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I-Gaming in Malta: Reliable Laws, Fiscal Advantages, Stable Environment

June 2013 - Corporate & Commercial. Legal Developments by Chetcuti Cauchi Advocates.

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As the first jurisdiction in the European Union (EU) that introduced regulated remote gaming, with an average of a hundred new applications a year and being the largest EU i-gaming jurisdiction, Malta's success in the i-gaming arena is undisputed. That said, whilst Malta's history, sun and sea might be a good reason for tourists to come to the island, they are surely complementary but not the sole reasons to attract prospective i-gaming operators.  Indeed, to the i-gaming world, Malta represents more than that.

 

The Strong and Reliable Hand of the Law 

Malta's strategy in i-gaming has been bold and unique. Rather than focusing on a monopolistic or condescending response to this budding industry, the legislator decided to focus on regulation and transparency, providing a strict approach to licensing and monitoring of gaming operations. This has resulted in optimum protection for players on the one hand,  to providing a regulatory solution to operators on the other, thereby achieving a balance between two opposing needs: the supplier's and the customer's. 

Malta's recent but sound history in the gaming industry saw its inception in the year 2000 when the Public Lotto Ordinance[1] marginally started to regulate online gaming. Since then, the Lotteries and Gaming Authority (LGA) has developed refined policies and procedures regulating remote gaming operators. In 2004, the Malta Remote Gaming Regulations[2] were promulgated, hence turning Malta into a legitimate regulatory base. 

Today, Maltese law offers a firm basis for the regulation of the Maltese gaming industry, the 2004 Remote Gaming Regulations themselves being one good reason for the Maltese success as outlined further below. 

The Classes of License

The main classes of licenses provided for under the Remote Gaming Regulations are the following: 

a)         Class 1 - operators managing their own risk on repetitive games (casino-type games, skill games and online lotteries)

b)         Class 2 - operators managing their own risk on events based on a matchbook (fixed odds betting, pool betting and spread betting)

c)         Class 3 - operators promoting and abetting gaming from Malta & taking a commission from promoting and/or abetting games (P2P, poker networks, betting exchange and game portals).

d)         Class 4 - a licence to host and manage remote gaming operators, excluding the licensee himself that is, operating as a platform.

e)         Class 1 on 4 - operators managing their own risk on repetitive games (e.g. casino-type games, skill games and online lotteries) operating on a third party platform duly licensed by the Lotteries and Gaming Authority.

f)          Class 3 on 4 - operators promoting and abetting from Malta & taking a commission from promoting and/or abetting games (P2P, poker networks, betting exchange and game portals) operating on a third party platform duly licensed by the Lotteries and Gaming Authority.[3]

 

Despite principally categorizing the type of games into these 6 main classes, the Regulations are not game or technology specific hence easily encompassing different games and technologies without the requirement of amending the law. This allows operators to bask in their world of imagination and creativity and permits software developers to flourish in a positive environment.  This has proven indispensible for Malta to attract this industry of ever-increasing i-gaming operators.

The Application Procedure

One of the highlights of the Remote Gaming Regulations include the flexible yet strict licensing process it implements.  The said licensing process is principally divided into three:

Phase 1 - Pre Application and Application Stage

The first stage includes the preparation of all the written submission for the purpose of being granted a license.  The documentation submitted ensures: that a fit and proper test is undertaken by the authority on the persons involved in the i-gaming project, the adequacy of the business proposed and that the operational and statutory requirements shall be adhered to by the i-gaming operator once live.

Phase 2 - Pre Go Live System Audit

After revision of the written submissions to the satisfaction of the LGA, the applicant is given the go ahead to implement the proposed infrastructure in preparation for going live.   The implementation must be done within 60 days from the go ahead and during such period the applicant must prompt a request for an external system audit. During the system audit (desktop/offline audit) an assessment is undertaken to confirm that the system is in line with the proposed application. The operator must ensure that the implementation and the system audit are finalized within the 60 days indicated.

Phase 3 - Compliance Audit

On successful completion of the system audit, a license is issued.  The licensee will then be required to go live within 60 days from the date of the license. The license is valid for 5 years and is issued subject to successful completion of a compliance audit within 12 months from the issuance of the license.  During the compliance audit an assessment is undertaken to confirm that the live environment is in line with the initial documentation submitted, rules and policies.

Risk Management and Player Protection

Proper risk management is a determining factor for the success of any business venture. This is especially so in the i-gaming industry where procedures and regulation are a must. The Maltese legal regime provides basic mandatory procedures and policies that guarantee risk management to the operator whilst providing security for players. 

The Remote Gaming Regulations assure that gamblers' deposits and winnings are kept separate from the operation's funds at all times thus segregating and protecting what is owed to players,  even in the case of the operators' bankruptcy. It is specifically provided by law that any precautionary or executive garnishee order shall not have any effect or be construed as ever having had any effect on players' funds.[4]

Procedures for handling complaints are also in place.[5] Games undergo testing by the LGA to ascertain their fairness and there is constant monitoring of licensees' ongoing activities.[6] Furthermore, Maltese law obliges registered operators to have in place  Know Your Customer Procedures to prevent their systems from being abused for money laundering and terrorist financing.[7]

At first glance, the high standard of players' protection could be considered too stringent and austere. However, the controls in place are in fact an asset in themselves in that they provide the operators with certainty and fixed parameters for operation. In addition, a Maltese licensee can vaunt a serious license with its players, hence resulting in the latter feeling secure when dealing with such operators.

All this, coupled with experienced service providers and reliable ancillary services including ICT, telephony, co-location and back office services as well as Malta's membership in the EU, ensures that the Maltese gaming sector remains one of the most advantageous.

Money Matters

Concurrent to the favorable conditions it offers, Malta continues to be a highly affordable and fiscally attractive jurisdiction. Gaming taxes vary according to the type of gaming activity undertaken, the rates being highly competitive and capped at Euro 466,000 yearly. Maltese Companies are subject to the normal corporate tax rate applicable to all companies registered in Malta, at 35% on their worldwide income. Malta operates the full imputation system of taxation whereby the tax paid by the company is available as a credit to the shareholders when distributions are made to them.  Company tax of 35% is available as a credit to the shareholders upon receiving dividends from the company. When dividends are paid by trading companies to the shareholders, these shareholders become entitled to claim refunds of 6/7ths of the Malta tax paid by the company. Taking into account such refunds, this results in an effective rate of Malta tax of 5%.

In addition, Malta offers an attractive flat 15% income tax rate for individuals drawing employment income from Malta i-gaming licensed companies and having a minimum gross salary of Euro 75,000, as adjusted annually in line with the Retail Price Index.

Experience, Reputation and a Stable Environment

The growth of the gaming industry in Malta has been facilitated by the tandem growth of ancillary services, such as ICT, telephony, co-location legal and back office services. All this, coupled to a sound regulatory regime, has positioned Malta as a one-stop destination to the gaming industry. .  

Malta's added advantage is the fact that it is an onshore jurisdiction.  Maltese operators do not face the difficulties that offshore operators face with exchange controls, access to capital markets and access to e-wallets and payment gateways worldwide. Inversely, in the case of Malta i-gaming licensees, players find comfort in knowing that they are dealing with an onshore jurisdiction whose legislation is in line with the applicable EU legislation and international agreements.

These benefits are supported by the fact that Malta has a stable economy, it being one of the few EU Member States to have registered economic growth in the last years despite the global financial and economic crises.

It is obvious that there is always room for improvement. That said, Malta's track record to date is sufficiently outstanding to position it as one of the most amiable jurisdictions for setting up any i-gaming operation.