATION (GPIF)
They are separate self-owning legal entities
Recognised in most common and civil law jurisdictions – This is not always the case with a common law trust
They are safe and regulated entities
English speaking
Cost Effective
Gibraltar GPIF’s and indeed companies are far more cost efficient than those offered in the traditional PIF locations such as Liechtenstein and generally also substantially cheaper than comparable respectable and regulated jurisdictions such as Jersey and the Isle of Man.
Tax Free
Local corporate taxes at 15% do not apply if the GPIF does not have any Gibraltar beneficiaries. In addition, Gibraltar does not have any inheritance or capital gains taxes.
Accounts Confidentiality
Details are beneficiaries are not shown on publicly available accounts submissions.
Can head corporate structures
A GPIF can own other assets and corporate entities to ensure tax treaty benefits apply ensuring tax efficiency and access to tax treaty networks.
Creditor, Asset & Wealth Protection
GPIF’s offer excellent asset and wealth protection with any properly transferred assets being legally owned by the GPIF and not the original donor or donors. This simple fact means that transferred assets cannot be subject to 3rd party litigation whilst distributions can be made in the most tax efficient manner.
Pre-Nuptial Agreement Alternative
GPIF’s can act as an alternative to pre-nuptial agreements (PNA’s). The basic fact makes them particularly attractive in countries such as the UK where PNA’s can often be set-aside or even ignored by the courts
Re-domiciliation Protection
GPIF’s can be used to separate individuals from surplus assets before they become permanently resident in a jurisdiction that taxes individuals on their worldwide income/assets such as is the case in countries such as France and now, in a de facto manner, the UK.
Full Donor & Beneficiary Confidentiality
No information is made public on the identity of donors or beneficiaries.
Highly respectable regulatory environment
Gibraltar is an extremely well regulated and respected tax planning jurisdiction with the Gibraltar Financial Services Commission ensuring the highest professional standards apply. The fact it is still a British Overseas Territory means that the legal standards are the same as those of the UK with the highest court being the Privy Council based in London.
Excellent Dispute Resolution mechanisms
Gibraltar has a legal system which can service the needs of financial and tax planning clients to a standard equivalent to that in the UK. Nearly all of its lawyers qualified in UK universities ensuring fair and cost-effective dispute resolution.
Excellent Communications
Gibraltar has daily direct flights to and from the UK whilst access can also be made across the border from Spain with Malaga international airport only being about a 1 hour 30-minute drive.