Comparing Gibraltar is one thing – but can it compete?

In recent columns, I have written about the reasons one might consider Gibraltar as a good place to invest, work and live. I have covered issues such as the legal framework in the jurisdiction itself, regulation and, perhaps most importantly, the new corporate tax legislation that came into force in January of this year.

Then what happened? After the last column a lady reader stopped me in the street to say: “That’s all very well, but do you really have such rose-tinted spectacles?” She went on to ask if I was so enamoured of Gibraltar that I could simply ignore the competing jurisdictions. The conversation made me think.

As you can see from my mug shot overleaf, I obviously do wear “specs” – and have done since the age of five. But honestly, they’re not rose tinted. Of course everything isn’t perfect in Gibraltar but then who can show me a jurisdiction where such a utopia exists? Life would be pretty boring wouldn’t it?

So in answer to my lady critic, I thought I might take a quick look at one or two “competing” jurisdictions to see how Gibraltar measures up. What follows is necessarily a general view of just a couple of places that I genuinely consider to be our “competitors”. As always these are just my own personal thoughts so don’t shoot the messenger. If you disagree with anything that follows, do get in touch and let me know.

I decided to limit myself to considering the most obvious places against which Gibraltar is most often compared. Bring on my first problem. Being involved in the corporate services and trust business, the Channel Islands and Isle of Man were my first choices.

Other finance professionals in Gibraltar will differ; those more closely involved with the funds or insurance industries might consider Luxembourg or Switzerland. The Chief Minister is likely to say London. And to an extent we’re all right. What I wanted to consider though were the places that are already close to each other in other ways – legal system, language, etc. In that way I felt we could make a more accurate “comparison”. After all, how does one match tiny Gibraltar with a country such as Switzerland with a population of several million?

So for this article I decided to consider only the Channel Islands and the Isle of Man. After all, I can always look at other places in Europe or further afield in future columns.

First though, a word about my personal position in all this. As my surname suggests, I am not from around these parts. I am instead a proud Jerseyman although I left the island over 25 years ago. I rolled up on Gibraltar’s shores when I took up my appointment with Sovereign in November 2004 so am still considered by some, no doubt, as very much a new boy.

Having said all that, my first visit here was almost 30 years ago and during my time as a banker I was here very frequently. So I’ve seen a few changes. I am settled here and celebrated National Day last month with everyone else so, of course, I am a keen fan of what one might call “Gibraltar plc” and everything the territory and its people stand for.

When considering the Channel Islands and Isle of Man, how do we compare and can we compete? Is it realistic for us in the finance industry to make such bold claims? Naturally I think we can and now I’ll try to answer why that is.

Firstly of course, Gibraltar is not an island – that much is obvious. As in the cases of the other three, we suffer our fair share of weather related issues at the airport. However, it’s rare for Gibraltar to be totally cut off and there are always options such as using Málaga. You can’t leave the islands so easily in bad weather so being joined to mainland Europe can certainly be an advantage.

I then considered some bare facts. For sheer size and population, Gibraltar is by a very long way the smallest of the four – although remember what they say about good things coming in small packages. Gibraltar’s population of almost 30,000 is half that of Guernsey and not much more than a third of the totals in both Jersey and the Isle of Man. Covering around 220 square miles the Isle of Man is many times the size of Gibraltar, and at 46 and 25 square miles respectively, Jersey and Guernsey also dwarf our small country in terms of size.

For all four jurisdictions, financial services are vital parts of the local economy. The percentage of the workforce employed in the industry varies but is significant in each place. The Channel Islands were first off the block in terms of providing what became known as “offshore” services in the ‘sixties although both the Isle of Man and Gibraltar soon followed. It’s when one considers the broader financial infrastructure and legislative framework that have evolved subsequently that one begins to appreciate how close Gibraltar now comes to the other three in almost all respects. Let’s look at a few concrete examples.

We may not have as many banks as the islands, but a number of Europe’s finest banks are represented here, not to mention a growing number of hedge funds and investment firms. We host most of the major accounting firms and although the large City law firms may be absent, many of our local lawyers have built world class reputations in such diverse areas as Experienced Investor Funds and maritime law, to name just two.

Moreover, in recent years, financial services have played an important role in the creation of a Gibraltar gaming sector that has left its competitors in Guernsey, the Isle of Man and indeed elsewhere far behind.

Looking at corporate and trust services, our firm has important offices in Guernsey and the Isle of Man, as well as here in Gib where we employ more than 60 staff. Each jurisdiction has its own specialities – for example Guernsey is particularly well regarded as a QROPS jurisdiction. But in general, Gibraltar can claim to compete across the board.

I have written about corporate taxation in recent columns. Gibraltar companies pay 10% corporation tax on the accrued and derived principle; this has been accepted at EU level and our new system is now operational. At present, with just a few exceptions, Channel Island and Isle of Man companies pay no corporate tax at all. This option is being challenged in some quarters so it may be that those rules might need to change.

There is one area, however, where Gibraltar not only competes with its peers but can also be considered to have a serious competitive advantage. Gibraltar is a full member of the European Union, although not part of the Customs Union – there is therefore no VAT. This presents unique opportunities for EU companies that benefit from operating in a VAT-free environment. There is no VAT in Guernsey either, while Jersey levies a Goods & Services Tax (GST) – the present rate being 5% – and the Isle of Man VAT is charged at the UK rate, currently 20%. But none are part of the EU.

The second unique advantage that Gibraltar offers by dint of its EU membership is the ability for licensed, regulated firms to “passport” that status to other EU countries. This means that firms regulated here may offer services to clients in any one of the 27 EU states. Passporting is enormously valuable to banks, insurance and investment companies. This is simply not an option in the other three jurisdictions.

So in conclusion, with or without my “rose tinted specs”, can we really compare ourselves with the Channel Islands and the Isle of Man? You bet. More importantly, is it realistic for Gibraltar to claim that it can compete effectively with these places? Again, the answer is a resounding “yes”.

Clearly, there is enough good quality, international business to keep the good practitioners busy in all four jurisdictions. I believe that we should always be aiming to grab a larger slice of the pie here. Gibraltar-based professionals are travelling ever further afield in order to spread that message. Let’s hope that this trend continues and that we develop our offering still further, to the benefit of all of us who live and work here.