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Remote Gaming in Malta 1
Remote Gaming in MaltaOur Service Offering
March 2015
www.pwc.com/mt
2 PwC
In the last few years, a large number of remote gaming operators have established themselves in Malta and the Malta Gaming Authority has to date issued over 400 licences. The industry is in a rapidly evolving state with several countries changing policies seeking to find a stance that addresses the balance between citizen freedom and protecting the same citizen from fraud, crime and addiction.
PwC recognises the importance of the industry to the economy of Malta and supports the concept that good governance and regulation is the solution to protecting players and particularly vulnerable groups. History has shown that protectionism generally serves the unscrupulous more than the righteous.
As the leading and largest professional services organisation on the island, with nineteen partners and over 500 staff, we provide a range of assurance, tax and advisory services to a large and varied client base, including reputable remote gaming companies that choose Malta as a base.
We are at the forefront of this industry, with a view to providing sterling advice and support to our client base. More recently we have analysed the impact of the introduction of the most recent legislative amendments which emanate from the VAT Package (EU Commission 2010). We continue to consult on this topical matter with our clients as the regime evolves in practice. We have successfully brought together, on varied occasions, CEOs of the largest established iGaming companies to discuss industry issues in a structured forum. We have also led an assignment for the European Commission in the regulatory sphere, and continue to work closely with and for the Malta Gaming Authority.
This document presents an overview of how we perceive a dynamic and rapidly evolving industry and the services we are geared up to provide.
We look forward to being of service to you.
Kevin ValenziaTerritory Senior Partner
Foreword
Remote Gaming in Malta 3
ContentsAbout Malta
About PwC
Our Experience in more detail
Our Services
Our Team
4 PwC
About MaltaThe remote gaming industry
There has been a steady increase in the number of gaming providers that moved their operations to Malta since the inception of the Lotteries and Other Games Act in 2001, but more pronouncedly since the Remote Gaming Regulations were introduced when Malta joined the European Union in 2004.
In fact, Malta was the first EU Member State to introduce comprehensive legislation on remote gaming back in 2004. Malta is now widely regarded by the industry as the most prestigious European Tier-1 jurisdiction for gaming operations.
The Malta Gaming Authority (MGA) has received hundreds of applications for gaming licences over the years. Currently there are 270 operators based in Malta, holding over 460 licences for online offerings, such as casino style games, sports betting and lotteries.
The MGA is the single regulatory body responsible for the governance of all local gaming activities in Malta, including remote gaming. The MGA has a licencing framework based on four different classes, as well as sophisticated evaluation and monitoring activities, systems and processes.
The Authority has initiated an overhaul of the iGaming regulations through consultations with industry stakeholders.
In 2015, the MGA is launching a new promotional body ‘Gaming Malta’, as well as a Gaming Academy to train the local workforce in the sector.
Apart from a stable and comprehensive regulatory framework protecting both operators and players, there are various factors which have contributed to Malta’s success in attracting remote gaming operations. Some of the principal advantages include:
Attractive gaming licencing fees, gaming taxes and beneficial effective corporate tax rates on gaming operations
Rapid, efficient and relatively low cost licencing application procedures
Availability of an English-speaking skilled workforce and highly competitive salaries
High quality industry-specific services and infrastructure which delivers round-the-clock connectivity
Availability of industry support services including data centres, online payment processors and platform providers.
Malta has rapidly evolved into a global gaming hub.
Source: Gaming Malta, 2015 Edition; Malta Gaming Authority
Remote Gaming in Malta 5
Gaming operators in Malta can benefit from industry knowledge, global resources and PwC’s reputation for quality.
Since Malta’s establishment as a leading jurisdiction in the remote gaming sector, PwC Malta has developed a team of experts to service some of the larger and more renowned gaming operators that are licenced in Malta. Our team has gained considerable expertise in a vast array of issues that gaming operators face, across all types of gaming sectors.
Our firm benefits from an excellent relationship with the MGA, and we have advised the MGA in the areas of taxation, regulation, risk management and process improvement.
Through our Advisory line of service, we have developed a specialist team that provides assistance to the MGA, in conducting system reviews as part of an applicant’s licencing process. We have also performed a number of buy-side due diligence reviews of iGaming companies, including IT, regulatory and market analysis. We have also provided post-acquisition assistance to iGaming companies, involving the review of earn-out financial information, calculation of earn-out amounts due and provision of advice on earn-out disputes.
Industry experience, ranging from financial audits, licencing and technical support, tax compliance and advice on mergers and acquisitions, includes some of the largest and most successful corporations in gaming today.
Several of the gaming clients that we service operate across various jurisdictions. We are accustomed to operating as a global network working closely with our counterparts abroad, to offer a seamless service to our customers.
We are committed to promoting the highest quality of professional standards and practices across all of our engagements.
We provide assistance in evaluating operational, technology and financial performance of organisations bringing industry best practices and expertise from other industries for similar business issues.
The financial, operational and tactical skills of our gaming specialists, combined with the full service resources of a global network, give us the unique ability to be at the forefront of topical issues, analyse relevant information, solve complex problems and ultimately assist our clients in making sound business decisions.
About PwCHow We Can Serve You
Tax compliance and advice
Internal audit
Regulatory analysis
Our expertise in brief:
Financial audit
Company incorporation and licencing support
PwC Tech services including vulnerability testing
VAT considerations and optimisation
Compliance services
M&A advisory services
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In 2014 the European Commission appointed PwC Malta to carry out a study on the role of regulators for online gambling: authorisation, supervision and enforcement. The task involved gathering data through subject matter experts in 30 PwC offices. Regulatory authorities; operators; service providers and industry associations were interviewed to consider potential areas of cooperation between online gambling authorities in the EU/EEA. The data gathered was analysed and presented in a report along with a set of country fiches containing the status of the
In the area of information security, we have carried out independent annual security audits in line with the UK Gambling Commission Remote Gambling and software technical standards - security requirements and have assisted operators to prepare for obtaining certification under ISO 27001 - Information Security Management. We perform internet penetration testing and web application vulnerability assessments in several sectors including iGaming.
External financial audits of a number of the larger and more mature remote gaming operators in Malta. The work covered during the external financial audit includes an in-depth review of the risks and underlying processes of the operators. External financial audit clients include Betsson, Cherryforetagen, Evolution, Portomaso Casino, Stanleybet, Tipico and Unibet, amongst others.
We have performed well over 100 system and compliance audits on behalf of the Malta Gaming Authority, in which we review the gaming and control systems of prospective licencees to ensure compliance with relevant regulations and the MGA’s policies.
We have actively led and participated in various workshops with the MGA in relation to identifying changes that are necessary to improve the compliance reviews performed by the Authority.
We have been working closely with the MGA and the industry to address VAT related regulatory aspects.
Our Experience in more detail
We have performed an analysis of player behaviour patterns in utilising credit/debit card funds over time on behalf of a leading global bank serving major gaming operators. The task involved millions of transactions with a total value of several hundred million Euros.
We performed a Business Process Review and a Tax Review of the Lotteries and Gaming Authority (the predecessor of the MGA).
We have reviewed the business plan and prepared the Terms & Conditions for remote gaming operators in the process of setting up in Malta.
We have provided direct and indirect tax related services to various gaming clients and their related entities.
current regulations in online gambling in all the states of the EU/EEA. The outcome was also presented and approved in a meeting of the Online Gambling Experts Group hosted by the European Commission as a basis for future cooperation between Regulatory Authorities across Europe.
Remote Gaming in Malta 7
PwC Malta’s tax practice has significant experience in dealing with international structures, including but not limited to clients in the gaming sector.
Our firm has assisted a large number of clients in setting up Malta structures. Our expertise in this field is enhanced by our membership of the PwC network.
Given the particular VAT related circumstances applicable to gaming entities, we have been at the forefront in advising on the VAT implications that are specific to this industry and in providing relative solutions particularly in the context of the new VAT rules applicable as from 1 January 2015.
Tax planning and advisory services vary depending on the complexity of the structures and the issues arising. It is our experience that some investment is required particularly in the initial stages in assessing the VAT implications of operating in the gaming industry and exploring possible solutions.
Our firm can provide advice on the type of structure and set up to be used in operating the gaming business as well as advice on the manner in which such structure can be held. We also provide assistance with the incorporation of Maltese entities.
In addition, companies are required to deal with annual income tax compliance as well as annual return submissions to the Registrar of Companies. Our firm is well placed to assist with both of these legal obligations.
We also assist with any tax refund claims that may be applicable in certain circumstances both in advising on the setting up of an efficient tax refund process, as well as assisting in the compliance aspect of tax refund applications.
Particularly in the case of foreign owned gaming businesses or those employing individuals who are not ordinarily resident in Malta, we have the necessary expertise to advise and assist with personal income tax matters.
We also provide other human resource related services such as advice on organisation design, policies, assistance with global mobility matters, job evaluation and compensation, and payroll administration services.
Our practice is also well placed to provide various accounting services to gaming operators, which could range from assistance with the production of monthly or quarterly management accounts to involvement in day-to-day book-keeping and reconciliation processes.
Our ServicesTax and Company Administration
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PwC Malta provides audit services to some of the best-known names in the remote gaming sector. Services are provided to several segments including, casinos (online and land-based), sports betting, bingo, poker and B2B providers.
PwC commits to a quality audit that adds value to your business. Our audit approach can be summarised asfollows:
Our starting point is an understanding of your business and risks, which drives our assessment of materiality and the identification of audit risks, including significant risks – audit risks that require special audit consideration.
We then scale our audit approach based on the size and complexity of the business with due consideration to entity level and information technology controls, including management’s approach to its evaluation. We gather audit evidence in a number of different ways – through enquiry, tests of control, observation, inspection and re-performance, reliance on the work of internal audit (or equivalent) and substantive (detailed) procedures.
Field work will be performed by our specialist staff. The managerial and engagement leader’s review will consider the results of audit procedures with a particular focus on the more material risk areas/balances requiring significant levels of judgement including the implications of topical issues (eg regulatory and tax matters).
We are experienced in managing the smooth delivery of company audits and in co-ordinating the review process in accordance with pre-agreed timetables.
Our ServicesAssurance
With PwC you get:• A well planned and controlled audit process• All staff sourced from our i-Gaming team• An agreed upfront timetable with open
communication to ensure ‘no surprises’• Value added advice in relation to industry
specific issues• Services that address your needs at pre-
agreed fee levels
Remote Gaming in Malta 9
SPA (System and Process Assurance) is understandably integral to the audit of a gaming company. The following diagram maps the links between the audit of the financial statements and the systems related work.
Financial Statement Line Item(Significant Accounts)
ISA Financial Statement Assertions
AccuracyCompleteness
Cut-offExistence
OccurenceClassification
UnderstandabilityRights and Obligations
Valuation and Allocation
Transaction Class and Sub-Process Business Process
Information Processing Objectives (CAVR)
Automated Application ControlsManual Application Controls
Automated Accounting ProceduresApplication-Generated Reports
Business Performance Reviews
Information Technology General Controls
Program Changes Computer OperationsAccess to Programs
and DataProgram
Development
Our ServicesAssurance
10 PwC
Areas of focus Examples of processes that are typically examined by SPA
Focus on controls Assessment of the components of the control framework in order to understand the level of reliance that can be placed on controls and the underlying IT systems including assessment of the: Control environment Control activities (examples provided below) Management’s risk assessment process Information and communication controls Monitoring of controls
Revenue cycle Player registration/player identification and verification controls Controls over the game/gaming revenue Controls over player deposits and withdrawals/payouts Controls over suspected transactional frauds Controls over service providers (eg platform or payment providers) Controls over key reconciliations between the back end and third parties/accounting records
Our ServicesAssurance
SPA processes in some more detail:
Our audit will focus on the significant risk areas in the context of the financial statements. Typical significant audit risks include:
Examples of significant risks and our approach Examples of processes that are typically examined by SPA
Legal and regulatory environment
A key concern for several i-Gaming operators, which is understandably equally important to us. Our approach in this area is to understand the Board’s policy in entering new or servicing existing markets, and to assess whether restricted jurisdictions are consistent with management’s policy through testing of the back-end and a review of contractual relationships with service providers. Citing of legal opinions in relation to relevant jurisdictions/legal circularisation are also considered.
Standard internal tools have been designed to assess and test compliance matters that are specific to the Remote Gaming Regulations. These checklists are intended to provide an element of value added in an environment that is complex and heavily regulated. Customer complaints are also reviewed for an understanding of implications.
Remote Gaming in Malta 11
Fraud risk (with emphasis on customer funds)
The nature of the industry, including significant volumes and handling of client monies, lends itself to fraud risk. We will communicate with you on fraud and apply tailored fraud matrices to assess the extent of fraud risk through discussions with you, and within the parameters of our responsibilities as statutory auditors. We also evaluate company controls and procedures that address money laundering risk.
Reliance on third party service providesIt is typical for this industry to require reliance on third party service providers, such as platform support or payment service providers. We will assess management’s due diligence processes in engaging third party providers and monitoring procedures exercised over day to day transactions with these external parties.
Revenue recognition
Not necessarily a straightforward topic in the context of the IFRS interpretation for a ‘wager’ to be considered a financial instrument in terms of IAS 39. An evolving approach from an industry perspective - as part of the audit process we will assess revenue accounting against industry best practice with emphasis on ‘netting’ of related items, and the fair valuation of related liabilities (in particular management’s assessment of the exposure to open positions at the reporting date).
IntangiblesiGaming companies invest heavily in their IT infrastructure. We will assess the basis for capitalisation, the appropriate classification, the assets’ useful lives, the risk of impairment and the attendant disclosures.
Taxation
Our taxation team will review the taxation balances in the financial statements. As part of the audit process we will also consider management’s assessment of VAT risk and the attendant exposure. This is done particularly in the light of the typical restrictions applicable to gaming entities for the recovery of VAT on costs, as well as the implications and possible risks arising from potential VAT liabilities in other countries as a result of the place of supply rules implemented as from 1 January 2015.
General disclosure and presentationWe will perform a thorough review of the financial statements for compliance with International Financial Reporting Standards as adopted by the EU. Our team has developed in-depth experience of disclosures and presentational matters that are typical of the i-Gaming industry.
Our ServicesAssurance
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PwC Malta provides advisory services throughout the licencing process. These include:
Fit and Proper & Business Planning Introduction to Maltese regulatory authorities and
requirements for remote gaming Assist in the preparation and review the financial
components in the business plan prior to submission to the Authorities
Operational and Statutory Requirements Assist in the compilation of documentation required
throughout the licence application process. Assist in the compilation of the organisation’s policies
and procedures including:- Risk management- Information security- Know your client- Acceptable usage- User/player terms & conditions- Data protection- Incident management- Back up management
Design or review a Business Continuity Plan
Systems Audit Readiness assessment in preparation for the Systems
Audit performed by the Authority Threat and vulnerability assessment and testing
Merger and acquisitionWe identify merger and acquisition candidates, perform acquisition advisory procedures and disposition assistance of gaming operations. We assist our clients through every stage of a transaction, including deal structuring and fund raising, and help clients adapt quickly to the resultant changes.
Financial analysis Our finance specialists prepare prospective financial analyses for proposed and existing operations. We evaluate actual results, and analyse the effectiveness of an entity’s accounting and internal control systems for regulatory compliance and other purposes. Financial analysis services also include assisting entities in structuring joint venture agreements, negotiating management contracts and providing direction in the development of financial terms and the overall capital structure with lending institutions and investment banks.
Performance ImprovementOur gaming industry specialists work within an organisation to assess areas for operational improvement and enhanced financial performance. This includes in-depth analysis by department of current practices, funds flow, staffing, departmental objectives, marketing initiatives and internal communication tools to enhance customer satisfaction and property earnings. As part of our Performance Improvement expertise, we can also assist operators improve on the ongoing compliance with laws and regulations efficiently and effectively. We use our experiences with standard industry practices and benchmarks to develop operational refinements and process improvement recommendations.
Our ServicesAdvisory
PwC Malta provides other advisory services in the Transactions and Performance Improvement domains:
Information Security Internet penetration testing and web application vulnerability assessments ISO27001 readiness assessment including a review of your Information Security Management System to identify any
gaps or weaknesses before submitting to a certification audit Readiness assessment in preparation for the Systems or Compliance Audits performed by the Malta Gaming Authority Threat and vulnerability assessment and testing.
Remote Gaming in Malta 13
Our TeamGeorge Sammut, Advisory Partner
Since joining PwC in 1987, George has led a number of projects in Malta and abroad including Business Analysis, Systems Selection, Information Security Reviews, Disaster Recovery Planning, Systems Certification, e-Business strategy and implementations. George is also in charge of a team of Systems and Process Assurance staff dedicated to supporting audit teams by assessing and reporting on security in the IT infrastructure, applications and management of more than 100 companies each year. George and his team also provide advisory services relating to IT systems and security effectiveness and performance improvement enabled by technology solutions. In recent years, the team has performed information systems reviews on more than 80 remote gaming operations on behalf of the Lotteries and Gaming Authority to verify technology, security and regulatory compliance as part of the licencing process.
Romina Soler, Assurance Partner
Romina joined the firm in 1990 as an ACCA student trainee and was admitted to the partnership in July 2006. She is actively involved in the firm’s assurance division, with a leading role in the i-Gaming sector. She has developed considerable experience in audit and special assignments over the years, including a one-year secondment to the audit practice in PwC London. She has led a number of gaming audit assignments and her current portfolio includes some of the more renowned gaming operators in the industry. Romina has also been involved in due diligence assignments in relation to mergers and acquisitions happening in this sector. Romina is a Certified Public Accountant (CPA), a member of the Association of Chartered Certified Accountants (FCCA), and the Malta Institute of Accountants (MIA).
Neville Gatt, Tax Partner
Neville graduated in law from the University of Malta in 1993 and joined the firm in 1994 after specialising in International and EC taxation at the University of London. Throughout his professional life, he has acquired material experience of international tax, EC tax and related issues. His portfolio of clients has included a number of gaming clients, in respect of which he has co-ordinated both local and international tax assignments. He also forms part of a team of PwC Malta personnel which is actively involved in making submissions to the Maltese authorities in respect of innovations that could be introduced within the Maltese tax treatment of international gaming activities. Neville also lectures and examines in International and EC Tax legislation at the University of Malta and in Tax law at the Malta Institute of Taxation. He has addressed various seminars and conferences on these subjects both locally and overseas.
David Ferry, Tax Partner
Since joining the firm in 1994, David obtained extensive experience in corporate taxation servicing a varied portfolio of clients, as well as VAT and other indirect taxation matters. He has specialised in VAT matters since 1997 and has assisted various clients in VAT tribunal cases. He has also supported a number of University students compiling studies on indirect taxation matters. David is chairman of the Tax committee of the Malta Institute of Accountants and is a member of the Malta Institute of Taxation. David is primarily responsible for VAT related matters in the Malta practice of PwC and this has led him to be involved in various VAT related assignments with a number of gaming clients. He has also represented the local Institute of Financial Service Practitioners in discussions with the Maltese authorities on various matters related to the gaming industry.
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Ivan Grech, Advisory
Ivan joined the firm in 2003 after having successfully completed his Accountancy degree at the University of Malta. He is also a Certified Information Systems Auditor (CISA), Certified Internal Auditor (CIA) as well as a member of the Association of Chartered Certified Accountants (ACCA). Ivan was seconded to London twice, for a total period of 12 months. During his secondments, Ivan was involved on the information systems audit of several Insurance and Investment management clients. In London Ivan was involved on a SAS 70 audit on the controls of a world leading financial services company. Ivan has been involved in several reviews of system based and manual controls as well as cycle and system flow mapping. He has considerable experience in the performance of many i-Gaming systems and process controls reviews, including documenting and assessing controls over operations and their management, application change control, computer operations, security administration, physical and logical security, and disaster recovery planning.
Mark Abela, Tax
Mark read law and an M.A. in Financial Services at the University of Malta and joined the firm in 2012. He is on the PwC Tax & Legal team and is involved in various tax advisory services relating primarily to income tax, VAT and other indirect taxation matters, with emphasis on the gaming industry. Mark also has substantial experience with the EU gambling regulatory environment, and forms part of high profile client service teams in the area, advising key industry players including European Union institutions.
Remote Gaming in Malta 15
AppendicesRegulatory Framework in Malta
Licencing Costs
Gaming Tax
Doing Business and Investing in Malta
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Appendix ARegulatory Framework in Malta(www.mga.org.mt)
Application Area Process
Fit and Proper & Business Planning The applicant must complete an application for a remote gaming licence, together with a Personal declaration form for each person with more than five per cent (5%) interest. In the case that one or more of the controlling parties is another business entity, ownership and incorporation details need to be submitted. A business plan should also be submitted.
Operational and Statutory RequirementsThe following documentation has to be submitted as part of the application process: A Maltese Company Registration Certificate; Memorandum and Articles of Association; Business entity information form; 3-Year business plan; A detailed operational manual outlining the application architecture, the system architecture, software development,
security and control procedures, back-up and disaster recovery procedures; The payment methods, the payment system/s and the provider/s; Agreements with business partners, affiliates, agents; A service provider authorisation form if applicable, including the agreement with the equipment hosting provider in
Malta outlining clearly the functions and responsibilities to be carried out by such provider. A site plan of the data floor indicating the location of the equipment must be attached to the agreement.
Systems Audit Prior to a licence being granted, an operator is required to undergo a risk based Systems Audit of the gaming and control system covering aspects such as management, security, operational , financial control, reporting functions. The objective of the audit is for the Authority to obtain comfort that the operator is able to fulfil the requirements of the regulations.
Licence Renewal On expiration of a five year licence, subject to a review of systems and procedures, the MGA may renew such licence for a further five year term. Renewal applications shall be submitted to the Authority at least 60 days before the expiration of the current licence.
Remote Gaming in Malta 17
Appendix BLicencing Costs
Application Costs (for any one licence) Fees
Application Fee €2,330
Systems Audit Fee €1,770
Compliance Audit Fee €2,750
Licencing Costs (for any one licence) Fees
Annual Licence Fee €8,500
Renewal of Licence Fee (after the 5 year term) €1,500
Transfer or Assignment of Licence Approval Fee €1,500
Share Transfer Approval Fee €1,500
Simple Contractual Commercial Agreements Approval Fee(per annum per contract - Aggregate amount for approved contracts shall not exceed €30,000 per annum)
€70
Complex Joint Venture Agreements Approval Fee Administrative Hourly Fee
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Appendix BGaming Tax
Licence Gaming Tax Fees
Class 1€4,660 per month (for the first 6 months)€7,000 per month (for the remaining duration of the licence)
Class 1 on 4 €1,200 per month
Class 2 0.5% on gross amount of stakes accepted
Class 2 on 4 0.5% on gross amount of stakes accepted
Class 3 5% gaming tax on real income
Class 3 on 4 5% gaming tax on real income
Class 4 Exempt from gaming tax (for the first 6 months)€2,330 per month (for the next 6 months)€4,660 per month (for the remaining duration of the licence)
Class 4 - Licencee hosting and managing an operator which is not in possession of the relevant Class 1,2, or 3 licence in terms of the regulations, however hosting an EFA licenced B2C operator
€1,165 per month per operator (paid by the Class 4 Licencee)
Maximum tax capping per annum per licencee for any one licence is €466,000.
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Appendix CDoing Business and Investing in Malta
This Guide has been prepared for the assistance of those interested in doing business in Malta. It is not intended to cover exhaustively the subjects it addresses but rather to answer some of the important, broad questions that may arise for a potential investor. When specific problems occur in practice, it will often be necessary to refer to the laws, regulations and decisions of the country and to obtain appropriate accounting and legal advice.
The material contained in this guide was assembled up to October 2012 and, unless otherwise indicated, is based on information available at that time.
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Copyright © 2015 PricewaterhouseCoopers. All rights reserved. PwC refers to the Malta member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
www.pwc.com/mt
PwC Malta helps organisations and individuals create the value they’re looking for. We’re a member of the PwC network of firms in 157 countries with more than 195,000 people. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/mt
In recognition of the continued and sustained growth of the i-Gaming sector in Malta and its requirements for high quality audit, tax and business advisory services, PwC Malta is dedicating resources and professionals to serve this industry. We have a dedicated team that specialises in this particular sector. The scale of this experienced resource pool cannot be matched by any other service provider in Malta.
