19 May, 2021

First Impressions

Andrey Astapov, managing partner at Eterna Law and member of the Expert Advisory Council of the Gambling and Lottery Regulation Commission of Ukraine, details the latest inroads in the nation's newly passed gambling law and what operators, both domestic and international, have to consider in order to make a first move into the region

A recently emerged gambling market in Ukraine is filled with its first licences. More than 10 licences for different types of gambling are already issued, and the interest of operators remains equally high for both online and land-based segments of gambling.

Ukraine is currently demonstrating huge potential and attracts plenty of attention from major gambling entertainment market players. At the same time, some important regulatory matters still need some clarification to see the full picture of gambling market prospects. So far, this is, of course, the regulation of taxes. It’s no secret that, for many foreign investors, taxation will be the defining factor to consider whether to enter the Ukrainian market or not.

So let’s look over the latest developments related to the Ukrainian gambling market; in particular, the first issued licences, the draft law that introduces changes to tax regulation of gambling, and some other recently adopted regulations.


Pioneering the market              

Redeveloping the gambling market doesn’t seem to be an easy task for the Ukrainian Government, especially as it aims to develop it according to international standards, and attract a massive flow of international investments. But while some investors are waiting for the adoption of tax legislation for gambling, others already applied and successfully obtained licences.

Let’s begin with the online segment. According to the Ukrainian Gambling Act, it’s possible to obtain three types of licence for online gambling; in particular, for online casinos, betting and online poker. At this moment, a licence for online poker is yet untouched. But as for online casinos and betting, they have already been issued to a range of local and international operators. For example, online casino licences have been issued to such operators as Parimatch, Cosmolot, Favbet, First.ua, Vulkan Casino, Slots City and others. Parimatch also succeeded in obtaining a licence for betting.

And despite the Covid-19 pandemic and some related temporary limitations, the offline gambling sector is also marked by its first licences. In particular, casino licences are issued to Primum LLC, which will locate its gambling establishment in the Haharin hotel in Odessa, and to Nebula Games LLC, which will locate its casino in the Grand Hotel in Lviv. Three licences are also issued to operators of gaming machines – two of them to Gamedev LLC with the location of gaming machine halls in the Tourist hotel in Kharkiv and the Hotel Intourist in Zaporizhya, and one licence is issued to LLC Gambling Club Lord that will locate the gaming machine halls in Lybid Hotel in Kyiv. As a continuation of discussions about land-based gambling, it’s also important to mention permits for land-based gambling establishments. In particular, licensing conditions determine, when applying for a licence for any land-based type of gambling, that a licensee shall provide the Commission with documents that confirm the compliance of the premises with the requirements of the Gambling Act.

As of this moment, such permits are already issued to a wide range of hotels in different cities, such as Kyiv, Lviv, Odessa, Poltava, Mykolaiv and others. Depending on the characteristics of the premises, they allow organising a particular type of gambling like casino, betting or gambling in gaming machine halls. A significant number of such permits already issued by the Commission confirm a great interest of operators in the market of land-based casinos and slot machine halls, meaning that we expect a large number of applications for licences in due course.


New and improved tax rates

To reiterate, the majority of investors interested in entering the Ukrainian market are still waiting for the adoption of tax regulation. According to the Tax Code of Ukraine, Ukrainian operators would have to pay the following income taxes: 10% of the income obtained from gambling for gaming machine operators and 18% of the income obtained from betting and other types of gambling activities (except for gaming machines).

Stakeholders argue that such rates for income tax are quite high in comparison to other jurisdictions with legalised gambling. Meanwhile, the Ukrainian gambling market is just in the process of formation and needs some stimulating factors for its proper development. This, in turn, can be achieved with the help of milder tax rates.

Therefore, it’s been suggested that instead of the current income tax, Ukraine uses a milder tax rate on gross gaming revenue (GGR). Such an approach is supported by the draft law “On Amendments to the Tax Code of Ukraine on Taxation of Income from the Organization and Conduct of Gambling and Lotteries”, which is currently under consideration in the parliament of Ukraine, and offers to introduce milder tax rates for operators. According to the explanatory note to the draft law, with the help of new tax rates for gambling, the authors intend to create incentives and favourable conditions for the development of gambling in Ukraine, and stimulate the removal of illegal gambling in the shadows that has been usual practice for the country for many years.

The draft law on taxes establishes that all gambling operators and lottery operators will pay the GGR tax at the same rate of 10%. It also sets out a tax on winnings that exceed approximately €1,400 ($1,690). However, it’s worth noting that a number of deputies consider such a threshold for the tax on winnings to be rather low and insist on raising the threshold.

Moreover, the draft law also offers to cancel the triple fee for some gambling licences, which is established by the Gambling Act until the introduction of the state online monitoring system that will provide state control over the activities of all gambling operators. In particular, at this moment, such triple fees are set out for the annual instalments paid for betting licences, online casino licences and a licence for gaming machines.


On the horizon

Blockchain tech is still improving, and On 31 March, 2021, the Cabinet of Ministers of Ukraine also adopted licensing conditions for a gambling service licence (also known as a B2B licence), which allows Ukrainian business entities to supply software used in gambling activities. The licensing conditions determine some specific details for the regulation of this type of activity, as well as adopt the list of documents that shall be submitted by the applicant to the Commission for the Regulation of Gambling and Lotteries who intends to obtain a licence. The licence is also issued for five years by the Commission for the Regulation of Gambling and Lotteries, and the licence fee amounts to approximately $64,000 as of 2021. Notably, the B2B licence will give the possibility to Ukrainian software developers to supply gambling software, not just to Ukrainian but also foreign gambling operators. It’s also worth mentioning that either the Gambling Act or the licensing conditions for the B2B licence don’t provide an exhaustive list of software that can be supplied under the B2B licence.

The gambling software adopted by the Gambling Act is defined as any software that provides the possibility to collect data on accepted bets, record any payments and winnings, form databases, and determine the final results of each game. Therefore, this can be the online system that collects and records various data on bets and winnings, as well as various game and software content for gambling.

Though the first operators succeeded to obtain and pay fees for the licences, it’s too early to make any conclusions concerning the impact of gambling legalisation on the state economy or consumer behaviour in Ukraine. Many gambling operators have already paid their annual fees to the state budget. But at the same time, the market is not yet functioning in a proper way, and we expect that at least half a year is still needed to make any analysis that would be based on real facts rather than on our assumptions.

Therefore, it’s evident that we now observe the quick formation of the Ukrainian gambling market. Many licences have already been issued and the interest of local and international operators to the Ukrainian market is consistently high, so we see some incredibly positive results in rather short timeframes.

On the other hand, as must be admitted, the Ukrainian gambling market is still only at the origins of its formation, so a range of regulatory matters still need to be resolved. After all, this is the new regulation on taxes that will help decrease the tax burden on gambling operators, and attract even more investments to Ukraine.