CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. Features
  3. Malta Review 2012-13: E-Gaming

Malta Review 2012-13: E-Gaming


By Tax-News.com Editorial
December 4, 2012


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.

According to the gaming regulator's most recently published annual report, by the end of 2009 Malta had attracted 330 remote gaming companies and processed over 500 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 EUR52.5m in 2009.

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 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:

  • Class1 - For operators managing their own risk on repetitive games. This class covers casino-type games.
  • 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.
  • 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.

In April 2012, the Lotteries and Gaming Authority announced the signing of three cooperation agreements with other regulators, the European Sports Security Association (ESSA), the sports integrity agency of global soccer association FIFA, and the Alcohol and Gaming Commission of Ontario, to strengthen its domestic oversight capabilities and contribute towards international enforcement efforts.

The aim of the ESSA Memorandum of Understanding (MoU) is to provide a framework to cooperate to avoid the manipulation of sports events and competitions, whereby the LGA in collaboration with its licensed operators will assist the ESSA in its reporting relationships with other international sporting associations. In practice, the ESSA, on the one hand, and LGA and its licensed betting operators, on the other, will cooperate to exchange betting-related information to assist the investigation of irregular betting patterns or insider betting connected with sporting events and competitions.

The MoU signed with FIFA relates to the soccer association's Early Warning System agency (EWS), with similar aims to that of the ESSA agreement. Under the agreement, the agency and the Maltese regulator will seek to avoid the manipulation of sports events and competitions by gamblers, whereby the LGA in collaboration with its licensed operators will provide the necessary assistance to ensure the effective workings of the EWS. The Maltese Regulator said of this MoU: “Such collaboration shall augment even further the existing deterrents and shall ensure that the possibility of achieving unfair winnings (a phenomenon which is particularly present with respect to unregulated betting activities) remains shut out of the regulated markets, such as that regulated by the LGA.”

The final MoU with the Alcohol and Gaming Commission of Ontario provides for the exchange of information on eligibility assessments of applications as well as compliance and regulatory assurance activities with respect to gaming. Both jurisdictions have also agreed to possible joint, cooperative and collaborative inspections, investigations and enforcement activities.

The amount of tax paid by online gaming companies located in Malta depends on the type of licence they hold: 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% tax on the gross amount of bets accepted; Class 3 licence holders pay a 5% 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. In 2011, application and annual licence fees are EUR2,330 and EUR8,500 respectively for all classes of licence.

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% 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. 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 ratio 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. These findings were confirmed by a study published by Oxford University in late 2010 which ranked Malta sixth in the world with regard to broadband quality.

The number of post-paid fixed line subscriptions bundles with other electronic services grew by 14.7%, or 10,309, in 2011, compared with 2010, according to the Malta Communications authority. The number of fixed broadband subscriptions and mobile broadband subscriptions also grew strongly in 2011; the number of fixed broadband subscriptions grew by 7,481 to 129,135, or 6.2% in 2011. Broadband speeds in Malta have also continued their steady increase; as at the end of 2011, just under 74% of all fixed line subscriptions were reported as having broadband speed greater than or equal to 4Mbps but less than 6Mbps. In absolute terms, the number of subscriptions reported under this category grew from 91,848 as at the end of 2010 to 95,290 as at the end of 2011, according to the MCA.

Moves to tax and regulate online gaming and gambling elsewhere in the European Union have been to the benefit of the industry in Malta in recent years. In mid-2007 it was reported that applications to the Maltese gaming regulator surged in the run up to the introduction of more stringent e-gaming regulations in the UK, with interest shown from the likes of Intercasino, William Hill, Littlewoods, Playboy Casino and Virgin Games. This was prompted by the UK former Labour government's announcement that only companies based in territories on its so-called 'white list' would be able to market their services in the UK from September 1, 2007, when the Gambling Act 2005 came into force.

It was estimated at the time that this could effectively ban one thousand firms from advertising in the UK. To gain a place on the UK white list, countries had to meet stringent new standards designed to stop children gambling, protect vulnerable people, keep games fair and deter crime. Countries in the European Economic Area (EEA), which includes Malta, were automatically accepted onto the white list.

It remains to be seen, however, how changes to the UK's remote gambling tax and licensing regime passed under the Conservative-led coalition government will affect e-gaming firms and the remote operations of traditional bookies.

Under the changes, the UK Gambling Act has been amended so that remote gambling is regulated on a point of consumption basis, and all operators, whether from the UK or abroad, will be required to hold a Gambling Commission licence to enable them to transact with British consumers. Importantly, the tax regime for remote gambling has also been shifted, so that operators are taxed on the basis of customer location.

Following the departure of several UK gambling companies to offshore locations such as Malta and Gibraltar in recent years, lured by significantly lower taxes, the government has estimated that 90% of online gambling services are now supplied to the UK market from overseas territories. "The current taxation regime for remote gambling has allowed operators to avoid paying UK gambling duties by basing their operations abroad," the Treasury said at Budget time in March 2012. "To broaden the tax base and provide a fairer basis for competition between UK and overseas remote gambling operators, Budget 2012 announces that the government will move to a tax regime that ensures operators anywhere in the world pay gambling duties on gross profits generated from customers based in the UK. This is in line with the actions of several other European countries."

A less favourable fiscal and legal environment in the UK, the EU’s largest gambling market, is one thing. But regulatory developments in Brussels pose a greater threat to Malta’s internet gambling pre-eminence in the future.

In June 2010, Malta disagreed with the conclusions of an EU Competitiveness Council meeting which adopted a definition of illegal gambling as: "gambling in which operators do not comply with the national law of the country where services are offered, provided those national laws are in compliance with EU treaty principles". Having taken note of some recent European Court of Justice rulings that apparently support attempts to restrict Europe-wide regulation in favour of local monopolies, and of national legislation which appears to contravene the principles of the freedom of services, such as that now in force in France, Malta fears that it may suffer if a new, illiberal regime is voted through based on a Green Paper published by the European Commission on March 24, 2011. The Maltese government said that the Competitiveness Council's definition does not properly take into account that Malta has a very advanced regulatory regime in full compliance with EU legislation.

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 proposes to enhance the safeguards in place to protect consumers, mitigate match-fixing and money laundering, and challenge member states' regimes that infringe EU law.

The Green Paper proposes:

  • Formalizing the exchange of information and cooperation between European gambling regulators by 2013;
  • Centralizing enforcement against non-compliant operators and fraudulent users at EU level, using enhanced measures, such as payment blocking and disabling access to websites;
  • Adopting recommendations on common protection of consumers and on responsible gambling advertising in 2013;
  • Extending the scope of the Anti-Money Laundering Directive to all forms of gambling in 2012;
  • Promoting expertise exchange between regulators against cybercrime;
  • Exploration of the possibility of an EU standard on gambling equipment including gambling software in 2013; and,
  • The adoption of a recommendation on best practices in the prevention and combating of betting-related match fixing in 2013, which would include promoting cooperation and dialogue at an international level on the topic.

So, while its inclination is usually towards liberalizing markets, Brussels seems to be leaning towards a level playing field in regulation, rather than liberalization, of internet gaming in the EU. This could have serious implications for the future of one of Malta's biggest industries.

Clearly then, there are developments to be watched with regard to e-gaming regulation in the EU in the coming years.

 

Tags: Malta | gambling | tax | services | regulation | legislation | internet | compliance | law | enforcement | interest | offshore | European Commission | business | licensing | e-commerce | France | Gibraltar | financial services | fees | environment

 

 

Back to Features

















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »