Ceuta and Melilla dethrone Gibraltar as a leading online gambling venue

The UK's exit from the EU has dragged Gibraltar out of the Union. The rosy economic outlook for what was considered the third highest per capita income in the world is now unstable and fragile due to Brexit and the COVID-19 pandemic. The Rock has for years been a haven for major licensed online gambling operators both in Spain and the rest of Europe. This activity generated more than 3,200 direct jobs out of a total of 26,000 and brought together more than 30 companies in the sector. Together with financial services, online gambling accounted for 40% of the Rock's GDP.

Last March, the International Agreement on Taxation and Protection of Financial Interests between Spain and the United Kingdom in relation to Gibraltar came into force. The main measures adopted under this document directly affect the rules for resolving tax residence conflicts, avoiding the use of companies subject to the Gibraltar tax regime by tax residents in Spain and the conduct of economic activities.

The document also establishes that legal entities incorporated and managed in Gibraltar will be tax resident in Spain when they establish a significant relationship with Spain, determined by several aspects such as: the location of the majority of their assets, the obtaining of the majority of their income, or the fact that partners or directors are tax resident in Spain. It is important to note that, in any case, individuals or legal entities that relocate to Gibraltar after the date of entry into force of the Agreement will continue to maintain their exclusive tax residence in Spain.

The online business stands out here as, in practice, many companies and operators in the gaming and digital banking industry that were considering starting or relocating their business to Gibraltar could look for other alternatives in Spain which, unlike Gibraltar, offer a favourable regulatory framework that does not pose a barrier to entry into the sector. 

The Autonomous Cities of Ceuta and Melilla stand out in this context. As part of the Spanish territory, they offer a real alternative for the development of businesses with a comparatively advantageous and efficient tax regime. Many companies have established their headquarters in Ceuta in recent times. Some of the most significant examples are 888 Holdings, Betway and Juegos España, which moved their offices as a result of the new tax measures.

For those companies operating in the online gaming sector, both Ceuta and Melilla offer numerous incentives to locate this activity in their territory. These include: a 10% reduction in the Gambling Activities Tax, which halves the general rate of 20% currently applied in the rest of Spain; a 50% rebate on Corporate Tax, which translates into an effective tax rate of 12.5% compared to the general rate of 25%; in terms of indirect taxation, Value Added Tax is not applied at the general rate of 21%, but rather the Tax on Production, Services and Imports, which is barely 0.5%.

These incentives are even more attractive than those established in territories that have historically been chosen by different operators and large gambling multinationals. An example is Malta, where the general Gaming Activities Tax rate of 20% applies to entities incorporated in this country.

In addition to the tax advantages that exist for companies that carry out their business in Ceuta or Melilla, there are also those that apply directly to the employees of these companies who carry out their work activities in these territories. For example, for Personal Income Tax purposes, there is a 60% rebate on the income obtained by these employees in these territories. Since 2018, sector benchmarks such as Codere, Sportium, Luckia and Wanabet have moved to one of the two cities. The trickle, as can be seen, continues and there are more and more of them as a result of this International Agreement.

In short, we can expect a reaction from the private sector (and from the online gaming industry in particular) to the entry into force of an International Agreement which, given the foreseeable blocking of Gibraltar as a territory with advantageous taxation, offers as a viable alternative the development of business within Spanish territory, in places such as Ceuta or Melilla which, having similar characteristics, will generate growth and economic development in the area, an increase in employability and, above all, wealth within the country.

Source: Ceuta and Melilla, alternative to Gibraltar. Published in Cinco Días by Bernardo Gómez.