On Thursday 2nd February 2012, as part of the visit of ESBA to Gibraltar, Mike Nicholls, the local owner ofChesterton Estate Agency and MN Associates Limited (a real estate investment solutions consultancy), gave a presentation entitled “Establishing a business in Gibraltar … as a non-Gibraltarian”.

The purpose of the presentation was to gain a practical insight into the process we have here in Gibraltar for establishing a business and whether there are any lessons to learn by those involved in setting the process.

We asked Mike to summarise his presentation.

“I first came to Gibraltar in 2002 to undertake the development of Ocean Village as Finance Director for the developer, Fairhomes Limited. As an outsider, I rapidly noticed the close relationships virtually all the business people had with each other. There was a unique way of being friendly and professional at the same time, knowing that you could be acting with or against any other fellow professional at any stage. I liked it. It suited my own character to be friendly. Indeed, having agreed to stay for an initial period of three years, I am now well into my tenth year in Gibraltar!

I established MN Associates Limited in 2009 and acquired the local Chesterton office shortly after in 2010. My experience of establishing my own companies, and, helping client companies to establish in, or relocate to, Gibraltar, is summarised below.

My view is that the easier and less expensive the process of establishing a business and ongoing compliance is, the more time and money that private enterprise has to allow it to flourish, which itself creates jobs and tax income for the wider community. The opposite applies too.

Establishing the corporate entity

This is relatively straightforward and inexpensive in terms of fees and capital required. Compared internationally, Gibraltar is a competitive place in which to incorporate a company. I do wonder however, whether the Business Names registration process could be combined with Companies House annual returns to make form filling less bureaucratic for the business community.

Obtaining a trade licence

Neither of my businesses needed one. But we did hand hold Cumputacenter in their establishment in Gibraltar last year. Computacenter is a £2.7bn and 10,000 employee IT infrastructure company. Probably one of the largest entities we have represented in Gibraltar. We were ready to sign the office lease on the first floor of Watergardens but were reminded of the need for a Trade Licence on the premises (not the company) as the company would be supplying IT equipment within Gibraltar. So anybody in Gibraltar can buy a computer on ebay but Computacenter could not do that from their office premises. The process of application, advertising and the committee meeting took 5 weeks before they could sign the lease and trade from that premises. I believe the current government is to review the trade licence process.

Finding an office

I am actively involved in the provision of office space to existing companies within, and new companies relocating to Gibraltar. At Chesterton we can offer some 8,000 sq m of office space varying from 9 sq m to 1,000 sq m. There is enough office space for small and medium sized companies. And the rental cost is not prohibitive compared internationally with other low tax onshore jurisdictions. There are issues for the larger companies wanting grade A office space which does not exist and new office space is required. But for those establishing a business requiring up to 250 sq metres, we currently have enough to meet demand.

Utilities

Restricted opening hours, physical attendance at the utility company offices in order to connect, and hard copies of forms (only some of which can be downloaded from the websites) ensures the utility connection process is probably harder that it is in other jurisdictions.

Banks

It’s a tough time to be a banker and an equally tough time to be a customer! But in my experience, Gibraltar’s banks are no better or worse than anywhere else in terms of the bureaucratic process to open and maintain accounts.

Employment

I’ve never really understood the system we have in Gibraltar. It seems to me a business has to undertake the same process twice ie tell the tax office and the employment office of new and terminating staff. Ideally, the central governing body would control one process and glean from that single process all that was required to ensure employment rules are adhered to and taxes paid. In Gibraltar, an employer has to physically attend the employment office to register a vacancy and has to physically attend the income tax office to pay monthly PAYE / SI. I’m sure if there was the opportunity to redesign the system from scratch, there would be a leaner and easier process administratively for the employer. After all, the easier we make employing people, the more likely it is that people will be employed.

I often think that a reason for the dire unemployment levels in Spain is partly because employing people has been so cumbersome administratively and expense wise that employers over the years haven’t bothered, preferring the illegal route with the loss of tax income to the government or more simply, a lack of entrepreneurship amongst the people, as the whole business establishment process discourages business start ups.

Tax compliance

No one can complain at the tax rates here in Gibraltar and indeed, they are the reason for many companies to establish here and once established the lower corporate taxes allow companies to flourish. Gibraltar is the envy of western Europe in that regard. The tax rates more than make up for the slightly quirky systems I encountered.

The low number of taxes charged, also means that compliance is relatively straightforward. Two payments of corporation tax and twelve PAYE / SI cheques per annum is not over burdensome on any business and compares well internationally.

However, if Gibraltar does want to be the best, and why shouldn’t it strive for that, then all of the tax compliance should be online. VAT forms in the UK become redundant shortly as the choice is removed and every registered VAT payer must file and pay online. Paper returns become history.

Modern economies have online pay and file tax systems. Errors are less and compliance rates are higher. Just think how much less time and professional support could have been spent by the private sector on compliance with the new Income Tax Act had it have been delivered along with an online pay and file system?

Comparable evidence

The above comments are just from my own personal (and pleasurable) experience in establishing businesses in Gibraltar. What really matters is how Gibraltar fares on the international stage in attracting new business. The world is a competitive environment and it is important that Gibraltar is seen as a competitive jurisdiction in which to establish a business.

The World Bank produces two very well researched guides to enable benchmarking across some 183 countries worldwide. “Doing Business 2012: Doing Business in a More Transparent World” assesses regulations affecting companies in 183 economies and ranks the economies in 10 areas of business regulation, such as starting a business. “Paying Taxes: 2012” demonstrates that reform of tax systems around the world is continuing. The report shows how there is an increasing focus on improving the administrative aspects of tax systems including the use of electronic filing and payment for tax returns, the reduction in the number of taxes per base and an increasing use of self assessment procedures.

Gibraltar is sadly not included in either report. We should encourage its inclusion, or undertake the benchmarking ourselves. Despite one or two difficulties with trade licences, or forgetting to register a vacancy at the employment training board for example, internationally, I would expect Gibraltar to be one of the best jurisdictions in which to establish a business. If we participated in the benchmarking, it would be fact, not opinion, and we could tell the world.”