Peninsula launches campaign weeks after David Cameron asks overseas territories to ‘get houses in order’ over tax
Gibraltar is launching a campaign to persuade hedge funds to ditch their plush Mayfair offices for the low taxes of “the Rock”.
Fabian Picardo, chief minister of the British overseas territory, said multimillionaire hedge fund managers should quit London for Gibraltar because it’s “much cheaper”, while promotional material promises they are “unlikely to be liable for corporation tax”.
Picardo, who has made attracting hedge funds a key aim of his administration, last week invited hedge fund managers to the peninsula where they were told income tax could be limited to £30,000 a year no matter how many millions they earned.
Gibraltar also boasts no VAT and social security payments of just £120 per family a month. In the UK the top rate of income tax is 45%, VAT is 20% and national insurance is levied at 14% of weekly earnings above £797.
Gibraltar’s campaign to attract hedge funds by means of low taxes comes just weeks after David Cameron wrote to Britain’s crown dependencies and overseas territories ordering them to “get our own houses in order” as he pushes for international action to tackle “staggering” losses from tax avoidance.
Picardo denied Gibraltar was a tax haven and said the territory complied with all European Union tax and transparency regulations. He said he was delighted the UK was “finally going to crack down on tax evasion”, which he said was good for Gibraltar which already has “the toughest regulation”.
However, promotional material given to hedge fund managers said: “Gibraltar’s tax laws are central to its position as a thriving fund domicile.
“The profits of any branch or permanent establishment of the investment manager are not subject to tax in Gibraltar, to the extent that those activities are undertaken outside Gibraltar.” Corporation tax on activities undertaken on the rock is levied at 10%, compared with 24% in the UK.
Hedge fund managers were told their income tax bill could be reduced still further if they were granted “special tax status” as a “high executive possessing special skills”. Such a status caps an individual’s tax bill at £30,000 no matter how much they earn. The territory was unable to say how many hedge fund managers have the status.
Picardo, who was partner at the local tax specialist law firm Hassans until he was elected chief minister in 2011 and will return to the firm when he leaves politics, has been on a road show of hedge funds in London’s Mayfair and Knightsbridge to promote Gibraltar’s “low-cost efficiency”.
As well as holding the territory’s first Gibraltar Funds and Investments Association black-tie dinner last week, Picardo has thrown a promotional party for hedge fund managers at Merchant Taylors’ Hall, down the road from the Bank of England in the City.
The chief executive and chairman of one of London’s leading PR firms have also been engaged to promote Gibraltar to London’s fund managers.
Picardo said the recruitment drive was going well with “a number of people that used to operate out of Mayfair now in Gibraltar” and “a number more” in discussions with the government. “This is a process that is going to continue. Gibraltar presents a serious advantage in the interest of shareholders,” he said. “At the end of the day it is in the interest of shareholders that hedge funds maximise revenue.”
Philip van den Berg, managing director of Taler Asset Management, said he chose to relocate to the rock after 13 years in the City because “Gibraltar came out the best for tax and compliance [with regulations]”.
“I used to go on holiday to Spain. One day I thought I could live here, I like it,” he said. “And it’s cheaper.”
The number of funds on the 6 sq km peninsula has grown from 20 in 2006 to 150 today, managing £3bn of assets.
Gibraltar’s latest available budget shows financial services is, jointly with tourism, the territory’s biggest source of income, accounting for 33% of GDP.
Spain has accused Gibraltar, which has been British since the signing of the treaty of Utrecht in 1713, of being a tax haven that allows companies and citizens to avoid hundreds of millions of pounds of tax a year.
Picardo said Gibraltar complied with all EU regulations and “does not want to be associated with money that stems from tax evasion, fraud, money laundering or from any other source that is not absolutely acceptable”.
He said Spain “really needs to buck up its ideas if it’s going to prove those allegations”. He accused Madrid of taking a “very belligerent” approach to Gibraltar and “annoying Gibraltarians on an almost daily basis”. He said Gibraltar’s reputation as a tax haven was “attributed to us by people that want to politically destabilise us”.
However, hedge fund managers were told: “Ultimately, these investment funds are unlikely to be liable for corporate tax as Gibraltar levies tax on a territorial basis on income accruing in Gibraltar, whereas the fund’s investments will ordinarily be located outside the jurisdiction.”
Picardo said that even without the tax advantages, Gibraltar was still a “much cheaper place to work”. Its zero VAT on products or services means hedge funds can engage lawyers and accountants for at least 20% less than they would be charged in London.
“Why come here?” Picardo asked in his palatial office in 6 Convent Place, the Gibraltarian equivalent of 10 Downing Street. “Turn around and look outside – that’s one of the 300 days a year of constant sunshine.
“We’re linked to the place that most people in London spend 340 days a year saving up to spend the remaining days enjoying a round of golf in the sunshine.”