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STARTING UP IN GIBRALTAR PHILIP CANESSA OF GIBRALTAR FINANCE EXPLAINS WHAT GIBRALTAR CAN OFFER TO EMERGING MANAGERS AND WHAT MANAGERS SHOULD CONSIDER BEFORE STARTING UP
Philip Canessa
joined Gibraltar Finance in September 2013 as senior executive – funds and asset management. He has more than 30 years’ experience in the financial services sector and was for 11 years managing director of an investment firm managing hedge fund portfolios. He also served as a board director of a number of funds in different jurisdictions.
HFMWeek (HFM): What are the key considerations for managers starting up in the EU, particularly in Gibraltar? Philip Canessa (PC): It would be useful first to give you some background on Gibraltar’s status within the EU. Gibraltar is a British Overseas Territory and joined the EU with the United Kingdom in 1973, therefore all EU treaties are applicable to Gibraltar and all EU directives are transposed into Gibraltar law. Gibraltar, however, is not part of the customs territory of the EU and EU legislation in respect of the common agricultural policy, the common fisheries policy and the common system of the value added tax (VAT) does not apply to Gibraltar. One of the key considerations for managers starting up in the EU is therefore access to the single European market. Following the transposition of the Alternative Investment Fund Managers (AIFM) Directive into Gibraltar law in July 2013, AIFMs authorised in Gibraltar can, through a simple and transparent process of notification to the Financial Services Commission (FSC), Gibraltar’s financial regulator, passport their services into other EU states. Of equal importance for managers is the regulatory regime and the FSC, which is modelled on the UK’s Financial Conduct Authority and Prudential Regulation Authority, regulates in a sensible, approachable and responsive manner. Entities regulated in Gibraltar are able to work with the regulator when the need arises. The FSC has set itself a service level standard of 18 weeks to process applications for authorisations, well below the statutory requirement of six months. Gibraltar’s size is also a key consideration. As a small jurisdiction, we welcome start-up managers with smaller funds wishing to set up in Gibraltar whereas larger jurisdictions may only want to look at funds with assets in excess of $500m. Because of its geographical size everything in Gibraltar is close by; we have 15 banks, 31 investment firms, the Big Four audit and accounting firms, ten fund administrators, international and UK qualified lawyers, in 6.7 square kilometres. Other considerations for managers are legal system, tax regime infrastructure and lifestyle which will be expanded on later.
HFM: What are the biggest challenges facing emerging managers in the EU/Gibraltar and how can they be overcome? PC: The biggest challenges facing emerging managers in any jurisdiction are usually based on how to set up a costeffective operation. These costs will comprise of regulatory costs and infrastructure costs including office space, telecommunications and personnel. Gibraltar has traditionally been, and continues to be, a low cost jurisdiction. In addition, cost challenges are mitigated by our favourable tax regime. HFM: What can Gibraltar offer to emerging managers? Why should they set up there? PC: There are several reasons why an emerging manager should set up in Gibraltar. As mentioned previously, we are within the EU and a manager setting up in Gibraltar will have access to the European Union single market. We are the only common law jurisdiction in continental Europe and our courts, statutes and principles of equity are based on English law. This makes business transactions for legal professionals much easier as most international financial transactions are based on common law. Our Experienced Investor Fund (EIF) regime provides for a robust and flexible product with a number of key advantages; its prelaunch approval regime, where an EIF can be launched in ten working days, makes it the fastest “time to market” fund vehicle in the EU. Other advantages are that there are no investment or borrowing restrictions, the fund may be self-managed, the fund is tax neutral and an EIF may be structured under a variety of formations. The tax laws in Gibraltar, though very favourable to funds and investment managers, are not fundamental to Gibraltar’s success as a jurisdiction but form part of the overall package of making Gibraltar attractive as a jurisdiction for funds and investment management. An investment management firm in Gibraltar would only be subject to 10% corporation tax. Employees of the firm who meet certain criteria can avail themselves of the High Executive Possessing Specialist Skills (HEPSS) status and will only be taxed on the first £120,000 of earned
ONE OF THE KEY CONSIDERATIONS FOR MANAGERS STARTING UP IN THE EU IS THEREFORE ACCESS TO THE SINGLE EUROPEAN MARKET
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income, which at the current rate of income tax caps their annual tax at around £30,000. Gibraltar does not tax investment income, there is no capital gains tax, no wealth tax, no inheritance tax and does not levy VAT. Gibraltar, however, is a separate and distinct jurisdiction to the United Kingdom within the EU. The regulatory framework will also be familiar to professionals who are used to dealing with the regulator in the UK. In addition, we offer a high quality lifestyle and a Mediterranean climate.
THE ACTION TAKEN BY THE US UNDER FATCA PROVIDED A UNIQUE OPPORTUNITY TO DEVELOP A NEW GLOBAL STANDARD FOR MULTILATERAL AUTOMATIC INFORMATION EXCHANGE
HFM: Investors are concerned about tax transparency, where does Gibraltar stand in this respect? PC: Gibraltar’s successful finance centre is based on our government’s conviction that it must remain squarely within the mainstream of international consensus. In line with its commitment to transparency and effective exchange of information, Gibraltar has established a network of approximately 135 tax information exchange agreements to the OECD standard, of which circa 100 have entered into force. However, given that some of these overlap, Gibraltar effectively has tax information exchange mechanisms in force with approximately 60 countries and territories around the world. The action taken by the United States under its Foreign
Account Tax Compliance Act (Fatca) provided a unique opportunity to develop a new global standard for multilateral automatic information exchange. In keeping with its commitment to transparency and exchange of information, Gibraltar therefore signed an intergovernmental agreement (IGA) to improve international tax compliance with the UK on 21 November 2013 and a similar IGA with the US on 8 May 2014.
HFM: How do you foresee Gibraltar’s hedge fund space evolving in the next 12 months, particularly in relation to start-up funds? PC: Gibraltar’s fund regime is largely based on its EIF regime. This regime will remain for funds and managers that are out of scope of the AIFMD but will allow those that wish to avail themselves of the EU marketing passport, to opt in to the AIFM regime. EIFs can therefore be used as ‘in scope’ AIFs, and as they will have to comply with the AIFMD will be ‘super EIFs’. AIFMs wishing to set up Gibraltar funds will be able to do so by establishing ‘super EIFs’ utilising the existing preauthorisation launch process available to EIFs. With this regime in place and Gibraltar Finance’s strategy of increasing our visibility at high profile hedge fund events, we are optimistic that we will see a significant increase in business coming to Gibraltar in the next 12 to 24 months. n H F M W E E K . CO M 9
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