MALTA LOTTERIES AND GAMING AUTHORITY

Malta has an ancient gambling culture and its terrestrial gambling industry is well established, with casinos, track racing, commercial bingo halls and lotteries.  

 

 

In 2004, the Remote Gaming Regulations, hereinafter referred to as “The Regulations” were issued which currently regulate the activities of on line gambling sites licensed to do business in Malta. These regulations were a much awaited mile-stone superseding the previous law regulating offshore betting and Malta became the first EU Member State to regulate online Gaming as of May 1st 2004, seeking the prevention of money laundering, protection of players and the safeguarding of public interest. 

 

 

REGULATORY ENVIRONMENT 

 

 

The regulatory body supervising remote gambling operations is the Lotteries and Gaming Authority (“LGA”). The regulations allow the LGA to issue four classes of license, based on different games and activities.  

 

 

CLASS LICENCES 

 

 

There are currently four (4) licences applicable in Malta. The type of licence shall depend exclusively on the type of gaming activity carried out. The licences are as follows:- 

 

 

Class 1: Operators who partake in the gaming risk based on games based on repetitive events (Random Number Generators) e.g. Casino / Lotteries / Slots / Arcade Games / Bingo;  

 

 

Class 2: Operators who partake in gaming risk on markets based on singular events (betting) e.g. Sports Betting; 

 

 

Class 3: Operators who promote games and in return get a commission in a P2P transaction. Typically includes multiplayer games and betting exchanges such as Poker rooms, Poker tournaments etc; 

 

 

Class 4: Operators who run a software platform to host the service of any of the above classes. Such operators are not involved in player management functions. They merely provide a host platform from which other licensees can operate. 

 

 

Therefore, the gaming licence will depend on the types of betting activity that the prospective licensee will purport to undertake. Upon the submission of a detailed business plan including the games / betting activities, we can advise under which licence category the games would be classified. 

 

 

Licences are issued for a period of five (5) years, and can be issued insofar as the applicant maintains a “physical presence” in Malta as prescribed by Article 8(2) of the Regulations. “Physical Presence” has been interpreted as meaning essentially four things:- 

 

 

(i) Incorporation of a Company in Malta; 

 

(ii) Keeping the game servers in Malta (but not the web server); 

 

(iii) Keeping the database servers in Malta; 

 

(iv) The presence of a key official in Malta. 

 

 

 

THE LICENSING PROCESS 

 

 

The identity of the applicant must be disclosed by the LGA and a thorough due diligence test conducted by the LGA. All costs incurred in conducting investigations into the backgrounds, suitability and qualifications of the candidates are chargeable to the applicant. Any non-disclosure of criminal records / other necessary information deemed to be misleading entails an automatic disqualification of the application.  

 

 

After the due diligence requirements have been satisfied by the prospective applicant, the next states are as follows:- 

 

 

 

First Stage 

 

 

(i) Preliminary meeting with the LGA with a proposed business plan of the gaming operation; 

 

(ii) Filling of application for an Application for Remote Gaming Licence; 

 

(iii) Filling of Personal Declaration Form for every person with 5% or more interest – 

 

If one or more parties are another business entity, ownership and incorporation details need to be submitted. 

 

 

 

Other Documentation:- 

 

 

Second Stage – Business and Technical Ability Assessment 

 

 

At this stage it is necessary to incorporate the Maltese company. Documentation to be submitted at this stage:- 

 

 

(i) A Maltese Company Registration Certificate (including an International Trading Company Certificate if applicable); 

 

(ii) Memorandum and Articles of Association; 

 

(iii) Business Entity Information Form; 

 

(iv) A detailed organization manual outlining the application architecture, the system architecture, the software developer, security and control procedures, back-up and disaster recovery procedures; 

 

(v) The payment methods, the payment system/s and its provider/s; 

 

(vi) Agreements with business partner, affiliates, agents. 

 

 

Third Stage - Compliance 

 

 

An independent compliance audit shall investigate the background of the company and its shareholders, and review and approve the hardware and software. Issues such as player security and responsible gambling shall be reviewed. 

 

 

A Service Provider Authorisation Form if applicable, including the equipment hosting provider in Malta outlining clearly the functions and responsibilities to be carried out by such provider. A site plan of the data floor indicating the location of the equipment must be attached to the agreement. Serial numbers for all equipments installed are to be attached; 

 

 

(ii) Details or copies of agreements with all third parties which may impact the licencee’s gaming or control systems are also required by the LGA (these are the gaming software provider, all payment service providers, any odds/results provider used, any other software partners); 

 

 

(iii) Before certification, the Control System submission will be reviewed and tests made on the live data and procedures. Sample reports from the live system will be requested to show how the management of the betting system is conducted; 

 

 

(iv) An assessment of the information management in the operations will be made; recommendations may be made to improve security of the players’ data; 

 

 

(v) The backup and disaster recovery procedures will be reviewed. Change management procedures will also be reviewed; 

 

 

(vi) The online website will be reviewed via a test account to see that the site operates in accordance with the Regulations and with the operator’s declared procedures (including notifying changes). The Player Protection measures required by the LGA will be confirmed. 

 

 

(vii) Bank account balances will be compared with online player account balances to ensure that the liabilities are sufficiently covered; 

 

 

(viii) Routine data submitted on a monthly basis to LGA will be reviewed. Any anomalies will be investigated with the operator to ensure that correct data is available to LGA and rules relating to test data are observed. Spot checks on odd, payout ratios and randomness as applicable may be made. 

 

 

(ix) Any agents acting for the operator will be scrutinized for probity. Copies of all relevant agreements and national licences will be required by LGA for review and filing. 

 

 

(x) Staff lists and duties will be checked against the records held at LGA.  

 

 

 

REQUIREMENTS OF THE CONTROL SYSTEM 

 

 

The applicant (unless he/she is hosted by a Class 4 Licensee) must submit in writing to the LGA, the specifications he/she intends to use during operations which include the following:- 

 

 

(i) The operation of remote gaming; 

 

(ii) General procedures to be followed for the operation of remote gaming; 

 

(iii) Computer software; 

 

(iv) Procedures for recording and paying prizes won in remote gaming; 

 

(v) Accounting systems and procedures; 

 

(vi) Procedures to be followed to play a game; 

 

(vii) Procedures and standards for the maintenance, security, storage and transportation of equipment to be used to conduct remote gaming; 

 

(viii) Procedures for the setting up and maintenance of security facilities including general compliance and internal controls relating to access to critical systems; 

 

(ix) A disaster recovery plan; 

 

(x) An adequate system of data backup; 

 

(xi) Any other information that the Authority may require. 

 

 

 

All remote gaming must be conducted under the control system as approved by the LGA. 

 

 

Gaming system software must be tested and certified for compliance to the satisfaction of the LGA. 

 

 

TAXATION  

 

 

At the outset, it is necessary to make a distinction between Corporate Tax and Gaming Tax. A remote gaming licence shall only be issued by the LGA in favour of a Limited Liability Company, which will be taxed essentially on two-levels:- 

 

 

CORPORATE TAXATION  

 

 

Malta has a tax imputation system whereby, all Maltese-registered companies are subject to a corporate tax of 35%. However, on the distribution of dividends to shareholders, an applicable refund shall be available which can be as follows - 

 

 

6/7 refund – Applicable to companies in respect of trading activities; 

 

 

5/7 refund – Applicable to companies receiving royalties and passive interest; and 

 

 

2/3 refund – Applicable to companies entitled to claim Double Tax Relief. 

 

 

Gaming Tax – Taxation derived solely from the betting revenue generated. 

 

 

With regard to the Gaming Tax, different rates apply in accordance with the types of gaming licence. The gaming tax can be summarized as follows:- 

 

 

Class 1 - approx. EUR 4,660 per month for the first six months from Go-Live date and approx. EUR 7,000 per month thereafter; 

 

 

Class 2 - 0.5% on the gross amount of bets accepted in remote betting operations 

 

 

Class 3 – 5% of the Real Income (calculated by subtracting the direct costs from the net revenue). 

 

 

Class 4 - Free for the first six months from Go-Live date, approx. EUR 2350 per month for the next six months and EUR 4,660 per month thereafter 

 

 

In the case of Class 1 or Class 3 gaming operations operating on a Class 4 Platform – special provisions would apply.  

 

 

Provided that in all cases the total maximum of tax payable per annum by one licensee in respect of one licence shall not exceed approx. EURO 466,000.  

 

 

Gaming Taxes must be paid to the LGA on a monthly basis and the licensee shall not later than the 20th day of the month pay such gaming fee to the LGA for the previous calendar month.