The European Commission last week recommended the UK abolish or reform the exempt company regime in Gibraltar. It claims that the regime constitutes state aid favouring exempt companies and should be phased out by the end of 2005. The standard rate of tax on profits in Gibraltar is 35%.
A company registered with the Gibraltarian authorities as an exempt company pays no income tax on its profits and instead is subject to a fixed annual tax of between £225 and £300. An exempt company is a financial services company domiciled in Gibraltar that may not conduct any trade or business within Gibraltar.
The EC claims the scheme is selective, financed from state resources and is liable to distort competition. It wants the UK to close the exempt company regime to new entrants and abolish the tax exemption completely by the end of 2005. The UK also has to make a public statement on the steps it will take to repeal of reform the regime by the end of January 2003.
The EC originally launched an inquiry into the exempt company regime in July 2001.
International Tax Review Week welcomes your feedback on this or any other story. Please email the author with your comments. Letters may be published online.
