Malta’s lucrative e-gaming industry will soon be facing stiff competition from another member state, as Denmark starts issuing online gaming licences in line with a new law coming into force at the beginning of 2012.
The law will follow the conclusion earlier this week of a nine-month European Commission investigation into whether this law allows irregular state aid to the online industry.
Danish casinos and slot machine operators – which have enjoyed a monopoly for many years – complained that the law allows new e-gaming licensees to pay just 20 per cent tax on their profits against the 45 to 71 per cent tax paid by the rest of the industry. This, they argued, constituted state aid.
However, in its decision the Commission justified this approach saying online gaming was much more competitive than that operating in a set and confined jurisdiction.
“The Commission’s decision establishes that the lower rate of taxation for online gambling constitutes state aid but finds it compatible with EU rules, because the positive effects of the liberalisation of the market outweigh the distortions of competition brought about by the measure.”
Through this decision, private operators from outside Denmark will be able to apply for two types of licences in Denmark. One will permit holders to offer sports betting (fixed, pool, spread and exchanges) online and offline. The other is to offer online casinos (including poker, blackjack, roulette, slots, backgammon, whist, bridge) a flat tax rate of 20 per cent on gross wins across all products. Bingo and horse racing betting will be retained within the Danske Spil state-owned monopoly.
A spokesman for the EU’s office of the Remote Gambling Association, which also represents many companies based in Malta, welcomed the Commission’s findings and said there were clear and justifiable reasons for a lower rate for remote operators.
“In essence, land-based operations compete within physical national boundaries, while online companies are part of a highly competitive international environment, and fiscal policy should be set accordingly,” he said.
Malta, one of the main players in Europe when it comes to e-gaming, also welcomed the decision even though this meant added competition.
“We were expecting this ruling and we look forward to working closely with the Danish Gaming Authority,” a spokesman for the Lotteries and Gaming Authority told The Times.
Industry sources said although another European market was opening its doors, meaning companies had more room for manoeuvre, Malta remained a very attractive jurisdiction due to its low taxation regime.
“E-gaming taxation in Malta will still be cheaper than Denmark’s,” the sources said.
Malta’s e-gaming tax schedule varies according to the class of licence. However, for instance, on Class 2 licenses which involve sport betting, tax is 0.5 per cent of the gross amount of bets accepted in remote betting operations, while for Class 3, which typically involves poker and bingo, tax is five per cent of real income. Many EU member states are trying to lower or change their taxation regimes to make their jurisdiction more attractive to the industry.
In France for example, there is an ongoing debate on whether taxation on internet gaming should be slashed.
According to the Comite Consultatif des Jeux, established to advise the government on online gaming regulation, the online gaming market is still fragile due to high taxes.
According to a green paper published by the Commission earlier this year, by 2008 Malta had attracted more than 500 international companies with massive profits for its state coffers.
Malta’s gains from their profits stood at 7.82 per cent of GDP in 2008, 11 times higher than the EU’s average of 0.68 per cent of GDP.