Why do casinos set up abroad?

If you watch enough TV, pay any attention to any adverts, watch sports, or even just walk down the high street (remember what those are?), the chances are you would have seen more betting, casino or gambling brands than you can remember.Names like William Hill, Betway, Paddy Power, 888 Sport, Ladbrokes and Coral all spring to mind. But other than offering casino, betting and gaming services, they all share one similarity. They have all set up their headquarters and registered overseas.With locations such as Gibraltar, Malta and Cyprus being regular go-to addresses, what is the allure for these business to set-up beyond the borders of the UK?

A little thing called tax

Unsurprisingly, the answer comes predominantly down to tax. Yet it is much more in-depth than this simple answer represents.Gambling is still big, big business in the UK. In fact, from October 2017 to September 2018, the Gross Gambling Yield of the UK’s entire gambling industry reached a very impressive £14.5bn. And that level of yield and revenue ultimately feeds into the Treasury. In fact, the UK tax requirements for gambling enterprises are relatively stringent with a 15% minimum rate on any earnings up to £2.37million, then increasing in severity to 20%, 30%, 40% and 50% in a similar vain to the UK’s income tax methodology.Previously in the UK, tax was also levied not just on the company’s revenues gained from gambling and gaming services, but also the winnings earned by humble punters. When high street bookmakers were legalised in 1961, there was an enforced 6.75% levy that was passed on as a 9% tax on either the initial stake or the winnings to the customer placing the bet. This all changed in 2001 with the implementation of the minimum 15% point of supply tax rate. Importantly, this decision by the UK Government was made to counter the fact that online gambling was really starting to take off, with many new companies starting to offshore their businesses.Ultimately, they wanted to keep the money within the UK. But, did it work?

In search of new lands

Quite simply, this left bookmakers with a pretty large tax bill, and, unsurprisingly, many looked for ways to overcome this. The obvious answer was to move.The first to move their entire operation into the digital space, and therefore able to effectively set-up overseas, was BetVictor. The location of this move? Gibraltar. The British-owned small peninsula on the southern Iberian coast has, for the past 300 years, been predominately used as a military base for the British Navy. While the British military presence has been severely reduced, there is still an operational RAF airbase on the peninsula and forms a strategic arm to the UK’s defence strategy.But it is not the allure of military protection that inspired Victor Chandler’s (former Chairman of BetVictor) move. It was the ability to lower the overall tax bill on his company. This move inspired others to eventually follow suit, choosing destinations such as Gibraltar, Malta, Cyrpus, Jersey and the Isle of Man to base their operations from due to their more favourable tax structures.

But these locations aren’t tax free, so why bother?

While the likes of Gibraltar are not tax free, they are much more tax efficient.The first of these tax efficiencies comes in the form of corporation tax. UK corporation tax rates currently stand at 18%. Compare that to the small peninsula of Gibraltar offering a 10% corporation tax rate then you can start to see why this move looks appealing. Ireland, on the other hand, have much lower corporation tax rates, currently sitting at 12.5%. It is for this reason you see the likes of Google and Amazon basing their European operations from Dublin.With this in mind, these companies were able to not pay any UK tax when they first moved overseas and benefited from the much lower corporation tax rates among other benefits. However, after realising the trend of these companies moving overseas, the UK Government changed the law in 2014 and introduced a Point of Consumption tax. This tax meant that wherever the company is based, be that Gibraltar, Malta or anywhere else, they would have to pay tax on any money gained from the UK and customers based in the UK. The rate introduced was a 15% tax rate on revenue.So if the UK Government are now charging a Point of Consumption tax and there is still location-based corporation tax to pay (although it’s much lower than in the UK), what is the point?Quite simply, today, it comes down to VAT. That extra 20% charge on any transaction that we all face. One of the biggest benefits to the gambling companies based overseas if the VAT relief for their spend, especially on marketing.This enables the bigger companies, the ones who can afford to move overseas, to save 20% (the current UK VAT rate) on their millions and millions of marketing spend, whereas the smaller companies and start-ups cannot.The marketing budgets of these companies are huge. From online adverts and PPC through to sports sponsorships, TV adverts and PR stunts, they are able to create these at a lower cost because of the VAT loophole. Betway, for example, have a front of shirt sponsorship with West Ham United football club estimated to be worth a value of £60 million over the course of six years. That’s without any of the other adverts you may see of theirs.

Gibraltar, Malta and beyond

Gibraltar really was the spearhead that started the overseas exploration for these companies. Currently, there are just over 30 registered gambling licenses within the 6.8 km² of Gibraltar.With Gibraltar no longer being in the EU following the UK’s Brexit referendum, it will be harder for these operators to operate on EU soil without regulations in place. In fact, the likes of 888 have already announced plans to move out of Gibraltar due to fears that their staff will not be able to move freely within the EU following the Brexit restrictions coming into place.Malta is another current big player and, importantly, is part of the EU structure. This is one location that will likely benefit heavily from Gibraltar’s exit from the EU. Although much bigger than the Gibraltar peninsula, it still only has a population of just over 445,000 people. Of those, it is estimated that around 6,150 people are employed within the e-gaming sector. That’s made up of employers such as Kindred Group (Unibet), Betsson, and Kambi. As a gambling hub, it is much bigger than Gibraltar with over 470 registered gambling licenses compared to Gibraltar’s 30.

What does all this mean?

For the end user, unfortunately, not much. While these tax savings theoretically mean these savings can be passed onto the end user, it is to be seen how much this practise actually occurs.The next thing to look out for across Europe is most of the major markets self-regulating. For the likes of Gibraltar, Isle of Man, and Malta, this would make their once revered licensing regimes ultimately redundant. The more relaxed VAT laws would still be a major appeal to some, but it must be compared against the amount of business that can be done elsewhere.The UK remains one of the largest licensed territories in the world for the gambling industry and so keeping business and customers in the UK will be crucial for continued revenue generation. Where these companies ultimately decide to next base their headquarters is the question on everyone’s lips.

John Delaney - Chief Editor

John Delaney is a well regarded expert in the online casinos within the UK. After finishing his degree in Computer Science at the Univesity of Manchester he worked with the biggest names in the casino industry including Entain (previously GVC) and the 888 group.