I-Gaming. June 2010 TAX

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1 I-Gaming June 2010 TAX

2 Why Malta? Malta The domicile of choice for the remote gaming industry General considerations EU member state. In the Euro zone. A stable democratic, political and economic climate. The World Economic Forum s Competitiveness Index ranked Malta 34 th (out of 134 countries) for financial market sophistication, with a banking system the 10 th soundest in the world. United Nations Conference on Trade and Development s World Investment Report 2008 ranked Malta in the 4 th place globally for inward investment. GDP growth in 2008 was 2.4% and 2% in Real GDP is expected to increase by 0.5% during An attractive corporate tax regime, sanctioned by the EU Commission. Extensive and growing double taxation treaty network. Malta is a fully-fledged EU member state as contrasted with Alderney and Gibraltar. High quality of life. English is the business language as well as an official language. Good air links. Excellent hotel and meeting facilities. Well-educated work force. The i-gaming industry contributes significantly to Malta s GDP: its contribution to the Maltese government in terms of gaming duties collected, excluding corporate tax, income tax, national insurance contribution, and indirect taxes, increased by 53.3% in 2009 over The Maltese government is committed to encourage and develop the industry. Industry specific facts: Malta currently hosts over 335 licencees held by some 250 operators; this corresponds to approximately 10% of the world s i-gaming operators Malta was one of the first countries in the World and the first EU member state to enact a dedicated online gaming law. Due to its competitive i-gaming regulatory environment Malta is increasingly being used as a base to tap into EU gaming markets. Gaming regulations do not impose any territorial restrictions: gaming companies are free to take wagers from any jurisdiction. A licence may be obtained for any form of interactive game offered through any means of distance communication. The gaming regulations are both game and technology neutral. Gaming taxes and licensing fees are very competitive. 2

3 The Lotteries and Gaming Authority (LGA) is the single regulatory body that is responsible for the governance of all gaming activities in Malta. The LGA is accessible, forwardlooking and adopts a pro-business approach. The regulator is robust but flexible and minimally intrusive. Regulations strike a balance between ensuring the protection of players and providing a competitive and workable regulatory framework for operators. The licensing process is personalised and relatively inexpensive; the LGA is committed to ensure an efficient application process turnaround. The LGA encourages the concept of responsible gaming. The LGA received the Best Online Regulation Jurisdiction Award by Business Britain Magazine in 2005, 2006 and 2007 and the Best Regulator Award by the On-line Gaming Law Report Journal in The LGA and the Maltese government s position has long been clear: a position that advocates the free movement of gaming services across EU member states without limitation. The LGA has been active and supportive in defending the right of Maltese licensed remote gaming companies to operate across European borders. IT infrastructure supporting the gaming industry Malta s telecommunications infrastructure delivers round the clock internet connectivity through four submarine cables links connecting Malta to mainland Europe. Availability of high quality colocation, hosting and telecom services specialised in the gaming industry. Malta boasts the presence of industry support services such as online payment processors and gaming software developers and platform providers. Malta has been chosen as the location for the construction of a Smart City, an ICT centre, on the lines of the current set up in Dubai, attracting the most important technology firms wishes to set up head offices in the Euro-Med region. 3

4 Other support services A well-regulated financial services industry, with a sound banking sector composed of solid Maltese and major international banks. Major local banks process online gaming transactions. Wealth of high grade, skilled and multilingual workforce. By European standards, the cost of labour is reasonable. A number of recruitment agencies specialised in the area of i-gaming. Malta boasts a high level of graduates in the field of ICT, including a sizeable skilled workforce trained in game risk management and odds compilation. Well-established legal and accounting community. Malta s legal system is a civil law system, but commercial law is primarily based on English law. The legal framework is therefore flexible, versatile and able to integrate and relate to various legal systems. Malta s legal framework is in line with EU law. The possibility of re-domiciling or continuing companies into and out of Malta without the need of liquidation. International Financial Reporting Standards (IFRS) applicable since Major international service providers are present in Malta. Availability of top end office space for rental at cheaper prices than the rest of Europe. Getting to Malta takes2 to 3 hours from most European cities, with direct daily links to major European cities. 4

5 Background on the gaming industry and Malta Since the enactment of the Remote Gaming Regulations in 2004, Malta has become the domicile of choice for I-gaming industry players and is home to some of the world s leading operators. I-gaming has been available for a number of years, but the industry only experienced exponential growth in the last decade. As it became evident to operators that players were after well-regulated and trusted gaming sites that promoted responsible gaming, supervision and control passed on to state regulators to ensure common regulatory standards amongst operators. Increasingly, gaming operators sought to have their operations regulated to the trust and peace of mind of their players. Malta was quick to recognise that the success of the gaming industry is based on the trust that players place on operators licensed by it and came up with a system of certification of the control system that complies with the highest benchmarks for the industry. Regulations require adherence to procedures relating to the control systems and financial protection of players thereby ensuring that operators work in an environment which enhances the trust of players. At the same time Government was sensitive to rolling out a system which would prove competitive from cost point of view and so curtailed compliance costs for operators. Malta has since been recognised as Europe s leading remote gaming jurisdiction in terms of legislation and governance. An ever increasing number of gaming operators with a Maltese gaming licence, such as: Betfair Media Live Casino William Hill Betsson Unibet Stanley Bet Expekt Interwetten Littlewoods Poker Malta is also an attractive location for gaming software developers hosting some 25 licensed platform providers including: Microgaming Chartwell Net Entertainment Greentube Cryptologic Entraction Malta has over the years gained a reputation for ICT excellence. ICT industry giants have established in Malta: Oracle, HP and Microsoft. 5

6 Testimonials from key industry players Malta is strongly regulated and has a strong reputation throughout Europe, broadly speaking the legislation fits well with Betfair the online space is changing so rapidly, as are technology and requirements that it is important the legislation is reviewed on a regular basis. Our experience is where we ve felt that the regulations don t support the particular business model, we have received flexibility and a common sense, pragmatic approach. It is very important that they take that approach. Tim Edwards, International Operations Director, Betfair, Country Profiler 2010, E-Gaming Malta Stable and reputable jurisdiction for the online gaming industry Sound yet flexible regulatory framework in line with main EU principles IT infrastructure and services meeting business needs People- skilled, qualified and mutilingual Per Widerstorm, ex-ceo and Director Mangas Gaming Malta Limited, in his speech on Expekt s Malta Story, MIG 09, Le Meridien, 8 October 2009 tinterwetten came o Malta due to the country s excellent regulatory environment. Apart from a strict focus on industry best practices, the licensing procedures emphasize player protection and responsible gaming procedures. Both issues are very important to the Interwetten Group in particular, and the European market in general. We are proud to say that the Maltese gaming license has become a trademark within the international industry. Serious operators do appreciate the Lotteries and Gaming Authority s high demands concerning online gaming. Even after the license is issued, operators are obliged to liaise closely with the Authority and obtain approval for any changes to the licensed operations. In the online business, Malta clearly set excellent standards Wolfgang Fabian, CEO, Interwetten, Country Profiler 2010, E-Gaming Malta We are not a licensing jurisdiction, neither are we a gaming haven. The operators we license have a physical presence in Malta and most opt to have Malteseregistered companies. It is not about numbers but the quality of the operators. Our numbers continue to grow because we have the quality, the main reason operators seek to coma to Malta is that they want to be regulated by a serious authority. Comments by Reuben Portanier, LGA CEO, Prospects for i-gaming growth encouraging Times of Malta, 17th January

7 Regulatory framework The Remote Gaming Regulations 2004, administered by the LGA, provide a comprehensive legal framework to regulate Maltese remote gaming operators and provide a secure on-line environment to players. The objectives of the regulations are built around 3 pillars: protecting minors and vulnerable persons; keeping gaming free from crime and money laundering; seeing that gaming is delivered in a fair way. Malta s gaming regulations are comprehensive and forward-looking. They regulate any and all types of providers including casino-style games, poker, sports betting, betting exchanges, P2P, skins and lotteries, through all types of technological media including the internet, mobile, telephone and fax. Classes of Remote Gaming Licences In order to provide remote gaming services from Malta, one needs to obtain any one or more of the following classes of licences, depending on the nature of gaming operations to be undertaken, must be obtained: Class 1 Class 1 stand alone licensee Class 1 on 4 licensee For operators who partake in the gaming risk based on repetitive events. This class includes online casinos and lotteries For operators offering all types of games of change and games of skill operating on an existing Class 4 licensee Class 2 For operators who partake in the gaming risk based on a singular event using markets. This class includes fixed odds betting, pool betting and spread betting Class 3 Class 3 stand alone licensee For operators who promote gaming in return for a commission. This class includes P2P, poker rooms, game portals, bingo and betting exchange providers Class 3 on 4 licensee For operators who promote gaming in return for a commission on an existing Class 4 licensee Class 4 No licence Mere notification to the LGA For operators who run a software platform to host and manage the gaming operations of licensees in return for a commission without partaking in any gaming risk For intermediaries, such as betting agents, skins, affiliates and white labels who channel players to licensees and allow player and games management to be carried out by the licensee 7

8 Licence application process Stage 1 Fit & Proper Test Business Plan Review Stage 2 Business & Technical Ability Test Stage 3 Compliance Systems Review LGA conducts fit and proper exercise on the applicant, each qualifying shareholder and key management personnel as well as a financial analysis of the business plan. Applicants must show a business and technical ability to carry out the operation and demonstrate that the operation is covered by sufficient reserves and can ensure the payment of player winnings and deposit returns. First Stage Documentation Fully completed Application form Personal Declaration Form for each qualifying shareholder / key management personnel, including: A true copy of the birth certificate A true copy of the passport Passport size photo A conduct certificate Statement of Affairs Credit and Financial references Bookmaker licences if issued in another country A document issued by a legal entity stating that all documentation submitted is a true copy of the original Business plan, outlining in detail the following: Objectives of operation Company structure, business and human resources units Nature of the games to be offered Technologies to be used Details of application software to be used as the gaming and control system 3 yr business plan On completion of the LGA s investigation into the personal background and finances of the applicant and upon conclusion that the applicant is a fit and proper person and financially equipped to operate the proposed business, the LGA will inform the applicant to proceed to the second stage. 8

9 Stage 1 Fit & Proper Test Business Plan Review Stage 2 Business & Technical Ability Test Stage 3 Compliance Systems Review At this stage, the applicant must incorporate a company registered in Malta. LGA reviews the incorporation documents, business process and instruments required to conduct the business, the application architecture and system architecture of the gaming and control system to ensure that the management, operational and financial aspects of the operation enable the applicant to fulfil the requirements of the gaming regulations. Second Stage Documentation Company incorporation documents: Company registration certificate Memorandum and Articles of Association Business Entity Information Form Operation manual outlining the application and system architecture of the gaming and control system, the software developer, security and control procedures, back-up and disaster recovery procedures The payment methods, the payment system/s and its provider/s Agreements with business partners, affiliates, agents Submission of Anti-Money Laundering program On successful completion of this stage, the LGA issues the applicant with a Provisional Licence in the form of a letter of intent, giving the applicant the right to commence operations. 9

10 Stage 1 Fit & Proper Test Business Plan Review Stage 2 Business & Technical Ability Test Stage 3 Compliance Systems Review Applicant has a 6-month period within which to obtain a certificate of compliance based on an audit of the live remote gaming operation. Applicant must establish business in Malta, conclude all required agreements in respect of hosting of servers and associated equipment and appoint a Key Official, who must be a director of the company and resident in Malta. LGA compliance officer inspects the gaming and control system, which must be located in Malta and seals all equipment. Operator goes lives. Third Stage Documentation Service Provider Authorisation Form Copies of all third party agreements which impact the gaming activity Agreement with the hosting provider Plan of data floor hosting the equipment Listing of third party suppliers of computer hardware and software Compliance systems review is conducted by the LGA which is based on a standard audit program. Certification of the control system is based on ISO/IEC standard. Source code testing is not required and certified RNGs having a certificate detailing their level of randomness are not retested. Once certification of compliance is completed with no qualifications, applicant is issued with a full licence which is valid for 5 years. 10

11 Ongoing compliance obligations Once licensed, LGA regulates the operators effectively in the interest of player protection in a non-intrusive manner. Player Protection Prior to allowing a player to participate in a game, the player must register and hold an account with the licensee. No person below the age of 18 may be registered as player and should any such person/s win any money or have any funds deposited, these shall be forfeited to the LGA. The licensee is required to make available to its players via its website certain specified information. Payment from the player may only be effected by means of credit cards, debit cards, electronic transfer, wire transfer, cheques and any other method approved by the LGA. The licensee must not in any manner facilitate the provision of credit to a player or player s account. Players funds are to be kept separate from licensee s own funds. The funds in the players account, including funds in transit or in the process of being cleared through the banking system or by credit card processing companies, must at any time be at least equal to the aggregate of the amount standing to the credit of players account held by the licensee. Reporting Maintenance of proper accounts and records which show a true and fair view of the financial position and state of affairs. Filing of audited financial statements with the LGA within 6 months from the end of its financial year. Submission of interim financial statements to the LGA within 30 days from the end of the half yearly period. In the case of a Class 4 Licence, submission of gaming records within 21 days from the end of the previous month (Class 4 Licence). Submission of incident report within 24 hours of the incident. Submission of gaming equipment report within 24 hours of changes. Adhere to anti-money laundering practices and report any Suspicious Transactions to the Financial Intelligence Analysis Unit (FIAU) or the LGA. Notification to the LGA and pre-vetting of any new gaming equipment and changes to the gaming system. Notification and due diligence process acceptance by the LGA of all new staff employed subsequent to the application process. Pre-approval of the LGA prior to undergoing any corporate restructuring. 11

12 LGA Fees Class 1 Casino type games Class 2 Betting Class 3 Poker, P2P Class 4 Platform Euro Euro Euro Euro Initial Licence Fee 2,330 2,330 2,330 2,330 ^Minimum share capital Company Registration Fee Annual Licence Fee 100, ,000 40, , * 870* 690* 870* 7,000 7,000 7,000 1st 6 months: No fees 2nd 6 months: 2,330 per month Thereafter: 4,660 per month Company Annual Return Fee Renewal Licence fee 400* 400* 350* 400* 1,165 1,165 1,165 1,165 ^ Company may be set up with a minimum share capital but the LGA usually mandates an increase in the share capital prior to going live * Based on the minimum required share capital Fee information obtained is correct as at the time of publication of this document, and is for general information purposes only. 12

13 Gaming Tax Class 1 Casino type games Class 2 Betting Class 3 Poker, P2P Class 4 Platform Euro Euro Euro Euro 1st 6 months: 4,700 per month (flat tax) Thereafter: 7,000 per month (flat tax) Fixed-odds betting: 0.5% of gross bets Betting exchanges: 0.5% of net winnings calculated per player per betting market Generally, by agreement, 5% on real income, defined as revenue from rake less bonuses, commissions, and processing fees (ecommerce fees) Deemed paid when collects tax on behalf of operators licensed on its platform Class 1 on 4: 1,200 per month Pool betting: 0.5% of aggregate stakes paid Class 3 on 4: According to their respective class The total amount of tax payable by any one licensee in respect of any one licence is capped at 466,000 per annum Fee information obtained is correct as at the time of publication of this document, and is for general information purposes only. 13

14 A snap shot of the Maltese Corporate Tax System A Maltese company is subject to tax at the standard corporate tax rate of 35%, with relief for any foreign tax suffered. Full imputation system fully compliant with EU nondiscrimination principles: no further tax in suffered by the shareholders upon a distribution of profits by a Maltese company. Tax refund system: upon a distribution of dividends by the Maltese company, the shareholders are entitled to a partial refund of the corporate tax paid. Such refund, when received by non- Maltese resident shareholders or a Maltese holding company owned by non-maltese resident shareholders reduces the total tax paid in Malta to 5% or lower where double taxation relief is claimed. Participation exemption on the receipt of dividends or gains derived from a participating holding. No withholding tax on outbound dividends, interest, royalties. Malta has no net worth tax or similar taxes on capital. No controlled foreign company legislation in Malta. No thin capitalisation legislation in Malta. No specific transfer pricing legislation in Malta. 14

15 Taxation VAT The standard VAT rate in Malta is 18%. The supply of remote gaming and supplies related thereto are exempt without credit. Taxation of expatriate employees Persons who are resident but not domiciled in Malta are subject to tax in Malta at progressive rates of tax on: Income and chargeable gains arising in Malta Income arising outside Malta which is remitted to Malta. 15% tax on income for work performed in Malta connected with work provided overseas, on minimum qualifying salary and for a limited number of years. 15

16 KPMG a full service firm The Firm was founded in 1969 and today is one of Malta s leading firms of Certified Public Accountants and Auditors and Business Advisors, providing a complete range of inter-related services. KPMG is situated at Portico Building, Marina Street, Pietà, Malta. The Firm also has a branch office in Victoria, Gozo. At present, the local staff complement numbers 235. KPMG is a full service Firm and offers clients a wide range of inter-related services to both audit and non-audit clients: Audit: Provision of statutory and regulatory attestation services; provision of advice in relation to compliance with statutory reporting requirements. Tax : Tax compliance; advice on direct and indirect taxes, incentives legislation, employee taxes, and cross-border tax planning; international business support services. Advisory: This includes: the provision of advice on governance, risk management and internal controls; business strategy and process improvement advisory services; How KPMG in Malta can help you Our philosophy is to help clients maximise business advantage from the challenge of relocating all or part of their operations to Malta, based on innovative strategies and a sound approach to regulatory and business risk management. The position of KPMG today is the product of the way in which we handle the issues that matter most to our clients, the dedication of our people to engendering competitive advantage for the businesses they serve, and our ability to provide a seamless service. financial advisory services including corporate finance, transaction services and restructuring; accounting advisory services; information systems advisory services. The result is a clear focus on the issues that really matter to you. In carrying out our work, we apply the highest standards demanded by the profession. We provide our services objectively and have in place rigorous procedures to ensure independence and adherence to the profession s and the firm s ethical rules. KPMG delivers its services through lines of business. For our clients this means exceptional people with an intimate industry-specific knowledge. We know that the success of investing in a jurisdiction depends on the right structure, maximum tax efficiency, effective risk awareness as well as outstanding performance and distribution capability. Our practice brings together knowledge and resources to provide clients with a comprehensive range of practical support across many different areas. Our commitment to excellence in all these areas makes KPMG a natural partner for success. 16

17 International Support KPMG is a unique global network of strong national practices (i.e. member firms) that provide Audit, Tax and Advisory services to local, national and multinational organisations. As a leading global professional services Firm, KPMG operates across 144 countries, with over 130,000 employees worldwide. From Afghanistan to Zambia, KPMG people come from many different backgrounds, but everyone shares a common set of values and follows the same code of conduct. Locally, KPMG s position in the marketplace very much reflects the status of a Big Four accountancy and professional services firm. With the strength of its member firms and the global breadth and balance of its operations, KPMG has the resources to deliver quality services worldwide through its network and delivers a globally consistent set of multidisciplinary financial and accounting capabilities based on deep industry knowledge. Throughout the world, the guiding philosophy of KPMG is to provide its clients with the highest quality service, to assist clients in developing a rich understanding of clients businesses, together with the insight, skills and resources required to address industry-specific issues and opportunities, as well as challenge clients to analyses their organisations and their markets in new ways. 17

18 KPMG s dedicated i-gaming team Engaging experienced service providers is crucial to the success of gaming operators. KPMG has valuable experience in servicing the remote gaming industry, providing audit, tax and advisory services. KPMG is accredited by the LGA to carry out certification reviews of remote gaming operators on its behalf. KPMG provides high-quality, independent statutory audits to a wide range of clients including remote gaming operators. We also assist and advise gaming operators wishing to set-up in Malta whether as a start-up, migration or diversification. Such services include assistance in the LGA application process including the drafting and review of key documentation as well as the incorporating of the Maltese gaming company. We also assist and advise applicants in putting in place the commercial arrangements with third party service providers that may be required for their operations in Malta. Drawing on our knowledge of the LGA regulatory framework, we can assist remote gaming operators to design and implement control systems which will achieve compliance and also deliver significant management benefits. In this respect we advice and assist on matters affecting your business including compliance (LGA and PCI), the setting up of accounting processes and procedures, the implementation of internal controls and responsible gaming procedures, anti-money laundering management, information security and risk management policies and business continuity management. Our Transactions and Restructuring advisory team provides various services to clients contemplating an acquisition or disposal including providing advice and assistance in planning and structuring transactions, business valuations, vendor or buy-side due diligence, and transaction negotiation and implementation support. We provide advice relating to both direct and indirect taxation. We also assist our clients in dealing with issues relating to the employment of expatriate personnel, including direct tax and work permit applications. 18

19 Our Team Name Tonio Zarb Current Position Partner, Tax Services, KPMG in Malta Qualifications Fellow of the Association of Chartered Certified Accountants Fellow of the Malta Institute of Accountants MBA (Warwick) Certified Public Accountant (including Audit Practicing Certificate) Member of the Institute of Financial Services Practitioners (Malta) Member of the Malta Institute of Management Experience Tonio is an advisory partner leading the firm s advisory services function. His experience includes engagements focusing on the raising of finance, financial due diligence, and advising on financial structures and strategy. In 1993 / 1994 Tonio was an active member of the KPMG team which drafted the swathe of legislation converting Malta from an offshore to an onshore jurisdiction. This included forming part of the tax working group which drafted the extensive tax changes passed by parliament in June Following this he participated in tax related advisory engagements delivered to the governments of other jurisdictions as part of a team of advisors drawn from various KPMG firms. In 2008 Tonio led an extensive advisory engagement spanning an eight month period to a large i-gaming company based in Malta. He has also advised various other gaming companies on a number of issues. Tonio has advised and assisted diverse entities in equity transactions, including more than half the corporates that have listed equity securities on the Malta Stock Exchange. Tonio is also a valuation specialist having led numerous valuation assignments over a span of more than 18 years. Sector Experience Financial services Manufacturing Software Gaming Real estate Telecommunications 19

20 Name Juanita Brockdorff Current Position Partner, Tax Services, KPMG in Malta Qualifications Bachelor of Arts (Legal and Humanistic Studies), University of Malta Diploma in Notarial Studies, University of Malta Doctor of Laws, University of Malta Master of Laws in International Tax Law, University of Leiden, The Netherlands (summa cum laude) Admitted to appear before the Superior Courts of Malta Member of the Malta Chamber of Advocates Member of the Malta Institute of Taxation Member of the International Fiscal Association (IFA) Council Member of the Institute of Financial Services Practitioners. Experience Since joining KPMG in 2002 Juanita has worked in corporate taxation, providing advice to multinationals seeking assistance in tax matters and related planning. Her work covers both domestic and international tax issues, and extends to direct and indirect taxation. At present Juanita leads the corporate services team made up of 10 professionals at KPMG, handling the requirements of international clients who set up in Malta. She is particularly interested in the EU s impact on tax matters and acts as advisor to the Government on various tax-related Community law issues. Following Malta s accession she was involved in the process of revising the Maltese tax system in order to ensure compatibility with Community law. Juanita regularly delivers presentations on current tax issues at both local and international for a. Juanita s work was published in international tax reviews such as European Taxation, EC Tax Review, Intertax, and Captive and Art Review, For a number of years she lectured Advanced Taxation for ACCA, and in the course leading to the Advanced Diploma in International Taxation conferred by the UK Chartered Institute of Taxation. She has been invited to lecture in Italy during 2009 as part of a Masters in Taxation Course. Juanita acts as examiner of tax dissertations submitted to the University of Malta in order to obtain the degree of Doctor of Laws. Sector Experience Juanita regularly provides advice to igaming clients setting up, relocating to and operating in Malta, covering both income tax and VAT implications. She has assisted clients in the process of obtaining the required gaming licence, acting as liaison between the client and the Lotteries and Gaming Authority (LGA) and has provided guidance with the implementation of Shared Conduct of Business Agreements. She takes an active role in the business, attending international conferences on igaming overseas, including IGE. Juanita keeps regular contact with the LGA officials and represents KPMG on the Malta Remote Gaming Council. 20