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Special Report: International E-Commerce and E-Gaming

By Offshore-E-Com Editorial
15 December, 2011

The rapid advances in communications technology and the growth of the Internet over the past decade means that it is now possible to conduct business from virtually anywhere on the planet.

Indeed, all one needs these days is a laptop and a decent internet connection and you’re in business!

When it comes to e-commerce, however, there is still something of a regulatory minefield to negotiate, and with governments and lawmakers in the so-called advanced countries still largely behind the Internet revolution curve in terms of tax and legal obstacles to e-business, it pays to choose the right jurisdiction in which to base all or part of your e-commerce or e-gaming businesses.

As a general proposition, almost any business involved in e-commerce can gain from moving partly or wholly offshore, not just on a fiscal level but also through increased flexibility. The tax benefits are primarily through reduced corporation tax, but some types of offshore e-commerce transaction also escape sales taxes.

Some jurisdictions are better than others in this respect however, and while many governments – both off-shore and on – like to talk the talk when it comes to e-commerce strategies, few of them have actually walked the walk.

Legislation has been in place in some jurisdictions for the best part of a decade designed to regulate e-business, but in many cases the e-businesses never showed up. This is down to a variety of factors, such as a lack of infrastructure, especially in the more far-flung island jurisdictions (although this is improving all the time with new satellite technology and more under-sea cables), and the slow pace of liberalisation in telecoms markets, which still tend to be dominated by one player, especially in the Caribbean territories.

Another factor is that some governments have simply failed to follow through on their bold promises, perhaps because they have thought it better to concentrate on the ‘bread and butter’ activities that they know best, such as offshore company formation and banking.

Those jurisdictions which have invested heavily in promoting e-commerce are now reaping the rewards however, and here we give an overview of the ones which are particularly suited to e-commerce in general, and in some cases to e-gaming in particular.


In February 2000, Dubai's then ruler Sheikh Maktoum bin Rashid al-Maktoum issued a decree setting up a free-trade zone for electronic commerce and technology, now known as the Dubai Internet City (DIC).

The Dubai Technology, Electronic Commerce and Media Free Zone Law No. (1) of 2000 established an independent body, the free zone authority headed by Crown Prince Sheikh Mohammed bin Rashid al-Maktoum, which would operate under the Dubai government to spearhead the emirate's drive to become a regional centre for electronic commerce, technology and information.

The free zone authority oversees the establishment of the necessary infrastructure at the zone, licenses companies wishing to set up shop there and leases land and property to them for up to 50 years. The authority also runs the zone, and levies fees for its services. Companies are allowed 100 per cent foreign ownership in the zone. Goods imported to the zone and products for export are exempt from custom duties and companies are exempt from taxes, including income tax.

DIC highlights include:

  • World class technical infrastructure: high bandwidth, low cost telecom infrastructure and secure, high speed support infrastructure;
  • State-of-the-art urban infrastructure: cost competitive, flexible office space and world class housing, medical and education facilities;
  • Access to talent pool: large pool of high skill, low cost knowledge workers;
  • Straight-forward laws and regulations: easy and fast company registration laws, hassle-free immigration process and straight forward legal procedures;
  • Supportive environment: Government backed e-business initiatives, business incubators, venture capital funds and e-education programs;
  • Gateway to markets: access to regional markets in Middle East, North Africa, Indian Subcontinent and CIS.

Whether or not because of the rapid construction of the Internet City, many Internet and e-commerce applications have appeared in Dubai. Examples include Emirates Bank Group, which was the first Bank to open a branch at the Dubai Internet City; the investment banking division of the Barclays Group, Barclays Capital, which launched the Gulf's first on-line foreign exchange e-commerce service offering trading in 240 currency pairs and real-time, pre-deal credit checking; and chip-maker, Intel, which announced in 2006 that it had signed an agreement to move its Dubai offices to the DIC.

Microsoft, Dell, IBM, Canon and General Electric are just a few of the other very recognisable names which have a presence in the DIC, and in 2010 150 new companies set up in the business park. Cable and Wireless Europe, ADP Dealer Services Gulf, Pitney Bowes Software, China Communication Service, and Versata were among the companies that chose to base their operations in the DIC last year.


The Gibraltar Government elected early in 2000 was quick to make its intentions clear as regards e-commerce, announcing that: “The Government of Gibraltar believes there are significant opportunities for e-commerce businesses operating from the Rock. The Internet allows access to customers located in every corner of the globe and we should be well placed to serve this international clientele.”

The Electronic Commerce Ordinance was passed on March 5, 2001 by the Gibraltar parliament, the House of Assembly, and was viewed as an important step in Gibraltar's development as an e-commerce hub to rival its nearest competitors, such as Guernsey, Malta and the Isle of Man.

The legislation facilitated the use of electronic means for transmitting and storing information and afforded legal recognition to transactions undertaken electronically. It also provided a framework for the accreditation of electronic signatures, and determines the activities and liability of service providers.

As part of the EU, Gibraltar is of course subject to the developing body of EU law that impacts on e-commerce. There is already a fair amount of this, but the most important parts are the Electronic Signatures Directive and the 'E-Europe' Directive to establish a coherent legal framework for e-commerce development within the Single Market. The Electronic Signatures Directive 1999/93/EC on a Community framework for electronic signatures was approved on 13th December 1999. The E-Europe Directive was finally approved on 4th May 2000.

In April 2004 the Gibraltar government established a new E-Business Advisory Council, calling it a step towards the creation of an e-commerce centre for both local and international traders in the export business.

Trade Industry and Communications Minister Joe Holliday, who was appointed as chair of the council, commented that: “Above all we want to avoid cumbersome decision-making…the sort of thing that could happen if members of this council, or the other advisory councils, had to refer back to their representative bodies each time a decision had to be made”.

Gibraltar's main achievements in e-commerce so far have been in the betting and financial derivatives sectors, where a number of British companies have re-located to take advantage of high-quality telecommunications and Internet support from the local operators, and low taxation.

In May 1999, Victor Chandler sent shock waves through the betting industry by becoming the first big-name bookie to open an offshore service for UK clients. With an annual turnover of about USD1bn, the firm claimed to be responsible for about a quarter of Gibraltar's GDP.

It did not take long for others to join the offshore revolution and Chandler's arch-rivals Ladbroke and Coral also established substantial operations in the territory, while William Hill moved its telebetting business to the Rock in 2010 because, according to the company, the UK's tax regime makes it "impossible" for the company to compete with offshore telebetting firms on an equal footing.

Gibraltar is now host to the world’s largest listed online gaming business when, last year, industry giants PartyGaming and bwin merged to create a Societas Europaea (European joint stock company) incorporated in the jurisdiction.

Bwin co-Chief Executive Officer, Norbert Teufelberger said at the time that combining the business “makes great strategic, operational and financial sense”.

“We will be in pole position to capitalize on the wealth of opportunities that will flow from the continued evolution and expansion of the global online gaming industry,” he remarked.

However, in May, 2004, Gibraltar showed that its e-commerce prowess wasn't limited to betting, when leading London-based independent trading firm Mac Futures significantly expanded its presence in the jurisdiction of Gibraltar with the opening of a new 100-desk trading facility by Chief Minister Peter Caruana.

In June, 2005, the Government of Gibraltar issued a detailed consultation paper, including draft legislation for a Bill for a Gambling Ordinance, with the aim of modernizing the existing gaming legal framework, and creating a statutory licensing and regulatory framework, in the light of Gibraltar’s status as a leading jurisdiction for on-line gaming.

Gibraltar's advantages are her position in the EU, both geographically and structurally, an established base of professionals, good telecommunications, excellent port facilities and very low taxes. However, there is one fly in the ointment in the form of Spain, and if the centuries-old row over the territory’s sovereignty could be finally resolved, Gibraltar could function as a tax-efficient e-commerce gateway to Spain and the rest of the EU beyond for physical goods as well as digital ones. As things are, Gibraltar has to give preference to digital products, including financial services, in which the competition is strongest.


Guernsey encourages information technology operations, in line with its general strategy of increasing the sophistication and capital intensity of business operations on a small island where resources are already very strained.

In September, 2000, Guernsey's Board Of Industry unveiled its e-commerce strategy. The establishment of an e-department within the Board of Industry to develop e-commerce strategy was unveiled, and as part of an initiative to attract new e-commerce firms, it was announced that the island was developing a "welcoming" regulatory environment for web-based companies. To facilitate this, the government introduced a new law governing electronic transactions.

As with other offshore jurisdictions, Guernsey’s low taxation is also a major advantage. In Guernsey, there is no general capital gains tax, capital transfer tax, purchase or sales tax or VAT, and corporate income tax is 0%, except for companies regulated by the Guernsey Financial Services Commission, which pay 10%.

Parallel to the launch of many e-commerce operations on Guernsey itself, one of the most important e-commerce developments in the jurisdiction has been on its subsidiary island of Alderney, which has developed a specific regime for Internet betting.

In May 2000 the States of Alderney established an independent, non-political, commission, the Alderney Gambling Control Commission, to take over the regulation of the licensed businesses from the Island's Policy and Finance Committee. The Commission has built upon and developed the policy of ensuring its regulatory and supervisory approach meet the very highest international standards.

A new licensing framework which will enable Alderney to offer a wider range of options to prospective e-gambling businesses that are looking to become licensed in Alderney, came into force on January 1, 2010, increasing the territory’s reputation as a leading e-gambling jurisdiction.

In a statement on January 18, the Alderney Gambling Control Commission said: “The … introduction of Alderney’s revolutionary new licensing framework … is already proving to be a great success and marks the start of a new era in the world of online gambling regulation.”

“Building on its reputation as the leading e-gambling jurisdiction, Alderney has stolen a march on its rivals by revamping its licensing framework to reflect not only the changing dynamics of the eGambling industry but also the new regulatory environment unfolding in Europe and further afield. Based on a modular system, where operators need only choose the parts they require to fit their business model, the new scheme has reduced costs for many and cemented Alderney’s reputation as the lowest cost jurisdiction in Europe.”

According to the Commission, the new Category 1 license was introduced to cater for the increasing number of operators outsourcing gaming and gambling activities. The license authorizes the organization of gambling operations, namely the registration and verification of players, the contractual relationship with them, and the management of player funds. Under the new system, a Category 1 license can be granted in as little as four to six weeks. The Category 2 license was created to satisfy growth in business-to-business services, and authorizes the operational management of a gambling platform located within an approved hosting center.

A third major change has been the introduction of a system which can recognize and license equipment located outside of the jurisdiction – a move which meets technical requirements such as resilience and performance issues, in game betting products, live feeds, the rise in globally based gaming platforms, and the advent of cloud computing.

Guernsey has also detailed plans for the creation of a technology park in Alderney, which will continue to bolster Alderney’s prowess as a place for the e-gaming industry to establish operations.

Commenting on the plan, Robin Le Prevost, the director of e-commerce development for Alderney said the new GBP250m development would assert the islands' position at the forefront of the industry and provide security of technical capacity for many years to come.

“It is a wonderful development for Alderney and Guernsey and a substantial addition to the islands’ existing technical resources. The island has developed an innovative licensing package which is offering increased value to potential businesses which choose to register in Alderney.”

“The technology park further enhances our excellent technical infrastructure and cements our reputation as a world leader in e-gaming,” Le Prevost concluded.

Charles Billson, the chairman of developers Long Port, believes that the Guernsey Technology Park’s connectivity and resilience will be second to none being halfway between London and Paris, and connected to the transatlantic and global optical fibre grids.

Isle of Man

The Isle of Man's first Director of E-Commerce took office in late September 2000, with responsibility for co-ordinating the development, promotion and implementation of an e-commerce strategy for the island.

The Isle of Man's advantages are its position in the EU, both geographically and structurally, an established base of professionals, liberal legislation, good telecommunications and the Ronaldsway Freeport. Another obvious advantage is its low taxation, with corporate tax set at 0% for most companies, except those receiving income from banking business or from land and property, which pay 10%.

In June 2001, the government's e-commerce division published a report which set out in detail the Island's approach to becoming one of the world's leading e-commerce centres and most advanced 'e-societies'. Entitled 'The E-Commerce and E-Society Strategy Report,' it obtained the approval of Tynwald (the Isle of Man parliament) and was actively promoted by the government.

As part of the Isle of Man Electronic Transactions Act, which received Royal Assent in June 2000 and was effective from November 2000, electronic transactions are given equality with paper ones under the law and electronic signatures are given parity with written ones, with a provision for a system of Certification Service Providers to verify the authenticity of communications.

During 2001, the Department of Home Affairs progressed first the primary and then the secondary legislation to legalise the operation, from the Isle of Man, of well regulated on-line gambling sites. The primary legislation, the On-line Gambling Regulation Act, came into force in May of that year.

The 2001 Online Gambling Regulation Act was quick to attract licence applications, and the island attracted the cream of the online gambling firms, including Littlewoods, MGM Mirage and SunOnline (whose Casino Atlantis online was later bought by Kerzner International).

However, after this initial success, the Isle of Man saw a steady exodus of prominent online gambling firms in 2003, a situation that many in the industry blamed on an inflexible regulatory environment.

Whilst a lack of access to the potentially large US market (where online gambling is technically illegal) hampered growth in the industry, some observers have cited the Isle of Man's 'tier one' regulatory status as one of the most crucial factors behind the industry's decline in the jurisdiction.

Rules such as anti-money laundering regulations, which only permitted customers to withdraw money via the same method as they had deposited it, were cited as one example of over-regulation in the Isle of Man, and Derek Cannon, the Manx Gaming Inspector conceded that the creation of an online gambling licence had been "a very sharp learning curve”.

By May, 2004, it was becoming clear that changes in the regulatory structure of the e-gaming sector in the Isle of Man were being successful in attracting some big name players to the jurisdiction. “The recent reduction in our licensing fee together with revisions that allow peer-to-peer gaming and pooled jackpots have removed significant barriers to e-gaming business,” observed then Trade and Industry Minister Alex Downie, according to IoM Online, who added:

“These changes, based on feedback from the industry, will allow the Island to offer a much more attractive proposition for those e-gaming enterprises looking for an offshore location for their business and headquarters.”

A recent innovation has been the launch of a new Network Services Licence for business-to-business e-Gaming operators, announced in July 2011.

The Network Services Licence is a new level of licence available under the existing Online Gambling Regulation Act 2001 (OGRA) and is designed to recognize the business-to-business relationships that many gaming operators now have. The licence aims to provide Isle of Man-based gaming operations the opportunity to make their platform available to business customers around the world.

The cost of the new licence is GBP50,000 (USD82,000) per year plus GBP5,000 per overseas customer. Duty will be paid on retained profit at a maximum rate of 1.5%.

It is anticipated that this new business model will not only attract new and larger businesses into the Isle of Man but will also increase opportunities for those businesses already based on the island to develop relationships with companies across the globe.


Malta's economic policy encourages information technology operations, and the territory has invested heavily in state-of-the-art telecommunications. There are already a number of Internet Service Providers in Malta, with clear interest being shown in continuing offshore e-commerce development.

This was confirmed in 2008 by the European Commission, which recognized the jurisdiction as "well advanced in information society, with many benchmarking indicators significantly above the EU average." The Commission's study showed that Maltese businesses are the 4th best connected in Europe to broadband and Malta’s population is the 5th most covered by DSL coverage in the EU. The report also found that the proportion of Maltese employees with ICT skills is the 5th largest in Europe, and the ratio of ICT specialists in Malta is also ahead of the European average.

The Malta Communications Authority (MCA) announced in March, 2002, that it intended to act as a catalyst for e-commerce rather than a regulator in the initial period of development. Although e-commerce – together with telecommunications and the country's postal service – is one of the statutory areas under the competence of the MCA, the Authority revealed that during the developmental stages of the sector, its job would principally be to bring together the main players, provide advice and assistance, and explain the implications of new legislation as and when it was implemented.

The most active e-commerce sector in Malta has been betting and gaming and the country became the first EU member state to regulate internet gaming in May 2004 with its Remote Gaming Regulations under the Lotteries and Other Games Act 2001.

The e-gaming industry in Malta is regulated by the Lotteries and Gaming Authority, which was established in 2002 and is responsible for the governance of all gaming activities in Malta including casino gaming, commercial bingo games, commercial communication games, remote gaming, sports betting, the National Lottery and non-profit games. According to its mission statement, the Authority's role is to ensure that "gaming is fair and transparent to the players, preventing crime, corruption and money laundering and by protecting minor and vulnerable players."

In 2002 the Malta Lotteries and Gaming Authority put together the legislative framework for a new licensing regime which came into effect in early 2003. Said the Authority: “This framework has the objective of providing regulation which is strong and serious but not unnecessarily bureaucratic, ensuring vigorous protection for users of online gaming, and dovetailing with Malta's long-established and reputable financial services sector.”

A large number of companies from around the world expressed interest in Malta, including Stanley Leisure, William Hill, Ladbrokes, Paddy Power, Unibet, GC Sports, International Allsports, and Eurofootball and the jurisdiction has subsequently attracted more than 250 remote gaming companies and issued over 350 licences. These businesses employ about 5,200 people in Malta, and service around 10% of the world's internet gaming market. They generated tax revenues for the government of EUR26.9m in 2008 and EUR52.5m in 2009.

In Summary

An offshore e-commerce or e-business application can only succeed if it operates in an effective and well-organised environment, so a business proposing to transfer parts of its operations offshore needs to take a hard look at the key elements of infrastructure, both IT and otherwise, while choosing a suitable offshore jurisdiction.

While some types of support have to be provided locally, there is often a choice as to whether a particular aspect of support is sourced in the chosen offshore jurisdiction, or whether it is provided from a more sophisticated onshore environment or indeed, nowadays, from ‘the cloud’. Overall, the tax and regulatory advantages of moving offshore can often be compelling.



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