Gibraltar's fund industry is benefiting from a steady increase in international acceptance of the jurisdiction, the result of a range of factors that include increased marketing efforts and a broader range of skills and services in the jurisdiction, but also a change in attitude on the part of international fund promoters, which are starting to rethink the traditional offshore fund models that have gone largely unquestioned in the past.
Certainly Gibraltar is benefiting from its position within the European Union, through the relationship with the UK, and the fact that its Experienced Investor Funds are subject to greater regulation than the popular vehicles offered by Caribbean jurisdictions. It has also finally seen off a challenge to its system of corporate taxation after the European Court of Justice ruled that it was entitled to maintain a different regime from that of the UK, paving the way for the introduction of a uniform 10 per cent rate starting next year.
Gibraltar vehicles can obtain exemption from tax by virtue of being a fund, or can opt to be subject to local taxation, which applies only to Gibraltar-source income. The latter option is often beneficial to funds that are receiving dividend income because it allows access to the Parent-Subsidiary Directive, importantly from Luxembourg, which recognises Gibraltar for the purposes of the directive.
This is all part of a move by Gibraltar away from the offshore model to become an onshore centre that better fits in with the more regulated world that is taking shape. The territory has long signed up to the Organisation for Economic Co-operation and Development's principles of transparency and exchange of information in tax matters, and it is signing new information exchange agreements, most recently with the US.
The jurisdiction continues to enjoy glowing reports from global regulatory reviews, such as that of the International Monetary Fund last year. It has long been spared the scandals that, fairly or otherwise, dog the reputations of some other centres, and it enjoys flexible and effective regulation by the Gibraltar Financial Services Commission. For example, the regulator recently brought together industry members to assess whether the territory's financial supervision was adequate in the light of the Madoff fraud - which it was determined to be. The willingness of the regulator to work with the industry is a key element of Gibraltar's strength as a funds jurisdiction.
The government is also keen on developing the industry and supports its legislative, development and educational initiatives. The Experienced Investor Fund regulations went from initial strategic discussions to actual legislation in less than a year.
A good example of Gibraltar's ability to innovate is protected cell companies, which were introduced by legislation in 2001 but only took off as a fund structure following the launch of EIFs four years later. Today at least a third of new funds are being set up as PCCs, often by asset managers who want to put clients into a fund structure offering more than one strategy, or by family offices to allow individual members to vary their exposure to different investment strategies.
All these developments - along with the advantage of being a common law jurisdiction, and the ability to offer cost-efficient services - have made Gibraltar more attractive for fund promoters, especially those from Europe. In an increasingly regulated world, it can only become more so.
James Lasry is a partner and head of funds business at Hassans International Law Firm