About Peculiarities of Gambling Business Legalization: Expert Opinion of the Partner of Kairos Group Law Firm Maryna Slobodnichenko

13.08.2020

On July 14, 2020, deputies of the Verkhovna Rada adopted the draft law 2285-d about the legalization of gambling business in Ukraine at second reading. New gambling legislation will allow bringing the gambling market out of the shadow, open additional opportunities for business development, and have a favorable impact on different economy sectors.

In this article, the partner of Kairos Group law firm Maryna Slobodnichenko delved into the main subtleties of the adopted draft law and provided recommendations for business representatives that are planning to operate in the Ukrainian gambling market.

What are the peculiarities of gambling business legalization? What should potential operators know if they want to organize and conduct gambling in Ukraine? Read about all of it below.

Key positions of the law on gambling business legalization

According to Maryna, the adoption of the draft law about gambling business legalization was expected. The expert believes that 4.5 billion UAH of allocations to the state budget expected in 2020 is an obvious benefit for the country’s economy. Clearly, such allocations are envisaged due to high licensing fees.

Being an active supporter of the gambling business legalization in Ukraine and a legal expert with 17 years of work experience in this field, Maryna states with certainty that this law is essential. It will bring benefits to the country and set up business regulation expected by many operators. Of course, the regulation is imperfect for now and the law contains some disputable issues. However, this will not become an obstacle for the launch and conduct of legal business in case of professional and reasonable approach to its organization.

The adopted bill allows the following gambling activities:

casino;
online casino;
land-based betting outlets;
online betting;
slot machine halls;
online poker.

Outlines of the law that are important to pay attention to when you a start a business in the gambling industry:

Only residents of Ukraine have the right to act as organizers of gambling. Consequently, foreign investors (operators) willing to conduct gambling activity have to set up a company in Ukraine.
The operator’s registered capital of at least 30,000,000 UAH has to be made solely of monetary funds. The rest of the sum can be formed due to property. An important thing is that the source of funds has to be legal and proven by documents and an audit report. In light of this, Maryna recommends potential operators to run legal and financial analysis of the source of funds.
Key representatives of the company that organizes and conducts gambling: ultimate beneficial owner, holder of substantial share, manager, accountant. Individuals that work in the mentioned positions cannot be citizens of countries recognized as occupants or aggressors. Moreover, any connections, direct or indirect, with companies from aggressor countries are prohibited.
A gambling operator has to set up a special deposit or a bank guarantee amounting to 34,005,600 UAH (based on the minimum salary as of January 1, 2020). However, some legal inventiveness is possible here. The law does not set this kind of requirement to a company when it applies for a license. Correspondingly, the question remains open as to when the company has to set up a guarantee or a deposit.
Obligatory financial monitoring is an important aspect for the operator, which requires special training of personnel and development of internal documentation. Besides, the company has to be registered with the State Financial Monitoring Service.
If you are opening an online business, you need to register a domain name in the UA zone.
To avoid loopholes in license acquisition, compulsory branding of business was introduced. For this reason, it is essential to organize business correctly with the use of your own brand and to register a trademark. Running different kinds of gambling business under one brand is prohibited.
It is necessary to develop an internal online monitoring system to track bets and payouts in compliance with legal requirements.

About licensing of gambling software suppliers

Maryna notes that the adopted bill contains a nuance that relates to Ukrainian developers of software intended for the gambling industry.

In particular, Ukrainian developers can sell gambling software only if they hold a license. At the same time, foreign companies that develop software can safely sell their products to Ukrainian operators without licenses according to the Ukrainian legislation.

The expert states that there is a way out of the current situation, in which the Ukrainian IT business is constrained, mildly speaking. However, lawyers will have more work to do.

About license cost, requirements to minimum number of equipment items and floor area

The draft law 2285-d adopted at second reading sets requirements to the cost of license, location of gambling facilities, minimum number of gambling equipment items and personnel working at the company under employment agreements.

Find more about highlights of the document further in the table.

Game type	License fees*	Gambling equipment	Location of gambling facility	Personnel at gambling facility
Casino	Casino license fee in Kyiv – 283,380,000 UAH, in other towns and outside them – 141,690,000 UAH Annual license fee for every gambling table – 425,070 UAH, for every roulette table – 826,525 UAH, for every slot machine – 28,338 UAH	Casinos located in towns with population of over 500,000 people must have at least 10 gambling tables, including 2 roulette tables, and 50 slot machines Casinos located in towns with population of less than 500,000 people must have at least 5 gambling tables, including 1 roulette table, and 20 slot machines	In Kyiv – only at 5-star hotels with at least 150 rooms In other towns – at 4- and 5-star hotels with at least 100 rooms Floor area for Kyiv and other towns – not less than 500 sq.m. Territory of the suburban resort complex of no less 10,000 sq.m. with a 5-star hotel	Not fewer than 50 employees working under employment agreements
Online casino	License fee – 30,699,500 UAH**	–	–	–
Slot machine halls	Gambling license fee – 35,422,500 UAH Annual license fee for every slot machine – 28,338 UAH**	One gambling license allows placing 250 slot machines irrespective of the number of halls	In Kyiv – only at 3-, 4- and 5-star hotels with at least 50 rooms In other towns – at 3-, 4-, 5-star hotels with at least 25 rooms Floor area – 300 and more sq.m.	No requirements
Betting outlets	One land-based betting license also allows conducting online betting activity Betting license fee –141,690,000 UAH** Annual license fee for every betting outlet – 141,690 UAH License fee for betting on horse racing – 4,723 UAH	–	In Kyiv – only at 3-, 4- and 5-star hotels with at least 50 rooms In other towns – at 3-, 4-, 5-star hotels with at least 25 rooms Floor area – no less than 50 sq.m. Betting outlets can be also located at horse-courses	No requirements
Online poker	License fee – 23,615,000 UAH	–	–	–
Services in the field of gambling	License fee – 1,416,900 UAH	–	–	–

* License fee is calculated based on the minimum salary as of 01.01.2020.

** Before the introduction of the State Online Monitoring System, the annual fixed part of the license fee and the fee per slot machine is tripled. However, the lawmaker plans to exempt operators from taxes during the period of triple license payments.

According to Maryna, the law also envisages the creation of special gambling zones by the decision of the Cabinet of Ministers. Their number cannot exceed five in Ukraine. The casino floor area has to be no less than 10,000 sq.m. with no fewer than 200 people working under employment agreements.

Investors that plan to invest in the construction of 5-star casino hotels (with the room capacity of 200 in Kyiv and 150 – in other towns) will obtain a standalone kind of license – an investment license. No fee is charged for the issuance of this license. The investment license is valid for 10 years.

Gambling license acquisition: what to pay attention to?

Maryna notes that it is important to factor in two core aspects when you choose a gambling venue:

necessity of the license that proves the compliance of the premise intended for the conduct of gambling with set requirements;
the number of population in the town where the operator plans to conduct gambling;
slot machine halls must be located not closer than 500 meters to educational facilities.

To define the venue intended to open a casino or a slot machine hall, lawmakers use the term “hotel territory”. Here it is essential to understand that hotel territory can include not only the hotel building. It can include, for instance, a neighboring building or another premise that relates to the hotel and is not located nearby. According to Maryna, there are disputable moments as to how exactly the licensing authority will identify the venue, where gambling will be allowed.

Owner of the premises used for the gambling business has to get the permit from the Commission proving the compliance of the building with legal requirements. The expert calls this type of permit “an attempt to overregulate business and burden it with an extra authorization document”.

To acquire a betting license, an operator will have to submit a permit that proves the compliance of the premise with legal requirements. This document will not be necessary to get a license for every subsequent betting outlet.

As for premise permits for each slot machine hall, Maryna thinks that this issue is disputable. Its solution will depend on whether the gambling license for slot machine halls will be targeted.

Besides, when you choose a gambling venue, it is important to take into account the population amount in the town. For example, the law forbids the activity of slot machine halls in towns where less than 10,000 people reside. In connection with this, Maryna recommends potential operators to make sure that the location is appropriate for running a business prior to making arrangements regarding the rent of a premise for the gambling activity.

About the internal online monitoring and taxation system of the gambling business

Already now, operators have to develop an internal system for online monitoring of betting and payouts, as well as store all data. Later (within two years) the state will introduce its own control over the activity of operators through the State online monitoring system.

After the introduction of the State monitoring, all operators will have to connect to the system within six months and upload all data accumulated over the time of their operation.

Many people are concerned about the taxation of gambling industry. For now, the tax rates remain the same for business, as envisaged by the Tax Code: 18% of GGR, and 10% of revenue for slot machines.

The government is worried that the absence of the State online monitoring system may give rise to the abuse from the side of operators – concealment of real gross gaming revenue, which is considered as a tax base. For this reason, some license fees are tripled before the establishment of the State online monitoring system.

Undoubtedly, this amount of license payment paves the way for many potential gambling operators to stay in the shadow and not to legalize their businesses. Consequently, law-enforcement agencies and activists will have more work to do.

You can learn more about the most promising gambling business directions and subtleties of new gambling legislation at the large-scale exhibition Ukrainian Gaming Week on October 6-7.

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