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Gibraltar Online Gambling Tax to Increase

By: Mark Freedman, Monday December 20th 2010
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Gibraltar is a British overseas territory located on the Southern end of the Iberian Peninsula. It largely governs its own affairs, with some functions like defense and foreign relations relegated to the UK Government. Licensing and regulation of online gambling is one of the main sources of revenue for Gibraltar. This is carried out by the Gibraltar Regulatory Authority. A number of leading online gambling operators like Ladbrokes, William Hill and Victor Chandler are licensed from Gibraltar. All these operators have been given a rude shock over the weekend, by Gibraltar announcing that they will be increasing the tax rate on online gambling from 1% to 10% from next year.

The low tax rate in Gibraltar has been the main draw for online gaming companies. Recently some of the big operators had shifted from the United Kingdom to Gibraltar to avoid the high UK taxes. A report in the Guardian newspaper says that in 2009 the Gibraltar government earned €12.4 million from taxes on online gambling. The tax rate then was 1% with a cap of €500,000. The tax rate is being raised to 10% to bring it at the same level as the taxation on other businesses. Gibraltar's first minister, Peter Caruana, said that the increase in tax has been necessitated by Gibraltar government's decision to conform to European law. "To comply with EU law we must phase out the tax-exempt company system in 2010. However, in order to sustain our successful economic model we must retain a commitment to a very competitive corporate tax model." The companies will still not pay any VAT in Gibraltar, which means that the overall taxation will remain attractive.

The question that is immediately being asked is whether this tenfold increase in tax will force online gaming companies to relocate to an environment with a softer tax regime. Victor Chandler answered this in an interview given to the regional newspaper El Pais. The company spokesperson said, "Nobody will leave, although we'll all complain about the tax going up." Gibraltar's neighbor Spain is in the process of establishing a regulated online gambling regime. It is currently estimated that about 200,000 Spaniards wagered €575 million at unregulated gambling sited in 2009. The proposed rates in Spain are higher than the increased rates in Gibraltar.

The question also being asked is what effect this increase in tax will have on the services offered by the operators. There should not be any change in the competitiveness of the services because players can access online gaming sites from any jurisdiction sitting at home anywhere in the world. The Gibraltar gambling operators will have to absorb the increase in taxes.

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