Phasing out of the Exempt Company in Gibraltar Gibraltar is unique within the European Union (EU) in that it is an Overseas Territory of the UK. For several years, there has been an ongoing dispute between the EU and Gibraltar about exempt companies. While domestic companies in Gibraltar pay a tax rate of up to 35%, exempt companies, which may not do business in Gibraltar and may not have Gibraltar shareholders, have a 0% tax rate. The European Commission argued that this disparity was “ring fencing” and effectively amounted to state aid. An agreement has now been reached whereby a limited number of new Exempt Companies may be established until June 2006; these will have exempt status until the end of 2007. Gibraltar has proposed to the EU Commission a new structure with a zero tax rate for all companies but this will not be ruled on for several years. Clients with Gibraltar companies who do not require the EU connection may seek to redomicile in more favorable jurisdictions. Anguilla is an excellent jurisdiction for this purpose. Please see http://www.ibcf.com/anguilla.htm Increase in Panama Fees Panama continues to be a popular jurisdiction when a tax-neutral entity is needed especially one with a Latin flavor. The Panama territorial system of taxation taxes only income earned within Panama. Panama companies not doing business in Panama are thereby effectively offshore companies. Effective beginning in January, 2006, the annual fees for Panama companies will rise from $250 to $300.

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