MARKET REPORT: ESTONIA NJORD LAW
need for an EU-wide, passportable B2B licence. Tis demand can also be seen from the enquiries from the large number of software companies in the gaming industry, and the general high level of Estonian digital industry would give Estonia another unique selling proposition and would give gambling operators an alternative to the existing Maltese B2B licences.
A modern and innovative regulatory environment would not be anything out of the ordinary for Estonia. Te Estonian start-up- friendly ecosystem including its successful e-residency programme has enabled Estonia to be used as a giant sandbox for testing new ideas, mainly in the fintech market. As the business models of intended start-ups become more and more complex, there is a definite trend of gambling aspects being included in various financial and gaming business models. For example, these could be lotteries built on the blockchain, being part of investment tokens and/or virtual reality games where some parts of the outcome of a game are chance-based and other parts depend on real events.
Te gambling tax has also stayed the same over a longer period of time and creates some irritation among the operators.
Te main issue is that gambling tax is considered a special turnover tax making the organisation of gambling exempt from VAT, and as the Estonian VAT Act treats gambling as tax- free supply, the input VAT cannot be deducted from goods and services purchased for the organisation of gambling; even if the gambling generates taxable supply abroad, the input tax can only be deducted with prior consent from the Estonian tax authority. Another issue among operators is that Estonia uses the same gambling tax rate, five per cent, for online casino as for online sports betting, while other countries offer different tax rates.
At the time of writing, there is a draft law in the Riigikogu, the Estonian parliament, that would change the distribution of the revenues from gambling tax to be more flexible. Whereas previously the law directly stated what proportions of the tax would be allocated to specific cultural institutions, the proposed changes would mean that the tax is distributed directly to the general revenues of the Estonian state.
AML AND GAMBLING
Since Malta was added to the Financial Action Task Force's grey list of jurisdictions under increased monitoring there has been a clear increase in interest for the Estonian gambling market from operators already licensed in Malta. Estonia’s relative stability and security,
P84 WIRE / PULSE / INSIGHT / REPORTS
“The main issue is that gambling tax is considered a special turnover tax making the organisation of gambling exempt from VAT, and as the Estonian VAT Act treats gambling as tax-free supply, the input VAT cannot be deducted from goods and services purchased for the
organisation of gambling; even if the gambling generates taxable supply abroad, the input tax can only be deducted with prior consent from the Estonian tax authority.”
combined with the business risk that comes with operating from a grey-list country, has undoubtedly increased the attractiveness of Estonia in the eyes of Maltese gambling operators.
If there are any limitations to the overall growth of the gambling sector in Estonia, then those can mainly be found from the outside. For example, Estonia has not been without its own AML concerns. Tis, in turn, has made the local banks fairly conservative and unwilling to open accounts for non-resident companies. Te approach of the Estonian banks has forced companies to seek financial services from abroad, which is not the most efficient way of conducting business in Estonia or AML/CTF.
COVID-19 IMPACT ON THE BUSINESS
Te Covid-19 pandemic has affected, and will continue to affect, every part of our lives for the foreseeable future. Gambling operators, especially casinos, are no exception to that. Looking at the collection of gambling tax in Estonia, it is quite easy to spot some fundamental trends that can be attributed to the global and local health situation and the restrictions that have followed.
For example, the gross gaming revenue (GGR) in Estonia for gaming machines (slot machines) remained largely the same from 2017 to 2019. However, in 2020, the GGR for gaming machines dropped by roughly 30 per cent.
“Online casinos have enjoyed a marked increase in popularity, which, of course, makes
complete sense. The GGR for online casinos increased in 2020 compared to 2019 by also around 30 per cent. Since the GGR for online casinos was larger to begin with, the total increase has also been more substantial. The trend has
certainly continued to 2021, with the first half of the year already nearly making up the total for 2019.”
Te results for the first half of 2021 were even more drastic, with the decrease projected to be an additional 50 per cent from the already weak 2020. Te reality of 2021 will presumably not be as severe, since the restrictions to casinos being open were much stricter in the first half of the year compared to the second. Te same trend is also visible regarding gaming tables.
Meanwhile, online casinos have enjoyed a marked increase in popularity, which, of course, makes complete sense. Te GGR for online casinos increased in 2020 compared to 2019 by also around 30 per cent. Since the GGR for online casinos was larger to begin with, the total increase has also been more substantial. Te trend has certainly continued to 2021, with the first half of the year already nearly making up the total for 2019.
Te overall increase of GGR from 2016 to today has been drastic and points to an increasingly stronger and healthier online gaming market. As the increase in GGR for online gaming has been continuous for the past five years, it is difficult to say if Covid-19 is the sole catalyst. But at the same time, it has clearly given a significant boost and enabled gambling operators to find new clients.
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