On the 21st November, the Maltese VAT Department announces the long anticipated changes to the VAT treatment applicable in the gaming and gambling sectors.
Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, provides that Member States shall exempt without a right of deduction of input VAT “betting, lotteries and other forms of gambling, subject to the conditions and limitations laid down by each Member State”.
Item 9 of Part Two of the Fifth Schedule to the Malta Value Added Tax Act exempts from VAT “Government lotto and lotteries, the supply of agency services related thereto, and such other supplies related to gambling as may be approved by the Minister”.
Today and up to 31st December 2017, all gaming supplies (with the exception of skill games) are treated as exempt without credit supplies, meaning that no VAT is chargeable on such supplies, but the operator is likewise unable to claim a credit for any input VAT. Moreover, on receipt of (certain) services (and goods) from outside of Malta the operator is required to self-assess and pay Maltese VAT. Limited rights to input VAT exist when operators service markets which effectively tax gaming supplies.
The guidelines (applicable as from 1st January 2018) issued by the Maltese VAT Department effectively limit the current exemption without credit applicable across the board, to all gaming supplies, when deemed to take place in Malta, to the following supplies:
- 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’ refers to 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, both real life or virtual; a competition; a lottery; the performance of an index; and a natural phenomenon. For the purposes of this guideline, ‘placing of bets and wagers’ shall exclude gambling on the outcome of: (a) casino-type table games such as blackjack, poker and roulette; and (b) any games of chance, the outcome of which is determined by a random generator.
- 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;
- The granting of the right to participate in a bingo game;
- 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. The terms “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 otherwise recognised, by the Malta Gaming Authority, whether accessed by the player physically or remotely. For the avoidance of doubt, “devices or equipment” excludes “amusement machines” and “remote gaming equipment” and;
- Supplies which are strictly required, related and essential to, and which form part of an underlying gambling or betting transaction falling within paragraphs (i) - (iv) above, as shall from time to time be determined by the Malta Gaming Authority.
Therefore with effect from 1st January 2018, the following supplies will no longer be exempt from VAT:
- the supplies of casino (not on a device),
- P2P games such as poker (but excluding betting exchanges),
- Games of skill (already treated as taxable supplies) and
- Class 4 services and other supplies in relation to the above.
The table below summarises and distinguishes which supplies will become taxable and which will remain exempt as from 2018:
Live events and sports operators
Effectively, operators which carry out exclusively event betting (for example sports betting), lotteries and land based (including live) casino should not be effected by the changes. These supplies will remain exempt thereby leading to a (full) limitation on the right to claim back any input VAT and requiring the application of the reverse charge mechanism on the receipt of supplies not required, related and essential for the online gaming transaction.
Online casino and P2P poker operators
However, operators which provide online casino operations will see a fundamental change in the VAT treatment of their supplies. Since online casino operations will now be treated as taxable supplies, operators will have a full right to claim back input VAT which is directly related to the online casino operations. Moreover, with effect from January 2018, the reverse charge mechanism should no longer lead to a VAT leakage on supplies which are not required, related and essential for the online gaming transaction, thereby removing the need for the setup and maintenance of a non-Maltese entity as part of a joint venture agreement.
Since non-device casino and p2p games are generally considered to be electronically supplies services (with no or insignificant human intervention), such supplies are deemed to take place where the customer, in this case the punter, is established. This means that Maltese VAT would be chargeable only when the punter is Maltese, and in this respect the Maltese VAT authorities have also issued guidelines establishing that the taxable value in this case is considered to be:
- The commission or participation fee in respect of p2p games; and
- In the case of online casino games, the total stakes/bets placed by players (including bets placed using bonus credit) less the winnings and other amounts paid out to players in connection with that bet (including bonus credit comprised within the bets placed
The consideration determined as aforesaid shall be deemed to be inclusive of the VAT chargeable under the Value Added Tax Act.
On the other hand, when the casino operator’s customer is established outside of Malta, such a supply is deemed to take place outside of Malta and therefore, although taxable, not subject to Maltese VAT. However the Maltese VAT Act still grants the right of recovery of input VAT which is attributable to supplies taking place outside of Malta, which would have been taxable supplies if taking place in Malta. Therefore, notwithstanding that no VAT is charged, the operator would still be entitled to claim a credit for any input VAT charged to it or self-assessed in terms of the reverse charge mechanism. The right to claim a credit for input VAT necessitates a change in the VAT registration from Article 12 (impossibility of claiming input VAT) to an Article 10 VAT registration but will lead to a considerable VAT and administrative cost saving.
The three diagrams below summarise the output VAT treatment applicable as from 1st January 2018:
- Malta VAT Treatment of supplies which take place in Malta:
2. Malta VAT implications of supplies which take place outside of Malta: