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Management
Higher costs fail to deter company formation and use of trusts
Updating company and trust laws this year has given a new lease of life and potential new business lines for Gibraltar’s trust and company service providers against the background of rising costs, greater transparency and increasing regulation, discovers Ray Spencer
It has been 20 years since the jurisdiction’s reputation in this area of financial services was based around the setting up of
hundreds of brass plate companies and secretive trusts to hide ownership of assets offshore. For the past 15 years, however, Gibraltar has been at the forefront of implementation of international initiatives to ensure transparency, compliance and security.
“The industry may to some extent have been tarnished by certain bad practices, whereby some operators aggressively promoted the establishment of structures whose benefit was predicated on a failure by the client to report the structure in his home jurisdiction. Taken at its worst, this could amount to facilitating the sheltering of assets” said Adrian Pilcher, who is part of the private client tax team within the commercial department at law firm ISOLAS, where he is a partner.
Pilcher was candid. “Service providers could in the past hide behind the fact that ultimately the reporting obligation was on the client. Today the rules have changed, and it is now up to the service provider, as well as the client, to report.”
Today, providers generally have fewer clients; fees have risen significantly. At the height in early 2000’s, there were 30,000 companies in Gibraltar; today there is less than half that number.
The Gibraltar Financial Services Commission confirmed: “There are just over 60 licensees authorised to provide Fiduciary services and there continues to be rationalisation and consolidation in fiduciary groups. The trend within the industry continues to be focused on a move towards a higher quality offering and product, which is reducing client numbers, although not profits.”
Pilcher maintained: “Reporting effectively cleans up the playing field, so at the end of the process the good, legitimate operators are in a great position to do business. The other side of the coin, however, is that for some operators the cost of doing business may have gone up by as much as 50%. Although some cost can be passed on to the client, some smaller operators are finding that their business model is no longer viable.”
Mark Bridge, director and legal counsel at Europa Trust, was formed 33 years ago and licensed both as a company manager and as professional trustee, has seen the firm’s client base decline numerically in recent years, but the amount of work increase.
FACTA can lead to “over-reporting”: Adrian Pilcher, ISOLAS
He suggested: “The nature of our business has changed and there’s been a general shift from establishing holding companies for single assets, to setting up trading and operational companies.
“This has been because Gibraltar’s much-improved image from being an off-shore jurisdiction to a successful, stable and compliant finance centre in the forefront of EU locations where people of substance are comfortable in setting up their businesses.”
Joey Immosi, Fiduciary Wealth’s business development director, noted: “Some 20 years ago, there were lots of brass plate companies, but that has changed with the emphasis on due diligence and KYC (Know Your Customer) processes, and Gibraltar government was an early adopter of OECD tax information exchange agreements, which has been good for the jurisdiction’s reputation.
“We need to know from our clients today exactly what is going on and
technology has helped drive this.” That had also meant investment in “a team to meet regulatory requirements, to check that clients are who they say they are and living where they say. Our compliance section began 12 years ago rising from one part-time person to three now”.
Compliance costs up
Higher compliance costs have also reduced the volume of companies being incorporated, but has resulted in better quality and more services being provided. “Overall business remaining strong”, said Gibraltar’s Association of Trust and Company Managers (ATCOM), which has 56 member firms [representing 90% of the sector] four more than five years ago and, it claims, the number of people employed has remained steady at around 1,000.
Marc X Ellul, managing partner of law firm Ellul & Co, and managing director of its associated company management business, became ATCOM chairman in June, and insisted: “The cost of compliance, as with any other reputable jurisdiction, has pushed up fees, but clients understand and accept those costs”.
“There is a lot of company business for sure; less volume, but a lot more work”, Ellul emphasised. Structures were more complicated, with tax advice and a clear understanding of an individual’s tax position being required, “so higher fees are being paid for that. It is not an industry like it was 20 years ago – it’s not the volume sector.”
In addition to the near 160 various Gibraltar tax exchange agreements with other nations, the 4th EU Anti Money Laundering Directive (AMLD) and Exchange of Notes between the UK, Crown Dependencies and Overseas Territories (such as Gibraltar) required the private register of beneficial ownership, identifying anyone having more than a 25% beneficial interest in a company, by end-June.
The UK’s Companies House information is public, but in other jurisdictions only tax, security and law enforcement agencies can look at Registers’ portals. Trusts have traditionally maintained
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