Under the Companies Ordinance 1930 all incorporated companies in Gibraltar are required to prepare accounts and have them audited by independent accountants. Auditors, who are individuals, are appointed by the directors of a company, must be independent of the company, and must be registered under the Auditors Registration Ordinance. The European Commission announced in 2001 that it would begin a review of Gibraltar's exempt and qualifying company regimes, but after Gibraltar sued the Commission to prevent the review, the European Court of Justice ruled in Gibraltar's favour in April 2002.

However, in July, 2002, Gibraltar's Chief Minister, Peter Caruana announced the territory's new corporate taxation policy (which was to have been applied from July 2003, but fell by the wayside), which included the abolition of the existing corporate forms which allowed zero taxation, the Exempt and Qualifying companies.

In March, 2003, the EU's Council of Finance Ministers confirmed that the reforms did not constitute harmful tax measures. However, in April, 2004, the Commission argued that the new rules would give companies domiciled in Gibraltar an unfair advantage over their counterparts in the UK, under a principle known as 'regional selectivity'. The Commission also took issue with the fact that since the taxes were to be based on payroll and the occupation of business premises, offshore companies registered in Gibraltar would be unlikely to incur any tax liability. The EC therefore rejected the reforms, effectively suggesting that for taxation purposes, Gibraltar should be considered part of the United Kingdom.

Chief Minister, Peter Caruana slammed the EC for suggesting that the jurisdiction was fiscally part of the United Kingdom, pointing to its 1969 constitution, which gives the territory fiscal autonomy. Gibraltar dissolved its qualifying companies tax regime in January, 2005, as negotiations continued in Brussels. In a move that cost the Gibraltar government an estimated £1.5 million in annual tax revenues, the remaining qualifying companies, of which there were about 80, switched to the ‘exempt’ companies regime. “Each qualifying company has been dealt with on an individual basis and alternative arrangements made,” said the government.

Later in the month, it was announced that Gibraltar had been given until 2010 (2007 for new companies) to phase out its exempt company tax regime after the European Commission ruled that the scheme violated EU state aid rules. The government of Gibraltar welcomed the European Commission's approval of the Exempt Company Status Agreement as an acceptable compromise. Then in June 2007, further major changes to Gibraltar's corporate tax regime were announced in Peter Caruana's Budget speech.

Mr Caruana explained that: "The Tax Exempt Company has been the backbone of the development and growth of both our finance centre and the online gambling industry, and thus of a very significant part of our economy. It continues to underpin thousands of jobs in Gibraltar and large amounts of Government revenue."
"In order to comply with EU law we must phase out the tax exempt company in 2010. However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model."

Since it is no longer legally acceptable to have one tax model for ‘local’ companies and a different one for ‘foreign’ companies it is necessary to have a low tax system for all companies because without a low tax system for overseas companies they will leave, and our economy will suffer hugely. Thousands of jobs would be lost, as well as significant Government revenue. I have therefore already said, and I reaffirm now, that the Gibraltar Government is irrevocably committed to the principle of ‘low tax’ for our economic operators."

"By mid-2010 the Government will have introduced an across the board flat, low corporate tax rate. This will most probably be set at 10%, but in any event not higher than 12%. This will be similar to arrangements that already exist in Ireland, Cyprus, Malta and other EU Countries."
"In the intervening period, the Government will engage in an intensive, detailed and lengthy process of consultation with the different economic sectors."
"In order to signal the Government’s seriousness of purpose in this respect I am today taking the first step in the process of reducing corporate tax rates in Gibraltar, by 2% for the year of assessment 07/08 from 35% to 33%, and with effect from the year of assessment 2008/09 by a further 3% from 33% to 30%."
" I would also signal the intention of a further reduction the year after that to 27%, in anticipation of the introduction of the flat low tax rate in 2010."

In his budget in June 2008, Peter Caruana announced his intention to bring forward a 3% cut in corporate tax originally scheduled to take place in 2009, meaning that the corporate rate would drop by 6% that year.

"Last year, and in order to signal the Government’s seriousness of purpose in reducing corporate tax rates, I reduced corporate tax rates to 33%, and said that I would reduce it further this year to 30%, with a signalled reduction to 27% next year," Caruana told Parliament in his budget speech.
"In order to further signal the Government’s commitment I am advancing that timetable by one year, and therefore the corporate tax rate is now reduced by 6% from 33% to 27% with effect from this year that is the year of assessment 2008/09," he added. Caruana explained that he envisaged a further cut in the rate next year, before moving to the rate of between 10% and 12% from 2010, adding that: "My strong preference will favour the bottom end of that range."

In December 2008, the European Court of First Instance ruled in favour of Gibraltar, stating that the European Commission was wrong to argue that the tax reforms proposed in 2002/03 were in breach of state aid rules, and effectively giving the jurisdiction licence to set its own tax rules. The Court dismissed the EU Commission’s case, and stated that although the UK is representative of Gibraltar, Gibraltar does, however, have fiscal autonomy from the UK, and therefore can introduce its own individual tax system (the aforementioned 10-12% corporation tax).

In a statement to the press at the time, Peter Caruana, Gibraltar's Chief Minister, said he was "overjoyed" by the outcome.
"The Court has found in Gibraltar’s favour and has accepted our arguments on each and every issue, relating both to regional selectivity and material selectivity, and has ordered the commission to pay the Gibraltar government’s legal costs.”
“This needs to be clearly understood. Had Gibraltar lost the Regional Selectivity case, we would have had to adopt the UK’s company tax system and company tax rates. That would result in the bulk, if not all, of the finance centre and gambling companies leaving Gibraltar. That would have meant the loss of thousands of jobs throughout our economy, and a very large fall in government revenue. This in turn would have rendered unsustainable our current level of public services and public sector employment.”

“This is a huge and vital victory for Gibraltar. A threat to our economic, social, and thus political well-being, has, once again, been successfully seen off. I believe that the economy of Gibraltar now has the opportunity to forge ahead to the next level of growth and development, to fulfil its great potential and thus to guarantee that we shall bequeath economic and social prosperity and stability to our children, grand children and future generations. “

”Once again, this small community has demonstrated that, when right is on our side, and we hold our nerve and we behave reasonably and intelligently, we have the ability and determination to defend our rights and interests as a people, even when they are challenged by more powerful entities and forces.”

”On behalf of the people of Gibraltar, I wish to thank all those companies in the financial services and gambling sectors and other sectors of the economy that have had the faith and confidence in us to stay with Gibraltar during these difficult and uncertain times.”
“The threat that Gibraltar has faced cannot be understated, nor therefore, can the importance of this victory to Gibraltar and its people and our future.”

The remainder of this page deals with the corporate regime prior to the aforementioned changes.

Gibraltar Private Company Limited by Shares

• A private company limited by shares is required to have at least two members, who can be individuals or companies; one shareholder can be a nominee company holding a share on trust for the other shareholder; the maximum number of members is 50; the Memorandum and Articles of Incorporation state that the company is private, restrict the transfer of shares, and prohibit public offerings of the shares;
• Annual returns must be made to the Registrar, and details of the shareholders and capital structure are held on the public files;
• Only one director is required; secretaries are not mandatory, and they may be corporate;
• There must be a registered office in Gibraltar where the statutory books are kept;
• There is no requirement for accounts to be filed; tax-resident companies however have to submit accounts to the tax authorities;
• A Gibraltar company can be incorporated within 7 working days and ready made companies are available for immediate use.
• There is a 0.5% duty on authorised share capital (minimum duty £G10);
• There is an annual tax of £G225 (at the time of writing) payable by a limited company.

Gibraltar Public Company Limited by Shares

A public company is defined as one which is not a private company and which has at the end of its name the words 'Public Limited Company' or 'P.L.C.'. A public company must have a minimum of two members.

It was Gibraltar that originated the exempt company form, which has been widely copied by other jurisdictions (see above for details of negotiations with the EC over the future of exempt companies). The low set up cost makes them ideal for property and investment holding, international trading and sales agencies, particularly if trade is being carried on between two high tax jurisdictions.

The exempt company is the main offshore vehicle in Gibraltar. An exempt company may be either incorporated in Gibraltar under the Gibraltar Companies Ordinance, or incorporated outside Gibraltar but registered as an overseas company under Part IX of the Companies Ordinance.

If a company obtains exempt status, the company will be exempt from corporate tax and stamp duty (save in certain specific instances) in Gibraltar under the Companies (Taxation and Concessions Ordinance) 1984 (as amended).

Shares in an exempt company may be transmitted free of estate and stamp duty on the death of the shareholder. An exempt company pays a flat rate annual fee regardless of profits. A company incorporated in Gibraltar which is ordinarily resident pays a flat rate fee of £225 per annum, whilst a non-resident company incorporates outside Gibraltar pays a flat rate fee of £200. Fees payable to non-resident directors and dividends paid to its shareholders are not subject to a withholding tax. For a company to obtain and retain its tax exempt status, it must fulfil the following conditions:

• Its paid-up share capital at all times must not be less than £100 or the foreign currency equivalent thereof;
• No Gibraltarian or resident of Gibraltar must have any beneficial interest in the shares of the exempt company except as a shareholder in a public company which is registered in a country other than Gibraltar;
• If the company is incorporated in Gibraltar, it must keep its register of shares within Gibraltar and have a provision in its Memorandum and Articles of Association to the effect that its register will not be kept elsewhere. If the company is incorporated outside Gibraltar, it must keep a true copy of its register of members within Gibraltar;
• The company must not, without the approval of the Financial and Development Secretary, carry on any trade or business in Gibraltar or with Gibraltarians or residents of Gibraltar except where these are other exempt companies. An exempt company may, however, manage and control its business from Gibraltar and have an office and staff locally; and
• Its auditors must be approved by the Government of Gibraltar, who must confirm annually that the company is not in breach of the provisions of the Companies (Taxation and Concessions) Ordinance.

The privacy of exempt companies is protected by Section 14 of the Companies (Taxation and Concessions) Ordinance 1984, which states:
14(1). ... the Financial and Development Secretary and every person having an official duty in the administration of this Ordinance shall regard and deal with all documents, information and declarations relating to the identity of the beneficial owners or persons interseted in any shares, or bearer certificates or coupons issued under the provisions of this Ordinance as secret and confidential.

Disclosure is permitted for the purposes of any criminal or civil proceedings in which such document, declaration, matter or thing is material.