ReachExtra
Though the form it will take remains uncertain, the Brexit bogeyman casts a heavy shadow over Gibraltar’s financial services industry’s first hesitant steps into 2019.
The two most likely outcomes of Britain’s divorce from the EU which emerged over the festive season were a ‘hard’ Brexit with no deal, or a re-run of the June 2016 referendum which will bring even more uncertainties.
And though neither of these outcomes will please Gibraltar – whose role as a finance-related stepping-stone for non-member states into the EU has been vital to economic growth in recent years – either result promises benefits to La Linea in terms of both employment and cash.
For Brexit will end Gibraltar financial services’ easy access to the EU, and there is a convincing argument for these to be re-domiciled – or to establish subsidiaries – in one of the 27 member states.
At least three major players are in the process of establishing licensed and regulated Spanish subsidiaries which will be based in La Linea, and others are likely to follow suit. But it will be firms which actually re-domicile that could have a major impact on La Linea’s economy.
‘A company re-domiciling remains the same legal entity and is treated as having continued its corporate existence,’ a legal expert explains. ‘Re-domiciliation means that the firm leaves one jurisdiction, establishes a new domicile and continues trading as before. There is no need to liquidate, portfolio transfer, or set up a new company.’
This particular option has been debated extensively in the past two years. Initially focus was on Malta and Luxembourg as possible destinations in a scenario where Gibraltar firms would switch their core business to one of these jurisdictions while maintaining a subsidiary on the Rock.
The complexities relating to any such switch to Luxembourg quickly ruled out this option and recent scandals related to Malta’s financial service sector have negated most earlier apparent attractions of the island state.
For several the focus has turned to La Linea. Here, as with the ‘subsidiary option’ there have been unofficial discussions with the regulatory authorities in Madrid which, I am told, have had a sympathetic and encouraging hearing.
Two major and several minor players are seriously exploring the possibility of a La Linea re-domicile and are expected to take a final decision within the next week i.e. at the beginning of January.
The advantages of closer links with La Linea are clear. The close proximity, the flow in both directions of people to work and to shop, as well as the fact that a significant number of expatriates employed in Gibraltar have homes on the other side of the border. And though there are some cultural differences, there are also shared experiences and attitudes.
Some of the proponents of the La Linea option argues that the city would need a special fiscal regime, similar to those in Ceuta and Melilla, and point to Dublin’s International Financial Services Centre’s tax incentive zone, which was established with EU approval in 1987 as a possible model. But this is a complication which few would support.
A more likely stumbling block would be the question of ‘speed to market’ where traditionally smaller jurisdictions (such as Gibraltar) tend to be more user-friendly for smaller companies than in their larger counterparts. Regulatory good will may prove the deciding factor.
Much will hinge in what happens at the border in the case of a ‘hard’ Brexit at the end of March this year. And that will depend on neither Gibraltar, nor on la Linea…but on the politicians in Madrid…whose attitudes (like those of politicians everywhere) can be as unpredictable as Britain’s Brexit options.
