The Insider's View: Ukrainian Gambling Law – a year in operation

Thirteenth of August 2021 marks exactly one year since the Gambling Law entered into force in Ukraine legalising land-based casinos, online casinos, online and land-based sports betting, online poker, totalisator and slot halls, that had been officially banned in the country for over a decade.

In addition to that, the Ukrainian legislators recognised the need to offer a separate B2B service provider licence to the local IT professionals and other businesses offering their products or services to local and/or international gambling businesses. They have introduced a special investment licence for those who aim to build a recreation zone to accommodate anywhere from 150 to 200 and more hotel rooms and a casino. However, there is no indication of the specific regulations in the Gambling Law, applicable for the B2B service providers and investment licensees.

In this edition of the EGR Insider’s View, 4H Agency’s experts recall the progress made since the Gambling Law has entered into force in Ukraine and outline the most significant milestones that its gambling market has covered since. Experts share their perspective on the current regulatory climate in the country and offer a viewpoint through which to look at all the ground that has been covered so far.

Great effort

First of all, we have to recognize the Ukrainian parliament and all the stakeholders of the gambling legalization process for the effort that they put to drive the process of legalizing gambling in Ukraine through all of the stages of the legislative process and turning the Bill into a working law.

The path was anything but smooth. The timeline leading up to the vote on the law in the Ukraine’s Parliament has seen legislators put forward well over three thousand amendments in-between the readings and finally in July 2020 the majority voted to adopt the law.

Since then, the journey of the Ukrainian legal gambling market had slowly picked up its pace and soon in October 2020, the Cabinet of Ministers of Ukraine, amidst the pandemic, issued an order to create a special commission to oversee and regulate the gambling business — The Commission on Regulation of Gambling and Lottery (CRGL).

In November 2020, during the work on the State budget bill, the Ukrainian parliament fixed their expectation to collect 7.4bn UAH (approx. EUR235m) in 2021 from the gambling market. This demonstrated their high level of trust in the success of legalization and regulation of gambling in the country. But at the time of adoption of the state budget document, Ukraine didn’t have anything in place yet to back that up.

First licences

In December 2020, The Commission together with The Cabinet of Ministers of Ukraine, designed and adopted the licensing requirements for various types of gambling businesses in Ukraine. But it wasn’t until February 2021 that the first license was issued in Ukraine to an online casino operator. The following month, the first land-based casino brand got its licenses aiming to open casinos in Lviv and Odesa.

To date, The Commission has issued licenses to 35 applicants, that can be further divided into the following segments:

• online casinos — 11;
• B2B service providers — 11;
• land-based casinos — 5;
• slot-halls — 5;
• online poker — 2;
• sports-betting — 1.

At the same time, the Commission started to actively pursue offshore operators and with the support of the Ukrainian Police forces they attempted to close a dozen of illegal land-based operations, and block access to more than 1000 illegal gambling websites online.

However, it should be noted that the crackdown on offshore online operators was being conducted under the terms of a separate criminal case and did not envisage any mechanisms provided by the Gambling Law (i.e., similar blockings were conducted prior to the adoption of the Gambling Law).

The issue with certification

Spring of 2021 is by far the most active period in the CRGL’s work. To speed up the process of opening land-based casinos, in April, The Commission issued a list of gambling equipment subject to certification and followed up a week later with a list of test labs, that in their view was eligible to do the certification. The list consists of 8 labs, half of which is state-owned, and the other half is private.

However, the technical requirements, against which to certify the gambling equipment, are yet to be officially adopted, which means that the test labs from the Commission’s list don’t have any gambling-specific technical requirements to reference and therefore they run their certification according to the next most relevant technical requirements, that at the moment are used to prove safe operation of electronic devices.

There were discussions of an alternative option to recognize the certificates issued by the internationally-acclaimed test labs. Unfortunately, the required law tools and mechanisms for recognition of the international certificates are still missing and in practice it is still impossible to use such certificates for any legal operations in Ukraine.

All in all, current situation with the certification in Ukraine looks very misleading as we observe that local test laboratories are issuing certificates that confirm the gambling equipment’s compliance with technical regulations that, as previously stated, are barely relevant, and as it turned out, had been in place before the gambling ban enacted in 2009 and do not contain any meaningful requirements to modern gambling equipment.

Such situation looks like an interim measure as according to our view resolving certification issue would require substantial changes to be made in existing regulations (including the Gambling Law itself). Until then, or at least until we see an acceptable workaround to certify gambling equipment proposed by the Ukrainian authorities, the issue of certification will remain unclear.

Gambling taxation in Ukraine

In May 2021, the first land-based casinos opened their doors in Ukraine (first licenses for land-based casinos were issued in March 2021, however there were no operations until May 2021). But without the clear taxation requirements, soon enough they began to publicly voice their concerns driving the Commission and the government to speed up the adoption of the Bill №2317-д, that was designed to introduce amendments to the Ukraine’s Tax Code and the Gambling Law that refer to the taxation of the gambling business.

The key amendments proposed to:

• Introduce 10% GGR tax for all gambling verticals, deductible from the tax base for calculation of income tax;
• Drop the requirement of a triple fee for a slot machine-, sports-betting-, and online casino licenses until the state online monitoring system is in place;
• Do not impose a Personal Income Tax on the players’ winnings of up to EUR 1,500;
• Introduce a special rule for land-based casinos and slot halls to deduct the amount of players’ losses within the last 24 hours before calculating their income tax.

The drama with the adoption of this bill starts to unfold in May 2021 following a number of re-schedulings and one failed vote attempt where it all got down to 9 missing votes for the adoption of the amendments in the 1^st reading.

Finally in July 2021, during the final week of the Parliament session, in a repeat 1^st reading, the majority of the Rada voted in favour of amendments, giving hope to the Ukrainian gambling business, but at the same time, putting the drama on hold until the start of the next session later in Autumn.

With a cliffhanger like that, the story of the legal gambling market in Ukraine leaves us waiting for the start of the next legislative season.

Despite having high expectations from the adoption of the Gambling Law, the process of designing gambling regulations in Ukraine had started slow and soon became quite messy. Nevertheless, it keeps on moving forward and soon enough we will all be able to see if Ukraine managed to live up to the expectation of its own government, local business and large international investors.

Past year has confirmed that Ukraine remains one of the most perspective gambling destinations in the continental Europe and with more transparency in the country’s legislation and further development of the gambling regulations, its potential would finally gain as much substance as expected from a modern European gambling market.

Expectations

Fall/Winter’21 season should bring us more clarity in terms of gambling taxation as we expect the adoption of amendments to the tax code, and one of the most important, yet still underdeveloped areas of regulations remain the issue of certification of the gambling equipment.

4H Agency is constantly monitoring all the developments in the Ukraine’s gambling regulatory process and works to increase the level of transparency of the process of legalization and regulation of gambling in Ukraine and make it clear, concise and comprehendible for the international gambling community.

Ilya Machavariani is a gambling and gaming lawyer for Europe, Russia and the CIS and the senior partner at 4H Agency. He has extensive experience advising on gambling issues and advises clients on operating in the Russian Federation and the CIS, on the full range of regulations relating to the activities of gambling operators, as well as drafting the necessary contracts and internal documents. He also handles licensing processes for gambling operators that are entering new markets throughout the world.