Gibraltar: UCITS - Collective Investment Schemes

Gibraltar has in place a financial Services Ordinance (FSO) for the control of investment business and other financial services. The FSO provides a basic statutory framework for the regulation of all types of collective investments, including those known in a European context as Undertakings for Collective Investment in Transferable Securities (UCITS).

The Gibraltar regulations are recognised as being in full compliance with the requirement of the EU directive on UCITS, 85/611/EC.

In general, the term collective investment refers to an investment company, unit trust (a trust in which the investing public are the beneficiaries), mutual fund or other entity that may operate in either an open-ended or closed manner.

A UCITS is a specific type of collective investment that allows financial institutions which invest money (raised from the public) in a spread of transferable securities to operate freely throughout the EU on the basis of a single authorisation from one Member State. UCITS correspond in general to open-end mutual funds in the United States.

A Gibraltar fund that is in compliance with the investment policies laid down by the UCITS directive has the advantage of being able to sell its paper throughout the EU without the necessity of further domestic authorisation. In this instance, the Gibraltar UCITS remains under the supervisory control of the Gibraltar authorities and the fund manager is only required to make notification to the authorities of other Member States when a decision to commence marketing is taken. Local marketing rules established by other Member States must also be observed.

The fiscal advantages of operating a collective investment from Gibraltar relate to both the fund vehicle and the fund manager.

Funds comprised solely of non-resident unitholders are not chargeable to tax in Gibraltar. Neither are they required to withhold tax from any distribution of income or capital gains made to their unitholders, nor on accumulation of income undistributed at the end of the year. Finally, fund managers may incorporate in Gibraltar as qualifying companies at a very low rate of tax.

The following is a summary of the fiscal benefits available to fund operations based in Gibraltar:

• No tax on capital gains or profits, as capital gains and income are deemed to accrue to the shareholders or unitholders of a fund.
• No withholding tax on fund distributions to shareholders.
• No stamp duty is payable on fund transactions and there is no tax on asset value or turnover.
• No capital acquisitions tax is chargeable to persons who receive shares in a specified undertaking by way of gift or inheritance.
• No VAT is applicable to the managers of collective investment undertakings.
• Fund management companies may organise as qualifying companies, and pay a five percent tax on profits.
• The fund vehicle may be organised as a tax exempt company, which pays a flat annual fee of £225.

The Gibraltar Financial Services Commission maintains a robust but flexible regulatory hand over the affairs of collective investment undertakings. The Commission has no objections to the actual fund administration being conducted elsewhere as long as the fund has sufficient management presence in Gibraltar to allow for effective supervision.

Equally as important is the requirement that adequate separation must exist between trustee and fund manager. This does not, however, preclude a trustee and a management company from having a common parent as long as each acts independently of the other. An ample supply of experience exists in Gibraltar to sufficiently handle both the trustee and management functions.

The supervisory charge in respect of a collective investment scheme (non-umbrella) are £500 for an initial application and an annual charge of £1,500

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.