A behind-the-scenes battle for the hearts and minds of expat pension savers is waging in the Mediterranean as Gibraltar and Malta grapple for market share.
Both have seen the number of new Qualifying Recognised Overseas Pensions Schemes (QROPS) moving to the financial centres grow over the past few months since the British tax man closed down hundreds of schemes in Guernsey, New Zealand and the Isle of Man.
Gibraltar passed QROPS laws in September after a three year battle with HM Revenue & Customs over tax rates paid on pension benefits.
Since then, several firms have self-certified their schemes meet HMRC QROPS rules.
Similarly, Malta has risen up the ranks of QROPS jurisdictions since the HMRC clampdown on other centres in the spring of 2012.
Different target markets
But both Malta and Gibraltar are aiming for footholds in different markets.
Malta may have a 30% withholding tax on QROPS benefits for retirement savers who live off the island in a country that does not have a double taxation treaty with the local tax authority.
This wipes out many Asia Pacific countries by increasing the tax risk for investors.
On the other hand, Gibraltar has no withholding tax and offers a low 2.5% income tax rate on pension benefits, which is proving attractive to many would-be investors from the Middle East and Asia Pacific.
The market is open to British expats living permanently overseas and international workers who accrued UK pension benefits during a spell working in the country.
QROPS offered in both financial centres offer the same basic benefits to retirement savers, like flexible investments, low tax environments and portability.
Tough tax compliance
The difference between jurisdictions comes from how the local government taxes QROPS pension benefits.
“In 2009 when Gibraltar took the decision to self-impose a QROPS ban, it was perhaps not seen by everyone as a good decision,” said Steven Knight chairman of Gibraltar’s Association of Pension Fund Administrators.
“However, pensions are long term and I think people realise it was the best thing to have done and this strategy of taking our time and getting it right is beginning to pay dividends.”
Both financial centres gain from tough regulation – Gibraltar’s tax authority is drawing up a compulsory code of conduct for providers, while Malta’s tax authority requires off-islanders to file personal tax returns.