Ukranian Gaming: A Debut Year

By Gambling Insider
Andrey Astapov, Managing Partner at Eterna Law, assesses Ukraine’s first year of legalised gambling

Ukraine is a new prospective destination for the gambling business. We see that the market holds some great potential and that it develops rather quickly, though some issues still need to be resolved. Gambling in Ukraine was only legalised approximately one year ago and, in such short timeframes, Ukraine has demonstrated positive results. The gambling market has been launched and many gambling companies have already started to operate.

At the same time, there remain some important points on the agenda. For example: the reformation of gambling taxation that was promised one year ago and was supposed to be conducted soon after the legalisation. And, of course, some loopholes currently exist in the Ukrainian Gambling Law, which remain unclarified by the Gambling Commission.

Despite these negatives, however, the Government of Ukraine has done a great job, and this year proved to be successful and very productive for the newborn sector of the Ukrainian economy. So, let us briefly discuss this first year of legalised gambling in Ukraine, covering its major achievements, disappointments and controversial moments:

A BRIEF OVERVIEW OF UKRAINIAN GAMBLING FOR NEWCOMERS

The Ukrainian Gambling Law adopted on the 14th of July, 2020 offers a full spectrum of licences for different gambling activities. Notably, a separate licence shall be obtained for each activity.

So, what gambling products are currently available in Ukraine? The scope of legalised products is wide and includes land-based and online casinos, betting activities, gaming machine venues and online poker. There   is also a gambling service licence that is widely known as the B2B licence. Such licence provides the possibility to develop various software for the gambling industry and is particularly interesting for many IT companies.

THE FIRST ECONOMIC EFFECT OF LEGALISING GAMBLING

Ukraine has shown very positive economic effects from its first year of legalised gambling. Indeed, in 12 months there have been around 50 issued gambling licences covering all five types of gambling activities mentioned in Ukrainian Gambling Law; this includes land-based casinos, online casinos, betting (available online and offline), gaming machine venues and online poker. Besides that, the Gambling Commission has already issued around 60 permits that confirm the compliance of the premises with legal requirements to a range of hotels in Kyiv,Odesa, Lviv and some other big Ukrainian cities.

What do such numbers demonstrate? That the legalisation of the gambling market brings the first visible results – many gambling operators already started to run and the market as such is launched. Furthermore, the results are quite promising – by the end of the year and even in the six months since the market began its existence, state budget revenues received from payment of fees has already reached one billion.

The first billion in the state budget is a great milestone for the Ukrainian gambling market. But given the potential of the market, this is far from its limit. The main problem that restrains foreign investment is, of course, the delay of adoption of a new tax law for the gambling industry.

NEW TAXATION FOR THE GAMBLING INDUSTRY

Current taxes applicable to gambling operators are not adapted to the needs of the gambling legislation in Ukraine. The reason for this is that the taxes applicable to gambling operators in Ukraine are high in comparison with other jurisdictions and especially in consideration of licence fees. Many international operators think twice before entering the Ukrainian gambling market. Often they are not ready to follow lengthy procedures for obtaining a gambling licence and invest in a country where, in addition to the high cost of licences, tax rates are also high.

If the taxation system will continue to exist in its current format, it will be difficult for Ukraine to compete with other jurisdictions that offer significantly more attractive conditions, as well as attract foreign investment and global gambling leaders to the country. However, there is a reasonable solution. Currently, the draft law on amending the taxation of the gambling industry is registered for its first reading in the Parliament of Ukraine. This draft law intends to unify the taxation system, as well as balance the gambling taxation by substantially lowering tax rates.

Just compare the numbers. As of now, Ukrainian operators have to pay different rates of income tax for different gambling products. For instance, 10% of the income from gambling for gaming machine operators, and 18% of the income obtained from betting and other types of gambling activities (except for gaming machines). Meanwhile, the new draft law introduces a single GGR (gross gaming revenue) tax for all types of gambling activities. All gambling operators and lottery operators will pay the GGR tax at the same rate – 10%. For some types of gambling, it decreases the tax rates by almost double.

Besides that, the draft law offers two more significant changes. First of all, it offers to absolutely exempt winnings from taxation which do not exceed a certain amount (approximately, UAH 48,000/$1,800). Secondly, the draft law also intends to cancel all triple fees, which are currently established by the Gambling Law for the annual instalments paid for some gambling licences (i.e. betting licences, online casino licences, and licences for gaming machines). As of now, such triple fees are set out for the period until the introduction of the state online monitoring system, which will provide state control over the activities of all gambling operators.

WHAT TO EXPECT FROM THE UKRAINIAN GAMBLING MARKET IN THE NEAR FUTURE

The adoption of the draft law on taxation is a very urgent question on the gambling agenda at this moment if Ukraine wants to attract more leading foreign investors to the country. So, hopefully, the Parliament of Ukraine will adopt the new law at the beginning of next year. The new taxation system will help to eliminate current legislative barriers that make it impossible for the market to realise its potential in full. And Ukraine should expect a substantial increase in revenues to the state budget in the form of new licence payments and tax revenue.

Additionally, the profit for the state budget is generated not only from licence payments. The establishment of land-based gambling venues as well as the launch of new online gambling websites requires considerable investment and involves a range of industries. Gambling operators regularly pay taxes, create jobs, and invest in marketing strategies and brand development. So the state economy, in general, is substantially stimulated. 

Today, the positive economic effects are already obvious. Gambling legalisation has resulted in additional budget revenues and substantially stimulated a few cross-related industries of the economy – in particular, the tourism, hotel and advertising businesses. We expect that this tendency will keep up and Ukraine’s economy will be further stimulated due to such a newly established sector. But it would be beneficial to receive answers to two questions that concern many operators and still remain uncommented on by the Gambling Commission, or other state authorities in Ukraine. First of all, the Gambling Law and all licence conditions are rather vague on the matters of the location of gambling operators’ servers.

For many operators, server location is a strategic business decision. For example, if there is a requirement that servers must be located in Ukraine, it means additional and usually substantial financing for companies. It has been suggested that this issue could be regulated by the current draft law on taxation. However, there are still many debates about whether such servers must be located in Ukraine, or whether operators shall not have any limitations on the business-oriented option to locate servers outside of the country.

Finally, another significant issue concerns the certification of gambling equipment. The Gambling Law mentions that international certificates can be recognised in Ukraine. And yet it is silent on the procedures with which they can be identified. Until now, the Gambling Commission has not yet recognised any international certificate that can be used in Ukraine.

THE VERDICT

So, as a brief conclusion concerning the first year since gambling legalisation, we can confidently state that some great work has been performed. The Government of Ukraine approved licensing conditions for each type of licence, created the Gambling Commission, adopted some other regulatory acts and successfully issued numerous gambling licences.

However, there is still much work to do if Ukraine aims to develop a competitive gambling market with large amounts of foreign investment. As mentioned above, the main and key question is the adoption of the draft law on gambling taxation, the resolution of open questions with the location of servers and the recognition of international certificates.

Ukraine’s history with gambling is difficult. But as many experts promised one year ago – and as the market development looks right now – the results are quite positive. Hopefully, the best is yet to come.

 

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