Online gambling industry has been on the rise over the recent years and a number of particular jurisdictions have lured the attention of online operators as appropriate locations to establish their headquarters, because of the light tax regimes these jurisdictions have introduced.
In the current article we are going to provide an overview of taxation in regard to online gaming industry at locations such as Malta, Gibraltar, Alderney, Isle of Man, Curacao, Costa Rica and Antigua and Barbuda.
Malta
The new set of Remote Gaming Regulations was introduced in the country in April 2004. The supervisory body, which is in charge of licence issuing in regard to remote gaming activities, is the Malta Gaming Authority. The latter regulates the entire spectrum of gaming activities – the national lottery, commercial bingo halls, casino-style games, advertising lotteries, cruise casinos, non-profit games, racecourse bets and sweepstakes and the remote gaming industry.
Malta Gaming Authority (MGA) also supervises the application process, which aims to determine if an applicant (operator) is fit and proper to be a part of the gaming business, if it has sound business planning and strategy and if it possesses the operational and statutory requirements to observe its obligations by law. Once the applicant has successfully passed the three stages of the process, it will be offered the opportunity to implement and test the operation on a technical environment before going live. The applicant is subject to a System Audit. Once the certification process is completed successfully, the MGA will issue a licence with a duration of five years. At the end of the term, it can be renewed.
Four types of licences are available, as an operator is able to apply for either or for all of them:
– Class 1 licence represents a remote gaming licence, which enables the operator to offer casino-style games and online lotteries, while managing its own risk. The minimum share capital, which is to be issued and fully paid by the licensee, is EUR 100 000.
– Class 2 licence represents a remote betting licence, which enables the operator to offer fixed-odds betting and spread betting. The minimum share capital, which is to be issued and fully paid by the licensee, is EUR 100 000.
– Class 3 licence provides the operator with the opportunity to promote or abet remote gaming from Malta. Class 3 encompasses peer-to-peer gaming, pool betting, poker networks and game portals. The minimum share capital, which is to be issued and fully paid by the licensee, is EUR 40 000.
– Class 4 licence represents a Business to Business (B2B) gaming licence, which enables the operator to host and manage remote gaming operators (excluding the licensee itself). For example, software vendors, which develop platforms for gaming operators. The minimum share capital, which is to be issued and fully paid by the licensee, is EUR 40 000.
Corporation tax rate in Malta is 35%, but, however, through aggressive rebates the tax rate for non-resident shareholders could be reduced to 5%.
Operators with Class 1 licences are obligated to pay a fixed tax on gaming activities of EUR 4 600 a month during the first six months and EUR 7 000 a month for the remaining period of the licence. A Class 1 licensee, hosted on a platform in possession of a Class 4 Remote Gaming Licence (Class 1 on 4), is obligated to pay a fixed gaming tax of EUR 1 200 a month during the entire period of the licence.
Operators with Class 2 licences (including those hosted on a platform) are subject to a 0.5% tax rate of their gross amount of bets, accepted in remote betting activities.
Operators with Class 3 licences (including those hosted on a platform) are subject to a 5% tax rate of their real income.
Operators with Class 4 licences, hosting and managing other operators, do not have to pay a gaming tax during the first six months. However, they are subject to a fixed gaming tax of EUR 2 330 a month during the subsequent six months and EUR 4 660 a month during the remaining period of the license.
For every operator, which does not have Class 1, Class 2, Class 3 licences, but is in possession of an EU/EEA equivalent and uses the platform of a Class 4 licensee, the Class 4 licensee is to pay an additional fixed tax of EUR 1 165 a month.
The MGA imposes a remote gaming tax cap of EUR 466 000 per year for every licensee and for every remote gaming licence.
In addition, operators are required to pay an application fee for new licence of EUR 2 330 upon application; a licence fee of EUR 8 500 a year per licence and an application fee for renewal of licence of EUR 1 500 paid upon application.
Alderney
The supervisory body, which is in charge of licence issuing in regard to remote gaming activities, is the Alderney Gambling Control Commission. All licensees need to be limited companies with a minimum share capital of GBP 2.00. They are subject to no corporation tax or additional gaming taxes, but are required to pay licence and renewal fees.
Two categories of remote gaming licences are available, as an operator is able to apply for either of both of them:
– Category 1 licence (B2C licence), which authorises the company and the preparation of gambling operations, such as the registration and verification of players, the contractual relationship with players, and the management of players’ funds;
– Category 2 licence (B2B licence), which authorises the effecting of the gambling transaction, including operational management of a gambling platform located within an approved hosting centre.
All licences have a duration of 12 months.
An operator, which does not have any previous licensed activity in Alderney as a Category 1 remote gaming licensee, is required to pay a fee of GBP 17 500 during its first year of operations.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield less than GBP 500 000 is required to pay a fee of GBP 35 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield between GBP 500 000 and GBP 1 000 000 is required to pay a fee of GBP 60 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield between GBP 1 000 000 and GBP 5 000 000 is required to pay a fee of GBP 80 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield between GBP 5 000 000 and GBP 7 500 000 is required to pay a fee of GBP 130 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield between GBP 7 500 000 and GBP 20 000 000 is required to pay a fee of GBP 200 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield between GBP 20 000 000 and GBP 30 000 000 is required to pay a fee of GBP 290 000 for licence renewal.
An operator (Category 1 remote gaming licensee) with annualised net gaming yield of GBP 30 000 000 or higher is required to pay a fee of GBP 400 000 for licence renewal.
All Category 1 remote gaming licensees are required to pay an annual gambling business association fee of GBP 3 000 per gambling business associate.
An operator, which does not have any previous licensed activity in Alderney as a Category 2 remote gaming licensee, is required to pay a fee of GBP 17 500 during its first year of operations.
An operator (Category 2 remote gaming licensee), regardless of its annualised net gaming yield, is required to pay a fee of GBP 35 000 for licence renewal.
An operator with a temporary remote gaming licence is required to pay an annual licence fee of GBP 10 000.
Gibraltar
All operators with the intention to offer remote gaming activities are subject to licensing under the Gambling Act 2005. Licences for all remote gambling operations are issued by the Gibraltar Betting and Gaming Association (GBGA). The latter is to make sure that all licensees conduct their operations in unison with their licences and preserve the good reputation of the British Overseas Territory.
As from April 1st 2005, fixed-odds betting operators are required to pay a 1% gaming tax of their annual turnover. Betting exchanges are subject to the same taxation. Online casino operators are required to pay a 1% gaming tax of their gaming yield or gross profit.
The conveniently low gaming tax rate has turned Gibraltar into a preferred location by online gambling companies to establish their headquarters. However, this status quo was changed, as the UK Gambling Commission introduced a new Gambling (Licensing and Advertising Act) in 2014. Under the latter, all online gambling operators in the UK are obligated to acquire a licence from the UK Gambling Commission and pay a 15% point-of-consumption tax, so that they could offer services to gamblers based in the UK.
The Gibraltar Betting and Gaming Association challenged the implementation of the new online gambling legislation, but, however, that challenge has been rejected. The conclusion by the High Court Lord Justice Nicholas Green was that the Gibraltar Betting and Gaming Association ”has not established that the new regime is unlawful under [European Union]
or domestic law.” In addition, GBGA’s ”passporting plan”, which envisaged reputable regulators such as the GBGA to be responsible for licensing their own remote gambling operators and to share information with the UK Gambling Commission, has been rejected as well.
Isle of Man
Remote gaming activities in the Isle of Man were authorized by the Electronic Transactions Act of 2000 and the Online Gambling Regulation Act of 2001. The regulatory body in charge of remote gambling operator licensing and supervision is the Gambling Supervision Commission.
Three types of remote gaming licences are to be obtained by operators:
– Full OGRA Licence, which is required for all of the following remote gaming activities – betting exchanges, pari-mutuel and pool betting, mobile phone betting, peer-to-peer gaming, sportsbooks, live dealer gaming, casino-style gaming;
– Sub-Licence, required for operators, which have a contract with a technology provider in possession of a full OGRA Licence;
– Isle of Man Network Licence.
All licences have a duration period of 5 years.
There are online gambling activities, which are not subject to licensing. These include UK or Isle of Man National Lottery; gambling activities which are covered by a betting office licence; spread betting; gambling activities which are covered by a casino licence; gambling activities which are outlined by the Insurance Act of 1986; games which require pure skill; free-play games.
Operators having either of the three types of licences are required to pay a GBP 5 000 administration fee upon initial application. Operators with a full licence are required to pay an annual fee of GBP 35 000, while operators with a sub-licence – an annual fee of GBP 5 000. Operators with a network licence are subject to an annual fee of GBP 50 000 and an additional GBP 5 000 fee for every network partner.
Operators with a full licence and a gross gaming yield not exceeding GBP 20 million annually are required to pay a 1.5% duty.
Operators with a full licence and a gross gaming yield of more than GBP 20 million, but not exceeding GBP 40 million annually are required to pay a 0.5% duty.
Operators with a full licence and a gross gaming yield exceeding GBP 40 million annually are required to pay a 0.1% duty.
Operators with a full licence and gross gaming yield from pool betting are required to pay a 15% duty.
All duties are due on the retained element of gross gaming yield on the territory of Isle of Man.
The corporation tax rate in the Isle of Man is 0%, only if the remote gaming company does not accept wagers from residents of the British Crown dependency.
In early 2010 there have been changes to gambling regulation framework in the Isle of Man, according to which remote gambling companies are allowed to carry out or host activities which are not related with gambling (marketing, software development, disaster recovery) without a licence under the Online Gambling Regulation Act of 2001.
Curacao
The island nation has been in the remote gambling industry since 1996. The regulatory body of remote gambling industry is the Curacao Internet Gaming Commission, established in 2001 and having under control a portfolio of approximately 30 operators.
In Curacao there are two formats of licensing – a master licence, which encompasses betting exchanges, online casino-style gaming, live dealer gaming, sportsbooks, peer-to-peer gaming, mobile gaming, pari-mutuel and pool betting, lotteries, bingo, network gaming; and a sub-licence. The master licence, in fact, licenses the online gambling operator and grants it the opportunity to sub-license third parties. The sub-licence grants the same rights to legitimately operate a remote gambling company, but there is no opportunity to sub-license others. The master licence has a duration period of five years and is renewed automatically. The sub-licence has an indefinite duration period, in case the master licence is valid.
In Curacao operators are subject to a 2% corporation tax of their Net Profit and 0% tax on Gross Bets. At the same time, dividend withdrawals are unrestricted and charge no import duties, sales tax and VAT. There is also no additional gaming tax.
If an operator is to obtain an online gambling licence, it needs to be registered under the Netherlands Antilles Chamber of Commerce as a legal entity onshore or offshore. The next step is an investigation by the Curacao Department of Justice. The operator is then required to make a deposit of approximately USD 35 000 (ANG 60 000) and will be charged a monthly fee of approximately USD 5 600 (ANG 10 000) for a period of two years. The fee is negotiable after every two years.
Costa Rica
Regardless of the fact that more than 300 remote gambling companies have had their headquarters based in Costa Rica over the years, still no specific legal framework to regulate the online gaming industry is introduced. However, online gambling remains prohibited for Costa Rica residents.
Due to the lack of institutionalized regulation and monitoring of remote gambling operations as well as licence holder recognition in the country, a number of online gambling operators have introduced some form of self-regulation.
All online gambling operators run their business under the so called ”data processing” licence. If a company is to obtain such a licence, it needs to operate within sectors such as Internet Administration or Network Administration and needs to have an offshore merchant account opened, so that it could process its business transactions. There is no requirement in regard to the minimum share capital, but at least 25% of the capital issued is to be paid, when incorporation takes place.
No gaming tax or betting tax are imposed on online gambling operators. However, revenue generated on the territory of Costa Rica is subject to taxation by the local authorities. Revenue earned from sources abroad is not subject to taxation. Operators are required to pay a permanent licence fee of USD 5 000, while if they are to renew their licence, a fee of USD 5 000 is to be paid.
The Costa Rica government intended to set up a gaming control board in 2013 and draft plans for online gambling industry regulation were released by the Ministry of Finance. The plans featured an online gaming tax rate of 0.5% of Gross Income, purposed to support control board financing. In addition, a 5% tax rate was envisaged for the struggle against criminal activities. All online gambling operators would need to obtain licences with a six-year duration period and at a fee of USD 50 000 per annum.
As of yet, this tax regime has not been introduced in practice.
Antigua and Barbuda
Since it became independent in 1982, Antigua and Barbuda has been practicing a tradition of the English Common Law. The Amendments to the International Business Corporations Act in 1984 and 1985 have turned the twin-island state of Antigua and Barbuda into a preferred jurisdiction for international banking.
The regulatory body in charge of licensing and supervision of entities operating in the remote gambling sector is the Financial Services Regulatory Commission’s Division of Gaming (FSRC). In mid-2010 the FSRC and the Kahnawake Gaming Commission signed a Memorandum of Understanding (MOU), under which every online gambling operator in possession of a ”Primary License” in either jurisdiction is able to submit an application for an ”Inter-Jurisdictional Authorization” to the other. This way the holder of the ”Inter-Jurisdictional Authorization” has the right to be hosted in either of the two jurisdictions.
In Antigua and Barbuda, a corporation tax rate of 35% is applied to local business entities, but however, it is not applicable to international business corporations.
Online gambling operators are subject to a 3% tax on their Net Revenue, while the monthly tax cap is at USD 50 000. Costs for software licensing and software development are tax deductible, but they may not exceed 40% of Net Revenue.
All online gambling operators having their main server located in Antigua and Barbuda and who pay the above mentioned taxes are also subject to an annual fee of USD 75 000 for interactive gaming licences.
All online gambling operators having their main server located in Antigua and Barbuda and who pay the above mentioned taxes are subject to an annual fee of USD 50 000 for interactive betting licences.
The operators’ main servers should contain the financial history, the game history and the current liabilities of their customers, at a minimum.
Licences have a duration period of 1 year, while the fee for betting licence renewal is USD 5 000.
In addition, operators are required to pay a non-refundable application fee of USD 15 000.
Those operators, which require a monitoring system, are to pay a fee of USD 25 000 for a single licence and a fee of USD 45 000 for two licences.
