Artem Kuzmenko, Partner at Eterna Law, explores Ukraine’s changing gambling landscape and the taxation challenges it faces
The Ukrainian gambling market is undergoing a transformative phase, with key discussions centered around the establishment of an effective taxation system tailored to the newly legalized gambling sector. This Gambling.Re exclusive article by Artem Kuzmenko, Partner at Eterna Law and an expert in the field of gambling law, sheds light on the intricacies of these changes and the anticipated developments in this dynamic industry.
The taxation of the gambling sector in Ukraine presents a twofold challenge. First, there are systemic issues stemming from the absence of a structured taxation framework. Second, there’s the ongoing process of introducing targeted legislative innovations.
- Draft Law No. 8176 – A Step Towards Clarity: The Ukrainian Parliament’s approval of draft law No. 8176 marked a significant milestone. This legislation introduces amendments to the Tax Code of Ukraine to resolve a long-standing legislative conflict surrounding the taxation of Gross Gambling Revenue (GGR), especially in the realm of online casinos.
Interestingly, market representatives were already adhering to an 18% GGR tax rate even before the resolution of the legislative conflict. Consequently it serves to enhance the legal framework and eliminate any lingering legislative inconsistencies. The current structure maintains a corporate tax rate of 18% and a GGR tax of 18%. These amendments do not alter the existing tax burden on the gambling industry but aim to enhance legal clarity, making it easier for operators to adapt to changes.
- Clarification of the Taxation of Winnings: The taxation of player winnings has been a point of contention, with varying perspectives within the market. Some argued for taxation based on the difference between winnings and deposits, while others favored taxing the entire deposit amount.
To address this ambiguity, the State Tax Service has issued a clear explanation, stating that the entire amount disbursed to players is subject to taxation, providing much-needed clarity in this area.
- Impact of Sanctions on Market Operators: Sanctions imposed on major market operators, notably Parimatch, with a substantial market share reaching up to 60%, have caused significant ripples in the state of market competition.
The deprivation of licenses from such prominent players has negatively affected overall competition, raising concerns about potential monopolization in certain segments of the gambling business. This situation has intensified the Ukrainian market’s interest in attracting new players, including foreign operators.
The future of the Ukrainian gambling market holds promising developments, with two key aspects at the forefront:
a. Bill 2713-d – Paving the Way for a New Taxation System: Bill 2713-d is poised to revolutionize the taxation system in the gambling market by introducing a unified GGR rate of 10% for all types of gambling. This legislation aims to establish a tax structure that leans on high license fees and low taxes.
However, despite passing the first reading in 2021, the bill is awaiting consideration in the second reading by parliament. Industry stakeholders eagerly anticipate its adoption, as it promises to elevate the gambling market to new heights, attracting more foreign operators in the process.
b. State Online Monitoring System – Enhancing Transparency: The imminent introduction of a state online monitoring system will have multifaceted benefits, including a significant reduction in the cost of licenses in some field as mandated by law. This move is set to make the market considerably more transparent for state oversight.
The Ukrainian gambling market is in a state of flux, with new operators entering the scene and ambitious projects on the horizon. However, to fully realize its potential, the sector eagerly awaits the adoption of a new taxation system, expected in the near future. With this revamped framework, the market anticipates a surge in operators, including an influx of foreign investors, further solidifying its position on the global stage.
