Malta E-Gaming Review 2013/14 – Tax

In the autumn of 2000 the Maltese government passed legislation enabling online betting centres to be set up in the country, and this legislation, coupled with provisions from the Income Tax Act written specifically for international companies, made Malta an attractive location for casino and sportsbook operations.

Malta 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.

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; in 2012, PokerStars launched Pokerstars.eu under the group’s new Maltese license.

Malta’s economic policy encourages information technology operations, and the territory has invested heavily in state-of-the-art telecommunications. With the e-gaming sector using an estimated 50 percent of Malta’s available bandwidth, there are now four high-capacity fibre-optic submarine cables linking the island with mainland Europe. As a result of this investment, there are already a number of Internet Service Providers in Malta, with clear interest being shown in continuing offshore e-commerce development.

The e-gaming industry in Malta is regulated by the Lotteries and Gaming Authority (LGA), 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 LGA put together the legislative framework for a new licensing regime encompassing online casinos, sports betting, betting exchanges and lotteries, 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.”

There are four classes of licence available to operators in Malta, as follows:

  • Class 1 – a remote gaming licence (e.g. casino type games, online lotteries) whereby operators manage their own risk on repetitive games. It is also possible to have a “Class 1 on 4” licence whereby the Class 1 licensee operates its games on the software and in certain cases through the equipment of a Class 4 licensee.
  • Class 2 – For operators managing their own risk on events based on a matchbook. Under this class operators can offer fixed odds betting.
  • Class 3 – For operators taking a commission from promoting and/or abetting betting games. This class includes peer-to-peer games, poker networks, betting exchanges and online lotteries. It is also possible to have a “Class 3 on 4” licence whereby the operator uses a Class 4 licensee to provide its platform.
  • Class 4 – To host and manage remote gaming operators, excluding the licensee themselves. This is intended for software vendors who want to provide management and hosting facilities on their gaming platform.

Licenses are granted for a period of five years and licensees must have the core part of their online operation physically located in Malta. A fee of EUR2,330 is payable on submission of a licensing application and an additional fee of EUR8,500 is due once the licence is issued. There is also a EUR1,500 licence renewal fee.

The rate of income tax in Malta is 35 percent on chargeable income (certain types of company benefit from lower rates). Malta imposes income tax on the world-wide income of companies resident in the country; this includes all companies incorporated or registered under any Maltese law if they are ordinarily resident, and any foreign company which is managed and controlled from Malta. However, by virtue of Malta’s tax imputation system, when dividends are paid by trading companies to the shareholders, these shareholders are entitled to claim refunds of 6/7ths of the Malta tax paid by the company, resulting in an effective Maltese tax rate of 5 percent. Distributions made from profits derived from passive income such as interest and royalties, entitle the shareholder to claim 5/7ths of the tax paid by the company.

Online gaming companies are also subject to a special tax regime, and the amount due depends on the type of licence held. Class 1 licence holders pay EUR4,660 for the first six months, then EUR7,000 per month thereafter; Class 2 firms involved in fixed odds betting pay a 0.5 percent tax on the gross amount of bets accepted; Class 3 licence holders pay a 5 percent tax on real income; and Class 4 licence holders pay no tax in the first six months of operations, then EUR2,330 per month for the following six months, and EUR4,460 per month thereafter. The maximum amount of tax payable annually in respect of any one licence is EUR466,000.  

Malta’s heavy investment in the remote gambling sector and the infrastructure upon which it depends has certainly paid off. Since the Lotteries and Other Games Act 2001 was put in place, the number of licensed operators has grown from 12 to almost 250, and the number of online gaming licenses reached the 425 mark in 2012. In the last months of 2012, the LGA received 60 new applications for remote gaming and a large number of requests relating to Digital Games with Prize. In total, these companies employ over 5,000 people in Malta, with a further 3,000 in the servicing industry including telecom operators, data centre operators, lawyers, auditors, and banking and payment institution staff. Having grown year-on-year, the industry now contributes one-tenth of the country’s gross domestic product.

The LGA says that the inclusion of the gaming sector in the Highly Qualified Persons tax rules towards the end of 2011 is also having a positive impact on the industry in Malta. Under this scheme, individual income from a qualifying contract of employment is subject to tax at a flat rate of 15 percent. To qualify for this special rate of tax, the individual’s annual salary must be at least EUR75,000. The 15 percent flat rate is imposed up to a maximum income of EUR5m.

According to the LGA, thanks to the Highly Qualified Persons scheme, existing gaming licensees are moving more highly specialised functions to Malta, whilst a number of the larger European Tier 1 operators which were established and licensed in other jurisdictions have either relocated or are in the process of relocating to Malta. As a result, in 2013, nearly all of the top European operators are licensed and operating from Malta. The LGA has said that Malta is also starting to move into more high-knowledge and high value added territories, a trend that is expected to increase with more operators choosing Malta as a base for some or all of their operations.

Malta has been a member of the European Union since 2004, and the country’s EU membership has undoubtedly been beneficial for the local economy as companies seek a low-tax base from which to trade within the Union. EU membership also means that gaming operators registered in Malta do not face the difficulties that some offshore operators face with exchange controls and access to capital markets.

However, recently, the future existence of Malta’s highly successful gaming sector was put in jeopardy as the European Commission pondered the regulation of the sector at EU level. But Malta has been fighting its corner with much vigour, urging the Commission to tackle discriminatory legislation in other Member States favouring domestic operators over those based in other EU countries, while opposing a 2011 Commission Green Paper that threatened to introduce a much more illiberal regime than that currently in place in the jurisdiction.

The primary aim of the Green Paper consultation was, according to the Commission, “to obtain a facts-based picture of the existing situation in the EU on-line gambling market and of the different national regulatory models.”

“The on-line gambling market in the EU continues to grow rapidly and generates important revenues that are sometimes channelled into good causes,” the Commission says. “Its expansion must go hand-in-hand with a determination to protect our citizens, especially minors, and to ensure that offers of these types of services within the EU are sound and well-regulated. It responds to calls from the European Parliament and the Member States for us to address these questions jointly. This consultation is not about liberalisation of the market, it is about ensuring that the market for on-line gambling services within the EU is well-regulated for all.”

In October 2012, the Commission completed its Green Paper with the publication of  “Towards a comprehensive European Framework for online gambling,” which proposed to enhance the safeguards in place to protect consumers, mitigate match-fixing and money laundering, and challenge member states’ regimes that infringe EU law.

However, EU-level regulation seems to have been taken off the table by the Commission after it issued a statement on November 20, 2013 calling on Member States to comply with EU law when regulating gambling, particularly the fundamental freedoms of the Treaty on the Functioning of the EU. The Commission requested that seven Member States bring their gambling regulations into line with EU law, but Malta was not named as one of them. The LGA plans to continue assisting the Maltese Government as it engages with the EU on the issue of remote gaming regulation.

In summary, the LGA puts the success of Malta’s gaming sector down to the flexibility of its regulations, Malta’s favourable tax system and the regulator’s own determination to stay ahead of the competition.

“First in their kind, these regulations find the balance between effective regulation that properly protects players, a tax regime that allows the industry to expand and a flexible strategy that approaches the future of gaming in an innovative and responsible way,” says the LGA in its Remote Gaming Update 2013. “This is the reason behind Malta’s attractiveness, but in true LGA style, we will not be stopping there. LGA will revisit its licensing regime, making sure it is small-business friendly. We will ensure the Remote Gaming Regulations are mobile and social media game friendly. Or else we’ll create a separate regime.”

Malta’s e-gaming sector can therefore look to the future with much confidence.

Article source: http://www.tax-news.com/features/Malta_EGaming_Review_201314___571155.html

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