Post UK Point of Consumption Tax – where should you place your HQ?

Thursday 01 October 2015

By Adam Beighton, Manager - eBusiness, Equiom Group Europe

Equiom has developed an enviable reputation for offering outstanding levels of specialist services, including to the eGaming sector. We employ professionals who understand the eBusiness and eGaming sectors and, therefore, know how best to maximise opportunities for our clients. With our headquarters located in the Isle of Man and offices in Jersey, Guernsey, Malta and Hong Kong, we understand exactly what is required to help companies establish a multi-jurisdictional operation.

The Isle of Man has an excellent reputation for nurturing eBusiness companies, who recognise the benefits of an 'offshore' home. If you’ve ever wondered why world class eGaming operators such as Pokerstars, Paddy Power and the Asian giants, including188BET, SBOBET, 138.com, Dafabet and 12Bet have chosen to set up here, then it’s time to book a trip over to the Island to discuss the benefits with us and also how to apply for a licence.

Of course, it is not just the operators who have made the informed decision to locate here. Some of the world’s largest software suppliers to the industry, including Playtech and Microgaming, also have their headquarters located on the Island, with support offices elsewhere around the world. Likewise, other operators and start-ups with new products or market-entry concepts, have chosen the Isle of Man to set up their burgeoning enterprises and have appointed Equiom to help them do so. Interestingly, these companies are not just coming from Europe or Asia, but also from emerging markets, such as South America and Africa.

As the gaming world adjusts, following the introduction of the UK Point of Consumption tax (UKPOC), many aspects have changed in determining where to locate or re-locate a business headquarters. Several mergers and acquisitions have taken place and many more will come about, indicating that 'size' really does matter in a market that is now mature and sophisticated. It is also increasingly necessary to obtain online gaming licences in the countries where your customers are based.

Weighing up which jurisdiction to choose for your company’s headquarters will be based on a number of criteria, including where to locate your key staff and decision makers. Following decisions made by governments and tax authorities worldwide, the scales have tipped firmly in the favour of the Isle of Man.

It is now clear that companies operating in multiple jurisdictions will, at some time in the future, need to prove that the country where their main Corporate Tax is calculated, is also their 'permanent establishment', i.e. where key decisions are made and key staff are based. Accountancy firms are already warning of the dramatic impact on certain gaming companies, following the introduction of measures surrounding Base Erosion and Profit Shifting (BEPS) and Diverted Profits Tax (DPT), effective in the UK ahead of BEPS. Companies who are formed and registered in certain offshore jurisdictions, but whose staff and decisionmaking cannot be established there, will be liable for BEPS and DPT.

In addition, included in the UK Government's 2015 Summer Budget, there were a few pertinent sentences regarding VAT. In respect of gaming, it said:

'... the UK Government will consider a wider review of off-shore based avoidance in VAT exempt sectors, with a view to introducing additional use and enjoyment measures for services such as advertising in the following year.'

This will take away the main selling point, some would argue the only one, used by certain jurisdictions to establish eGaming businesses in their location. The new rule could mean that eGaming operators who order their advertising through their offshore entity, in a bid to reduce their VAT costs, will be hit by an irrecoverable 20% charge. All of this should really start to focus companies on the myriad benefits of being based in the Isle of Man.

What’s special about setting up in the Isle of Man?

The Island actively welcomes companies and their staff to move here, to set-up and create a permanent establishment. There are no restrictions on buying or renting property for non-Isle of Man companies or people. The Island’s education and healthcare systems are both of an excellent quality and crime levels are extremely low. Indeed, leading eGaming companies single out the quality of life in the Isle of Man as why they and their staff are really happy to be here and, crucially, why they are growing their island-based operations year-on-year.

From a technical viewpoint, the Island generates more power than it consumes and sells the excess to the UK. There are additionally mutiple self-healing fibre optic rings connected to the outside world. The Island's business community is also supported by several world class data centres, which ensure company operations work smoothly and effectively. These examples of robust and sophisticated infrastructure explain why gaming operators can sleep well at night, without worrying about their business being constantly under threat from power outages, or loss of connection to their customers at critical times.

Financially, the advantages are clear for both companies and individuals. There is generally 0% Corporation Tax, no Capital Gains Tax, no Inheritance Tax, no Stamp Duty and no Death Duties. Personal tax rates start at 10% (after a generous tax free allowance) and then reach a maximum rate of 20%. For High Net Worth Individuals, Equiom can also advise on the application of the Tax Cap, as well as on the establishment of Trusts and Foundations, where required.

Furthermore, the Isle of Man Government is transparent and extremely easy to work with. Upon the introduction of the UKPOC tax, the Isle of Man Government quickly passed a legislative amendment providing Double Duty relief for the Island's gaming operators. Protection of players is also paramount and operators are required, by law, to segregate player deposits so that these assets are secured, in case of operator failure. The Government is also at the leading edge of understanding with regard to digital currencies and Blockchain technology which, going forward, will have an impact on the eGaming industry. Initial legislation has already been passed by the Government allowing this technology to progress in a controlled way, to prevent crime and protect players.

The needs of each eGaming operation are different. It is vital, however, that your service provider helps you to take the correct steps to get started and to develop successfully. Your provider should:

  • understand the evolving worldwide gaming marketplace (with actual experience working and consulting at the highest level within operator companies as well as businesses supplying the industry)
  • structure your business in an effective manner
  • have a presence and a dedicated skill base in multiple gaming jurisdictions to help, as required, with licence application and on-going governance

The gaming world is constantly evolving and as companies grow and expand into new markets, it is vital for them to structure and/or re-structure in a way that works effectively from a legal, operational and tax efficient perspective.