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Gambling in Ukraine is getting new tax framework

23/ 07/ 2021
  On 15th July 2021, the Parliament of Ukraine passed in the first reading the bill updating tax framework for gambling and lotteries (No. 2713-д). After more than 10 years of ban, gambling was legalized in Ukraine in August 2020 within the overarching initiative to bring the industry out of shadow and increase public revenue. However, industrys tax rules have not been updated which still prevents many market players from the full-fledged launch of their activities in the country. The bill aims to address this issue and liberalize current regulations. Below we briefly discuss key provisions of this bill based on its current version. Taxation of gambling/lottery operators Corporate income tax The bill keeps the existing two-tier corporate income tax (CIT) system for gabling/lottery operators, which includes: a regular CIT at the rate of 18% applicable to the companys profits (derived both from gambling/lottery and from any other activities); and a special tax at the rate of 10% applicable to the gross gaming revenue (GGR). The operators will be liable to pay both of these, but the amount of the GGR tax will be deductible from the taxable profits subject to the regular CIT, effectively decreasing operators CIT tax base. These provisions are way friendlier than the existing rules which provide for higher GGR tax rates (from 10% to 30%) and do not allow for deduction of GGR tax from the CIT base. GGR will be calculated as follows: for gambling, GGR = gross revenue from gambling minus winning payouts minus returned bets plus winnings/prizes remaining unclaimed as of 31 December of the reporting year; for lotteries, GGR = revenue after formation of the lottery pool plus portion of the lottery pool remaining unclaimed as of 31 December of the reporting year. Gambling/lottery operators will report and pay GGR tax on a quarterly basis. VAT The bill does not provide for any material changes to VAT rules, so the existing regulations will continue to apply. Currently, most of the core operations within gambling/lotteries are VAT-exempt (e.g., issue of lottery tickets, purchase of gambling tokens, making bets, payment of winnings/prizes in cash). Any side activities of gambling/lotteries operators (such as providing food, drinks to, or entertaining gamblers) are subject to VAT under general rules. Taxation of gamblers The bill proposes to fully exempt winnings/prizes with the value of up to eightminimum wages (currently circa. USD 1.8k) from individual income taxes. If the value of a winning/prize exceeds this threshold, only the exceeding amount will be subject to 18% personal income tax (PIT) and 1.5% military tax. Moreover, gamblers expenses incurred due to participation in the game within the preceding 24 hours will be deductible from the taxable value of a winning/prize. The operators will act as tax agents, meaning that they will be required to calculate, withhold, and transfer and report to tax authorities the amounts of PIT and military tax applicable to the winnings/prizes awarded to the winners. The bill provides for anonymized reporting, that is, an operator will report to the tax authorities only the total amount of winnings/prizes awarded to winners during the reporting period and the total amount of taxes withheld from such winnings/prizes. It suggests that the operator will not be required to disclose the names or tax IDs of the winners or the amount of winnings/prizes awarded to a particular gambler). Miscellaneous The bill also suggests repealing the provision of the Gambling Law which requires holders of online casino license, betting license, and slot machines to pay triple amount of license charges until the implementation of the state-owned online monitoring system. The companies which have already paid such triple charges are proposed to credit the excessive amounts against their future annual charges. Before signing into law, the bill will undergo further parliamentary discussion and some rules may be changed in the second reading. Further discussions of the bill should be monitored in this regard. Should you need more information on the document and/or analysis of its potential implications on your business, our tax team would be happy to assist you. In this case, please feel free to contact our Tax Partner Constantin Solyar, Senior Associate Yurii Dmytrenko and Associate Olena Mitskan.

On 15th July 2021, the Parliament of Ukraine passed in the first reading the bill updating tax framework for gambling and lotteries (No. 2713-д).

After more than 10 years of ban, gambling was legalized in Ukraine in August 2020 within the overarching initiative to bring the industry out of shadow and increase public revenue. However, industry’s tax rules have not been updated which still prevents many market players from the full-fledged launch of their activities in the country. The bill aims to address this issue and liberalize current regulations.

Below we briefly discuss key provisions of this bill based on its current version.

Taxation of gambling/lottery operators

Corporate income tax

The bill keeps the existing two-tier corporate income tax (CIT) system for gabling/lottery operators, which includes:

  • a regular CIT at the rate of 18% applicable to the company’s profits (derived both from gambling/lottery and from any other activities); and
  • a special tax at the rate of 10% applicable to the gross gaming revenue (GGR).

The operators will be liable to pay both of these, but the amount of the GGR tax will be deductible from the taxable profits subject to the regular CIT, effectively decreasing operator’s CIT tax base.

These provisions are way friendlier than the existing rules which provide for higher GGR tax rates (from 10% to 30%) and do not allow for deduction of GGR tax from the CIT base.

GGR will be calculated as follows:

  • for gambling, GGR = gross revenue from gambling minus winning payouts minus returned bets plus winnings/prizes remaining unclaimed as of 31 December of the reporting year;
  • for lotteries, GGR = revenue after formation of the lottery pool plus portion of the lottery pool remaining unclaimed as of 31 December of the reporting year.

Gambling/lottery operators will report and pay GGR tax on a quarterly basis.

VAT

The bill does not provide for any material changes to VAT rules, so the existing regulations will continue to apply. Currently, most of the core operations within gambling/lotteries are VAT-exempt (e.g., issue of lottery tickets, purchase of gambling tokens, making bets, payment of winnings/prizes in cash). Any side activities of gambling/lotteries operators (such as providing food, drinks to, or entertaining gamblers) are subject to VAT under general rules.

Taxation of gamblers

The bill proposes to fully exempt winnings/prizes with the value of up to eightminimum wages (currently circa. USD 1.8k) from individual income taxes. If the value of a winning/prize exceeds this threshold, only the exceeding amount will be subject to 18% personal income tax (PIT) and 1.5% military tax. Moreover, gambler’s expenses incurred due to participation in the game within the preceding 24 hours will be deductible from the taxable value of a winning/prize.

The operators will act as ‘tax agents’, meaning that they will be required to calculate, withhold, and transfer and report to tax authorities the amounts of PIT and military tax applicable to the winnings/prizes awarded to the winners. The bill provides for ‘anonymized’ reporting, that is, an operator will report to the tax authorities only the total amount of winnings/prizes awarded to winners during the reporting period and the total amount of taxes withheld from such winnings/prizes. It suggests that the operator will not be required to disclose the names or tax IDs of the winners or the amount of winnings/prizes awarded to a particular gambler).

Miscellaneous

The bill also suggests repealing the provision of the Gambling Law which requires holders of online casino license, betting license, and slot machines to pay triple amount of license charges until the implementation of the state-owned online monitoring system. The companies which have already paid such triple charges are proposed to credit the excessive amounts against their future annual charges.

Before signing into law, the bill will undergo further parliamentary discussion and some rules may be changed in the second reading. Further discussions of the bill should be monitored in this regard.

Should you need more information on the document and/or analysis of its potential implications on your business, our tax team would be happy to assist you. In this case, please feel free to contact our Tax Partner Constantin Solyar, Senior Associate Yurii Dmytrenko and Associate Olena Mitskan.

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