Take a look at where your favourite gambling company is based and there’s a very real chance that the answer will be Gibraltar. The offshore gambling business of the British Overseas Territory actually began in 1989, but it was when companies such as BetVictor began to move there to avoid the large tax they’d have to pay in the United Kingdom that the industry really began to take hold in the area.
Indeed, tax is the number one reason why Gibraltar has become a gambling hub, regardless of the amount of things that the country’s tourism board might want to say. It is something if a haven for gaming companies wishing to avoid paying an over the top amount of tax as they would likely have to do in other locales. They still need to have a gambling licence, but the tax is far less than elsewhere.
Gibraltar is an incredibly small Overseas Territory, though it remains completely British. It is just twice the size of Central Park in New York, to give you some sense of its size. Around 32,000 people live there, with a good chunk of those belonging to the British army and navy. The Europort business area is where the gambling companies can be found, with many of the big names in betting calling it home.
Until the latter part of the 1980s, there was little on Gibraltar apart from the military base, which is where there was a need for the locale to diversify what it offered. The idea of offering an area for gambling companies that offered tax benefits was that sense of diversification, with marketing budgets being one example of something that is VAT exempt in Gibraltar.
Given that the biggest players in the gambling industry can spend millions of pounds every month on advertising, the tax savings that they get from that makes it an extremely attractive proposition. Of course, it makes it something of an uneven playing field for startup gambling companies that perhaps can’t afford to base themselves in Gibraltar, instead having to pay the 20% tax applied to companies based in the UK.
Even the corporation tax is better in Gibraltar than it is in the United Kingdom, coming in at 10% rather than 20%. All told, the chief reason that the British Overseas Territory is so popular with gambling companies, with many of them based inside the same building, is that the companies can save huge amounts of people every month, let alone every year, by being based there rather than mainland Britain.
Life Is Easier For Gaming Companies In Gibraltar
Another appeal for gaming companies looking to set up their business is the fact that life is easier for them if things are done correctly. The first thing that they’ll need to do is to obtain a gambling licence, which is given by the Gaming Regulator on presentation of a ‘thorough and sound business model’. Due diligence will then be carried out on shareholders and directors to make sure all is above board.
The government is both supportive of new gaming companies and encouraging for them, realising the importance of the sector for the Overseas Territory. The standards are still first-class, though, so nothing is allowed to slip. Given that the sector contributed about 25% of the GDP, it’s hardly shocking that the government wants companies in the gaming sector to be as successful as possible.
Ultimately, though, it’s all about the money. Companies based in Gibraltar pay 10% corporation tax, PAYE and just 0.15% of Gross Gambling Yield. On top of that, there’s no capital gains tax to be paid nor Value Added Tax, which makes it an extremely attractive proposition to the companies that are based there with online businesses. Around 75% of UK betting activity takes place from Gibraltar as a result.
Gibraltar has also been subject to a feedback loop. Similar to Malta, the more betting companies that base themselves in the peninsula the more the local talent pool grows, which then attracts more companies to locate themselves there.
Things Might Change Thanks To Brexit
Brexit is bringing its own challenges for countless businesses, but for the gambling ones based in Gibraltar there are huge question makes over the benefit of staying there. The likes of whether a Gibraltar gambling licence will allow companies to operate in other European Union countries is one question, whilst the ability of workers to make it into the office without major delays is another.
House prices and rental costs as are expensive as they are in London in Gibraltar, so many of the various betting companies’ workforce live in Spain. La Linea is a twenty minute walk away, for example, whilst other parts of Spain take about 45 minutes to drive to. Given that as much as 10% of the overall workforce in Gibraltar is employed by gambling companies, the issues could be substantial.
The Origins Of Gibraltar As A Gaming Hub
In 1997, Victor Chandler, the company that would later become BetVictor, chose to move its base of operations from the United Kingdom to Gibraltar in order to avoid the tax hike being imposed by Gordon Brown as the Chancellor Of The Exchequer in the Labour Party. At the time, Victor Chandler was a relatively unheard of betting company that almost exclusively served high rollers at the time, but others soon followed suit.
The Chancellor had been confident of making about £500 million a year in betting duties prior to the exodus of gambling companies to Gibraltar. The other companies followed Victor Chandler over there because the amount of money to be saved was huge. The likes of William Hill, Ladbrokes, Coral and Stan James all arrived in Gibraltar, determined to take advantage of the tax savings on offer there.
How It Changed Betting Tax In Britain
The move of major companies to Gibraltar forced Gordon Brown into a re-think, with the decision taken in 2001 to abandon the 6.75% levy that had been imposed on gambling companies as a betting duty. It was replaced by a 15% ‘point of supply’ tax on a bookmakers’ gross profit. This shifted the onus of paying the tax from the punters to the companies that offered their services in the UK.
Obviously this didn’t stop the gambling companies from avoiding paying tax, given that it saw them paying it at the point of supply. If they were based in Gibraltar then they continued to avoid any major levy, which is why there was an amendment to the 2005 Gambling Act in 2014, making the tax one that is based on point of consumption. Any site offering services to people in the UK has to pay tax on its gross profits.