Exclusive: 888 to establish Ceuta office to reduce tax burden

888 is planning to establish an operation hub in the Spanish enclave of Ceuta in a bid to improve its tax efficiency in the Spanish market, EGR can reveal.

The new office in the autonomous city would make 888 eligible for tax benefits put in place by the Spanish government in July 2018, although operators establishing a base in the region must have at least 50% local staff to qualify for the benefits.

Companies based in the city will pay taxes of 10% on net profit as well as 7.5% corporate tax for the first two years of activity and a subsequent 12.5% after that.

VAT will not apply to those based in either Ceuta or nearby Melilla and companies will receive a 75% discount on wealth tax, a 50% discount on local taxes and a 60% discount on income tax.

888 CEO Itai Pazner

888 CEO Itai Pazner told EGR the new office would operate in parallel with the firm’s existing Gibraltar hub and house operations related to the Spanish market such as customer support, fraud prevention and some transactions-related services.

“It’s in the very initial stages and we are literally devising the plans at the minute but that’s something that’s hopefully going to happen in 2020,” Pazner said.

“I don’t think it will change much in Gibraltar,” the chief exec added. “We have a very good trading team in Gibraltar. So we will probably open a parallel team, at least at the beginning in Ceuta and then we’ll see how we manage both teams in parallel or shift the guys in Gibraltar to work on other markets that are evolving.”

Firms in Ceuta will also be required to use local technology suppliers, including internet service, to support local business.

Several other operator have moved to take advantage of the Ceuta and Melilla tax breaks, including Betfred and Spanish firm Codere.

The move is part of an effort by 888 to reduce its tax burden, which has risen with its expansion in regulated markets.

The firm paid almost $45m in taxes in H1, up $7m year-on-year, with CFO Aviad Kobrine describing the company as becoming a “tax collection machine”. Group H1 EBITDA was down 20% to $41.8m thanks to the increased gaming taxes and marketing investment.

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When asked about the sustainability of growth in regulated markets on thinning profit margins, Pazner said they would remain the strategic focus for 888.

“The margins are obviously lower there, but there are good examples, including ourselves, of operating on healthy margins in regulated markets,” he said.

“Obviously, it’s not the 30-35% margin that we were used to in a pure.com market, but I think if you can operate in between a 15-20% margin and drive growth, I think the businesses can be in a healthy place.”