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Malta VAT Guidelines on Gambling services
Deloitte Malta Tax Alert
The Malta tax authorities have published guidelines, which impact the VAT treatment of gambling services, with effect from 1 January 2018.
VAT exempt supplies
The Malta VAT Guidelines on Gambling services (“the Guidelines”) expressly specify which gambling supplies qualify for VAT exemption in terms of Malta VAT law, in line with the EU VAT Directive – namely:
1. The provision of any facilities for the placing of bets and wagers, including the services of book makers, betting exchanges and any equivalent facilities.
The placing of bets and wagers is defined as gambling on the outcome of an event, which outcome is unknown at the time of the placing of the bet or wager. The term event includes, but is not limited to: a sporting event (real or virtual), a competition, a lottery, the performance of an index, and a natural phenomenon. However, placing of bets and wagers expressly excludes gambling on the outcome of casino-type table games (such as blackjack, poker and roulette) and any games of chance where the outcome is determined by a random generator – accordingly, these are not VAT exempt.
2. The granting of the right to participate in a lotto or lottery, including Grand Lottery, Super 5, scratch cards, keno and any other lottery-type games.
3. The granting of the right to participate in a bingo game.
4. The provision to players of devices or equipment for the playing of casino-type games of chance, the outcome of which is determined by a random generator, including tables for the playing of roulette, blackjack, baccarat, poker when played against the house, and slot machines.
Devices or equipment refers to game tables, machines and other similar objects which are physically located in such premises or location (including a studio) which is licensed or recognised by the Malta Gaming Authority (MGA), whether accessed by the player physically or remotely. For the avoidance of doubt, devices or equipment excludes amusement machines and remote gaming equipment.
5. Supplies which are strictly required, related and essential to, and which form part of an underlying gambling or betting transaction falling within paragraphs (1) - (4) above, as shall from time to time be determined by the MGA.
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VAT taxable supplies
Whereas the above gambling and betting services will continue to be classified as VAT exempt (without credit), other gambling supplies will no longer qualify for VAT exemption with effect from 1 January 2018. Instead, they will in principle be considered to be VAT taxable supplies, which are chargeable to VAT or otherwise in accordance with the VAT place of supply rules, as amended from 2015 in relation to Electronically Supplied Services (ESS).
The Guidelines also provide helpful guidance on the computation of the taxable value of those gambling services which will no longer be treated as VAT exempt, taking into account the distinct particularities of the gambling sector.
More specifically, the Guidelines specify that the consideration for the purposes of determining the taxable value of gambling and betting services shall be reckoned as follows:
1. Where the supplier receives a commission or participation fee (typically referred to as rake), the said commission or fee (including any commission or fee which is settled using bonus credit) shall be regarded as the VAT-inclusive consideration for the service.
2. In all other cases, the VAT-inclusive consideration shall be the revenue of the operator, i.e. the total stakes/bets placed by players (including bets placed using bonus credit) less winnings and other pay outs to players in connection with that bet (including bonus credit comprised within the bets placed).
The Guidelines also clarify the treatment of jackpots, bonuses and other incentives. Furthermore, for practical reasons the Guidelines provide that the taxable value of supplies shall be determined on an aggregate basis for each VAT period, with any negative overall result for one VAT period being available for carry forward indefinitely to subsequent VAT periods.
The Guidelines expressly exempt suppliers of VAT taxable gambling and betting services from the requirement to issue a VAT fiscal receipt.
The changes heralded by the Guidelines are relevant primarily to B2B and B2C operators which make offerings not falling within the list of VAT exempt supplies – including in particular providers of online casino-type games such as baccarat, blackjack, poker, roulette and slots. Such operators will typically require a standard VAT registration (referred to as an Article 10 VAT registration), necessitating a need to switch over from any existing simplified type of VAT registration (i.e. Article 12 VAT registration).
Operators offering VAT taxable services to players established in Malta will generally be required to account for and pay Malta VAT thereon at 18% on the taxable value as determined in terms of the Guidelines. Any such operators who are not established in Malta may, as a potential alternative to local VAT registration, opt to pay the Malta VAT due via the Mini One Stop Shop (MOSS) mechanism in another EU Member State.
Arguably, the most significant implication is in relation to input VAT recovery. As a result of the Malta VAT amendments of 2015, operators engaged in the provision of ESS that are subject to VAT in the players’ respective jurisdictions were conferred the right to recover input VAT incurred in respect thereof. With effect from 1 January 2018, input VAT recovery rights will also extend to operators that make offerings which are no longer covered by the VAT exemption.
It is pertinent to note that switching to an Article 10 VAT registration may trigger other VAT consequences, including:
- From a VAT compliance perspective, the requirement to submit quarterly VAT returns in lieu of the VAT Forms applicable to an Article 12 VAT registration;
- Possible charge to VAT at 18% on any office premises rental costs (which VAT should be recoverable to the operator in whole or in part);
- Potentially, the ability to reclaim a portion of input VAT incurred on certain capital expenditure that would have previously been irrecoverable; and
- Application of a partial attribution methodology of input VAT recovery where the operator is engaged in a mix of VAT taxable as well as VAT exempt types of offerings.
The new Guidelines are part of a broader package of fiscal reforms that are being introduced in parallel with the MGA’s regulatory overhaul, which also include the introduction of VAT Grouping in Malta. The reforms are intended to provide a modern, robust and world class framework for the gambling and betting industry in Malta, offering alternative possibilities that operators ought to consider when evaluating their business structure and setting their VAT strategy.