Malta: High UK Gaming Tax Marks an Exodus to Malta

Following the issue of the UK gambling bill last year, it has become evident that the proposed high tax of 15% on gross profit will scare away a number of offshore operators.

This would open up unlimited opportunities for Malta being the only EU country that last April has issued remote gaming licences. Until recently, Malta's legislation only allowed online betting offices to operate. This has changed when last April, the Malta Lotteries and Gaming Authority has revised the regulations whereby other gaming activities including online casinos, casino-style games, cyber poker/bingo rooms, betting exchanges and lotteries could be allowed after an application is submitted and a license is granted. On average the tax on such licences is quite competitive with other jurisdictions.

Malta charges 0.5% betting tax on turnover and a monthly charge of Lm3,000 ( Lm1= $3.10 -Jan 2005 ) for a class 1 gaming license on a five year renewable licence. This is capped at this rate irrespective of the turnover. A one-time non-refundable application fee of Lm1,000 is payable and the annual licence costs Lm3,000. The Authority has announced the remote Gaming Regulations 2004 by offering four classes of Remote Gaming Licenses; Class 1 Remote Gaming License is a remote gaming license, Class 2 Remote Gaming License is a remote betting office license or a remote betting exchange office license, Class 3 Remote Gaming License is a license to promote or abet gaming from Malta, and Class 4 Remote Gaming License is a license to host and manage remote gaming operators, excluding the licensee himself. Special concessionary rates apply for those applying for a class4 license.

Following this announcement, a number of investors have shown interest in locating to Malta particularly now that the bandwidth facilities will double due to Vodafone investment in a secondary submarine cable. Already there has been serious enquiries from blue chip operators who are keen to use Malta as a hub for web farming and data transmission provided bandwidth facilities are stable and the price goes down to reflect European rates. PKF has been approached by investors who wish to invest in a hub concept linking the island to Europe and America by the provision of collocating and hosting services. This feedback was very evident at a one day seminar held last June at the magnificent Earth Galleries within Natural History Museum in London. There was an impressive cluster of jurisdictions including Malta taking part . This is a joint initiative between PKFMalta and the influential iGaming magazine.

Countries who were invited to participate at the show included Alderney, Malta, Great Britain, Belgium, France, Finland, Panama, Curacao and a representative from Antigua.

This was an interesting opportunity for investors from all corners of the globe to meet face to face with regulators and representatives from Governments of nine jurisdictions that licensed or are about to provide licensing opportunities of sportsbetting, online casinos, poker rooms, spread betting, online lotteries, bingo and bet exchanges. All selected jurisdictions have provided comparative information based on a common set of questions, which were asked of them by the event organizers.

So after weighing all the options, operators tempted to try Malta from the list of competing low cost jurisdictions.

Malta stands to gain from the recent UK's draconian intention to impose a 15% tax on gross profits.

Certainly the recent UK Treasury submission to impose a 15% tax for remote gambling licenses has created some concern about how competitive will the UK be to lure British and other operators currently based offshore to return back.

In mainland Europe, one finds a number of States that prohibit foreign based online casinos from offering services to their citizens. The industry is working on tight margins and most offshore jurisdictions (including Malta) allow for preferential gaming taxes which compete with that proposed in the UK Gambling Bill. There is a fear that the UK Government may persist to simply extend the existing 15% Gross Profits Tax on remote betting and bingo to all new forms of remote gambling. This would be a huge drawback for the industry and would make other competing jurisdictions fight easier to attract or maintain blue chip operators.

As in Malta and other iGaming regulatory applicants either charge a licence fee or a small percentage of taxation to their remote wagering licence holders. It is with this in mind that operators who are attracted to relocate in Britain will add up the pros and cons to licensing new remote wagering businesses. Rumours have been circulating around the gambling industry that the Government will introduce a 15% tax on gross profits for online casinos, as is already the case for bingo and bookmakers.

Given the low margins and the proliferation of online casinos offered a low tax base by competing jurisdictions, it is unlikely that they can sustain a 15% tax as suggested.

Experts in the field remark that the cost of operating is significant, and the cost of acquiring a customer is not a small amount of money while at the bottom line because of intense competition, the margins are modest.

A strong lobby in Britain was targeting a lower tax of 2% which would be reasonably competitive with other jurisdictions. If the Treasury maintains its stance to introduce the 15% tax some are of the opinion that it could wreck the Government's wider efforts to attract online casinos to the UK, despite the warm welcome given to the Gambling Bill.

At the moment operators in Alderney pay 0% tax, while others in Curaçao pay a small corporation tax of 2%. The government of Curacao offers licenses for online casinos and sportsbooks. Curacao has 246 English Language Sites in the jurisdiction. This compares to 21 operating sites in Malta.

Quoting the Times of Malta report on the subject it said that the UK's e-gaming industry could be set for a "mass exodus" to Malta if the hotly-disputed UK Gambling Bill is passed without amendments. It reported that Mario Galea, chief executive of Malta's Lotteries and Gaming Authority, told The Times he had already been approached by "a good number" of UK operators, including one which was extremely well known. Already serious enquiries are being made by a number of north American investors looking for the co-locating and hosting and internet connectivity services.

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