What do Online Gambling Tax Laws mean for the player?

Online Gambling Tax

2015 marked the start of the implementation of the European Union's Value-Added Tax (VAT) on electronic services, a move that is set to cost online gambling operators tens of millions of Euros per year.

In the past, VAT laws enabled online casino and gaming operators to only be subject to VAT payments as dictated by the laws enforced by the country in which their services were supplied from. This also allowed online gambling operations to strategically operate from countries that did not impose VAT regulations, or those that waived the requirement, allowing them to avoid large tax payments.

This year however has seen a shift in the way online gambling services will be run as EU laws now mandate that VAT laws on electronic services will be applied at the point of consumption, rather than from the country of supply. Some European countries will however continue to exempt online gambling or some forms thereof from VAT, while others will require the payments.

It is anticipated that these changes will have varying effects on online gambling operators depending on the origin of their player bases as well as whether these countries are a VAT-free area or not. For example, UK based and facing gaming operators will not be subject to increase taxes on their activities as the UK offers exemption for online gaming products. That said however, UK operators have already been subject to tax increase due to the implementation of the new Gambling (Licensing and Advertising) Bill that has instituted a 15 percent point of consumption tax on online gambling operations.

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Other EU countries including France, Germany and Ireland will all apply unique VAT rules depending on the type of gambling in question and whether or not it is classified as skill-based or not.

According to tax attorney David Thompson, the new VAT laws will have a disruptive influence on organisations based in countries where there is either no VAT regulation or where full VAT exemption is applied to gaming products. Thompson further added that VAT will be charged to the net value of income from Irish and German players, and those with large customer bases in these countries will face declining margins due to increasing VAT bills.

At present in Germany, VAT is applied to online poker and casino games but sports betting is exempt but subject to a standard 5 percent turnover tax.

It has been reported that some of the bigger gaming operations like Bwin.Party Digital Entertainment will be issued with a seven figure annual tax bill in Germany alone due to the fact that approximately 26% of its player revenue is derived from German players and the VAT rate on that will be a massive 19% unless the country takes steps to amend its VAT laws to exclude online gambling services. The company will also be hit with a massive VAT bill in France.

What this could all mean for you as a Player

While online gambling operations will be required to foot the newly imposed VAT bills, it isn't all that far-fetched to anticipate that the new VAT regulations could potentially have a negative impact on players.

Already some poker rooms have increased their rake and reduced their promotional activities and offerings. If things end up becoming too tight, in an effort to curb effects on their bottom lines, other poker rooms and online casinos may follow suit.

There is also potential that the industry as a whole may see a reduction in competition as online gaming companies remove their services to countries imposing VAT regulations. We have already seen certain casinos like Spin Palace and Ruby Fortune withdrawing their services from the UK in favour of promoting only a single property (in this case Betway Online Casino).

While larger groups will find a way to integrate the new cost structure into their existing operations, smaller independent operators may no longer be able to compete in an already strained marketplace.

The repercussions of this may translate into fewer services in specific countries as well as reduced overall liquidity amongst online casinos, which is never beneficial to players. Also the potential for new entrants into these market, which will mean less options for player, less competition and perhaps less in the way of competitive offerings.