The official currency is Sterling. However, the Government of Gibraltar issues Sterling notes and coins locally which circulate alongside those issued by the Bank of England. A number of local banks are linked into the United Kingdom clearing system.

Since 1979 there have been no exchange controls and residents and non-residents alike may maintain accounts denominated in foreign currencies.

B.2 Banking Services

Gibraltar has a well-established banking sector with a total deposit base of over GBP billion. Most of Gibraltar's banks are branches or subsidiaries of major UK and other European and US banks or financial institutions.

The conduct of banking business in Gibraltar is governed by the Banking Ordinance 1992 as amended subsequently. Detailed rules and regulations have been issued under this Ordinance to give effect to EU banking directives.

Responsibility for the supervision of the banking sector rests with the Commissioner of Banking (who is also the Financial Services Commissioner). Day to day supervision is carried out by the Banking Supervisor who is on secondment from the Bank of England.

During 1997 it is anticipated that four pending directives will be implemented. These directives relate to Capital Adequacy, Deposit Guarantee Schemes, Investment Services and 'Post BCCI' prudential supervision. Once these directives are implemented approval will be sought from the United Kingdom for Gibraltar to take advantage of the Single European Passport for Banking. The passport will allow Gibraltar licensed banks to set up subsidiaries and branches in other EU states.

The banking sector provides a wide range of facilities including private banking and investment services as well as corporate banking including import and export finance and commercial loans.

In addition to the banks there are three building societies operating in Gibraltar; one is locally incorporated and the other two are branches of UK societies. A further UK society is expected to open a representative office in Gibraltar shortly.

B.3 Insurance Services

Insurance business conducted in Gibraltar is governed by the provisions of the Insurance Companies Ordinance 1987 (as subsequently amended) and by rules and regulations made thereunder. Legislation has now been put in place to implement all EU directives which apply to this sector. Insurance business in Gibraltar is licensed and controlled by the Commissioner of Insurance who is responsible for administering the Ordinance and its Regulations. An Insurance Supervisor, who is responsible for day to day supervision was appointed in 1996 by the Financial Services Commission and the United Kingdom government has now agreed that Gibraltar has implemented the necessary standards with regards to the supervision of insurance companies which match UK practice.

As a result, Gibraltar has now obtained approval from the UK government to take advantage of the Single European Passport for insurance. This means that an insurance company licensed in Gibraltar can, with the approval of the Commissioner of Insurance, do business in EEA states either by setting up a branch in those states or by providing insurance from Gibraltar to residents of those states.

The fiscal and legal advantages of using Gibraltar for insurance will attract many new captives and other types of offshore insurers.

These advantages include:

• Gibraltar insurers can now underwrite risks in Europe direct; Insurance companies which have Exempt Company status (see Section E2) pay no local taxes other than a GBP 225 per annum 'Exempt Tax' fee
• An insurance company which has Qualifying Company status (see Section E2) can apply for a tax rate at a level between 0% and 35% (which will enable it to pay the minimum tax necessary to avoid being classified as being in a low tax jurisdiction when considered by the tax authorities in the country of residence of its parent company).
• Gibraltar possesses local insurance expertise together with a well developed legal, accounting and banking infrastructure.
• Legal system is based on English common and statute law, with variations enacted by local statutes.
• Official language is English, but the local population is bi- lingual, speaking also Spanish.
• The Gibraltar cost base is highly competitive. The annual license fee is just GBP 2,000. There are no job quota requirements for insurance companies or managers. Specialist personnel may apply for a preferential tax status (see Section E3 Relocated Executives Possessing Specialist Skills).
• The official currency is Sterling and there are no exchange controls.

B.4 Investor Protection

The Gibraltar Financial Services Commission (FSC) is responsible for the licensing and regulation of all companies and individuals who offer financial services or products to the public. The Commission comprises eight members appointed by the Governor with the approval of the Foreign and Commonwealth Secretary of the United Kingdom.

The FSC is determined to ensure that Gibraltar has the benefit of high supervisory standards as far as financial services are concerned.

The work of the Commission is subject to independent audit by auditors from the United Kingdom Department of Trade & Industry.

Gibraltar must comply with all EU directives which relate to financial services. The United Kingdom government has now agreed that Gibraltar has implemented the necessary standards with regards to the supervision of insurance companies which match UK practice.

As regards banking, four directives remain to be implemented in 1997. Implementation of the Deposit Guarantee Directive will ensure that there is a level of deposit protection for depositors with credit institutions in Gibraltar. Few offshore centres outside the European Economic Area offer depositor protection.

B.5 Import and Export Procedures

Gibraltar does not form part of the Customs Territory of the EU and is therefore not required to comply with the various quota and tariff restrictions which the Union imposes. Nevertheless, Gibraltar is regarded as a developing country for GATT purposes and Gibraltar sourced goods are entitled to various tariff and quota concessions.

The Gibraltar government levies import duties on most goods except foodstuffs, medical supplies and basic construction materials. Most goods imported into Gibraltar are subject to import duty at the rate of 12%. Rates on tobacco and spirits are high, but still below the EU average. Motor vehicles suffer rates of 25% - 30% according to engine capacity.

There are special procedures covering goods-in-transit and temporary importation.
Customs procedures and tariffs vary from other EU territories since Gibraltar is outside the Customs Union. However, Gibraltar has adopted the Single Customs Declaration and other procedures which are common to all countries which have participated in the Automatic Systems Customs Data (ASYCUDA) Project promoted by the UN.

B.6 Investment Incentives

The Gibraltar government is keen to encourage inward investment particularly in those areas which will generate significant job opportunities for the local workforce. There is a wide range of fiscal incentives (see Section E2 tax incentives). Financial incentives such as cash grants and loan assistance are also available under various government schemes as shown below:

Government of Gibraltar Financial Assistance

Under the Government's Enterprise Initiative launched in July 1997, businesses can for the first time benefit from a comprehensive range of assistance to help both start-up and expanding businesses.
The Government has introduced three new schemes offering financial assistance, brief details of which are included in the following table:

European Union Funds

European Union funding has been a major source of finance for economic regeneration in Gibraltar in recent years. As a result of the decline of its traditional shiprepair industry, Gibraltar has been classified as an Objective 2 region of the European Union, and is entitled to support through the European Regional Development Fund (ERDF) (for business development, tourism, technology transfer and infrastructure projects) and the European Social Fund (ESF) (for training and retraining projects). The Objective 2 programme 1997-99 will invest around ECU 6 million in activities to further the economic regeneration of Gibraltar.

Its principal objective will be to develop additional employment opportunities through support for existing SMEs and encouragement for new companies by the provision of suitable infrastructure and a highly skilled work force. The GEBDS scheme mentioned in the above table is partly funded by the

Objective 2 programme.

Under the European Structural Funds Community Initiative, Gibraltar is also entitled to assistance in its diversification from a defence dependent economy. Brief details of the scheme, known as Konver II, are provided in the following table:

Interreg

A small programme exists to provide funds for cross border projects between Gibraltar and Morocco.