Online Gaming

Online gaming itself and many services ancillary to online gaming are regulated in almost every country in the world and has been effectively outlawed in others. Frequently more than one country's laws are relevant since regulation should be considered both in the country where a company is registered and in the country from which it is being operated (if different). There is a significant difference in the timescales and cost of regulation from country to country as well as the categorisation of different licence types and the extent to which ancillary services are regulated.The following are standard categories of gaming activities. They are arranged in decreasing order of risk to the regulator which equates to complexity of requirements to obtain a licence. Licensing is likely to include the preparation and submission of a business plan, the appointment of local auditors and compliance staff, the payment of a licence fee, a period of testing. Licensing will also be subject to a minimum capital requirement which varies depending on the category below.

Where the gaming company manages its own risk and the player gambles against the house.

Where the gaming company manages its own risk over sporting activities.

Player to Player (P2P)
Where the gaming company sell online tokens to the players who gamble against one another.

Software/Hosting/Other Ancillary Services
Ancillary services to gaming such as the writing or maintaining of software.

It may be the case that certain types of gaming related activity which fall outside of the above and are not caught by a catch-all provision are, for the time being at least, unregulated. If this is the case it may be possible to set up without a licence but this should be done with caution having obtained competent local advice including confirmation from the local regulator that they do not consider a licence to be necessary. It is important to be aware that even though an activity is licensable at present the law could still be changed with little or no warning in the future having a significant effect on the operation of established unlicensed companies.

Choice of Country

Reputation and Regulatory Infrastructure
The reputation of country is an important consideration since it will be linked to the reputation of the gaming company. Clients must be cautious to avoid capricious or unpredictable regulators as much as countries they feel are overly interfering or which make the licensing requirements too onerous. Consideration should be given to what rules are applicable to the outsourcing of operations.

Taxation and Regulatory Cost
For many clients the most important consideration is going to be cost based. Cost will be determined with regard to capital costs on establishment, licence fee, the appointment of local persons if required as well as any ongoing costs of operation such as local person, premises, hosting but principally based on tax and for this reason many online gaming countries offer low or no tax rates. Consideration should also be given to timescale to licensing, testing times and capital requirements.

European Union (EU) Value Added Tax (VAT)
Activities carried out by gaming companies within the European Union (EU) are exempt without credit for VAT purposes. This means that unusually for commercial operations VAT is a cost and the applicable rate varies from country to country but is usually around 20%. This represents a substantial increase in costs to operate up an online gaming business inside the EU. This increase can be deferred to some extent by the use of a joint venture agreement with a non-EU entity outsourcing as much of the operation as is permissible under local law (usually only marketing) and thereby changing the nature of the cost from the supply of a service (which is subject to VAT) to a profit share under a joint venture (which is not). Where this method is applicable it will be outlined on the country specific pages related to online gaming.

Other Considerations

The time zone may be applicable since if customers are likely to be playing during known times it may be cost efficient to operate these as the office hours of the casino backend.

Currency/Banking Sector
It is important to choose a country with a reliable banking sector which can operate in the same currency as the players. Where margins are low banking charges can be a significant factor and the payment of winnings to players, for example, and the ease with which funds can be deposited without forex loss are likely to be significant in choice of country.

Human-Resource Infrastructure
Where operations are not outsourced (as may be a requirement under the gaming licence) it is important to ensure that the country has suitable Human Resources. Consideration should be given to the local languages, market conditions (including salaries and competitiveness) and level of technical expertise available.