Over many years, Gibraltar has come under attack for being a tax haven, but recent fiscal changes complete a long journey designed to transform the territory into a mainstream finance centre with an eye to attracting businesses looking to relocate there.

Today, the finance centre that provides around a quarter of the territory's wealth is for the first time on the offensive with the rally cry "onshore, not offshore" and the knowledge that perception is key.

Nearly two decades ago, senior financial specialists made an initial sortie into Europe selling the idea that insurance companies get a good deal by being based in Gibraltar.

The early making of the finance centre 43 years ago was the creation of the Tax Exempt Company (TEC) status to attract inward investment.

But having preferential zero tax rates for only some companies is an EU no-no, so it was agreed to phase out Gibraltar's TECs - there were 3,000 at their peak - and instead have a low 10% rate business tax for all from the end of last year.

In parallel, the Gibraltar Finance Centre (GFC), a government department charged with promoting financial services, worked with a strong-armed Regulator to show that the territory applied all appropriate EU Directives and was fully compliant with international anti-money laundering practices.

Peter Isola, managing partner at Isolas law firm, says the process started 15 years ago with the advent of EU membership, via the UK. "Those EU directives enabled us to take advantage of what is termed 'passporting', which means we can sell our financial services in Europe." This is seen as particularly valuable in expanding the insurance and funds sectors.

"We already have captive insurance companies domiciled in Gibraltar who write the risks of the parent throughout Europe, and we have third party insurers, mainly motor, accounting for 10% of the UK market," reports Bruno Callaghan, whose company, Callaghan Insurance Brokers, accesses markets in Bermuda, Switzerland and London.

He sees Gibraltar attracting re-insurance business from widely used Bermuda, because many companies there "do not have the ability to write into the European Union so they could use Gibraltar as a hub for EU business."

But along with other finance centre professionals, he feels greater awareness of Gibraltar's offering is needed.

Joseph L Caruana, partner in the local Deloitte specialist tax and auditing practice, emphasises the aim is "to be accepted into the community of countries from a tax perspective as a fully fledged, tax transparent economy, in order to totally shake off the tax haven image."

The GFC Council, a representative consultative body of finance professionals, is planning its own marketing push for later this year and wants government backing.

Isola suggests that "What we would like from our government is for the Gibraltar brand to be marketed and then let us in the private sector go out and do the talking one to one."

Although the new 10% business tax has been available to new entrants since mid-2009, Gibraltar companies saw their tax fall from 22% only this year – a reduction of over 70% since 2007!

Jimmy Tipping, GFC director, suggests it is "an important sign, because where we're positioned now is the opposite of where Gibraltar was positioned some 20 years ago."

Some caution may be founded on the uncertainty surrounding the new low tax. Spain, along with the EU for separate reasons, has appealed against the European Court of Justice 2009 ruling confirming Gibraltar's right to set its own taxes, independent of the UK.

Arguments were heard in November, with a summer decision likely. Along with the UK and latterly supported by Ireland, Gibraltar is confident of success, but the government conceded that the consequences of defeat "would be severe".

Accountant Caruana says that the 10% tax rate is sustainable in the long term, because the government's finances are in good shape, even though Chief Minister Peter Caruana said in June's Budget that the global financial crisis had hit business volume and revenue.

Nevertheless, the finance centre had "marked time and held its own in these very difficult times." GDP rose 5% to reach an estimated £914m and a similar improvement this year is forecast, making for a 130% increase over a decade. The budget surplus was £29m, an all-time high.

Deloitte's Caruana notes, "We are seeing start-ups and asset managers deciding to set up new operations here in Gibraltar because of the stable fiscal environment." He insists Gibraltar is well placed to promote its tax advantage.

However, Javier Chincotta, managing partner at Hassans law firm, cautions, "All financial products have to come with a risk warning. If you look at where we have come from you see steady growth, not rampant growth but steady, controlled, conservative and sensible growth. I would like to think that that is where we are going."

Spain is considered likely to sign a Tax Information Exchange Agreement with Gibraltar shortly as part of the Trilateral Forum, also involving the UK. That would remove Gibraltar from Spain's own tax haven black list and open cross-border business potential like any other EU State.

Callaghan enthuses, "If Spain were to use Gibraltar as its de facto EU finance centre that would be fabulous, because it makes sense." Gibraltarians have a working mentality that embraces both English speaking and Latin concepts, "making it easier for us to do business with Latin American interests that presently use Madrid, because we understand the thought process."

James Lasry, Head of Funds at Hassans, Gibraltar's largest legal firm, says there is good communication between industry and government: "When we wanted to have Gibraltar as a jurisdiction for funds, the time between the first meeting with government and the actual enactment of the Experiencing Investor Fund regulations was one year, which in legislative terms is the speed of lightning."

As Tipping concludes, "There has been a massive re-branding and roadmap over the last ten years, which takes us from the last vestiges of 'tax havenism' and puts us firmly as a small international financial services centre."

REPORT CARD

Gibraltar's greatest weakness is its small size, however it is also its strength; the 'light touch' in regulatory terms, coupled with good fiscal and intimate service support is there, but it is still lacking a critical mass to command international attention.

INSURANCE - Latin America via Madrid is a future potential source of captive and re-insurance companies, as insurers want easy access for pan-European underwriting.  A legal drafting error means UK insurers and re-insurers involved in run-off can transfer anywhere in the EEA except Gibraltar. That should be remedied this year. Gibraltar's small size and rapid regulatory approvals are promotable benefits over main competitors Dublin and Malta.

FIDUCIARY - No filing requirements generally for trusts, no information disclosure by non-residents to any authority and no tax on income other than bank interest. Gibraltar was first to licence trust and company businesses in 1989. Isolas says: "In a small community, it's easy to contact the people you need to start up; once into business planning and due diligence, the first hurdle has been crossed!"

BANKING - There are three local retail banks (the Regulator believes there is room for another) and each handles private investment clients, although there are also 9 specialist private banks.  Small firms and developers complain little money is available to develop business: government pondering forming a bank financed by local entrepreneurs.  Danish Jyske Bank clients are from 130 countries, but says "there is very little movement between banks compared to other countries".