The concept of the trust is familiar to finance centre professionals and widely used. The income received by a trust, or beneficiary under a trust formed in Gibraltar is exempt from taxation provided it is created by or on behalf of a non-resident of Gibraltar, residents of Gibraltar are excluded as beneficiaries and the income is derived from outside Gibraltar. Additionally, the trust continues to be tax-exempt even if it earns interest on local bank deposits or income from exempt companies.

Since Gibraltar has no wealth or gift taxes or estate duty or other capital taxes, the capital of the trust is likewise not liable to Gibraltar tax.

Asset Protection Trusts

This type of trust is designed to protect the assets of a settlor from issues like political strife, forced repatriation, confiscatory taxes, exchange controls and, most recently, risks associated with litigation arising out of malpractice or negligence suits. Such a trust may be invaded by a creditor of the settlor should it be shown that transfers into the trust lacked legal propriety. It is this matter of legal propriety which has a long and complicated history in Anglo-Saxon common law jurisdictions dating back to the Statute of Elizabeth (the Fraudulent Conveyances Act 1571). Gibraltar has sought to reduce the uncertainties when determining propriety by shifting the focus from the subjective test of intent contained in the above statute to the objective test of solvency contained in the Bankruptcy Ordinance, s42A.

This higher degree of certainty makes Gibraltar a favourable location for setting up Asset Protection Trusts.