In the autumn of 2000 the Maltese government passed legislation enabling online betting centres to be set up in the country, and this legislation, coupled with provisions from the Income Tax Act written specifically for international companies, made Malta an attractive location for casino and sportsbook operations. Malta became the first EU member state to regulate internet gaming in May 2004 with its Remote Gaming Regulations under the Lotteries and Other Games Act 2001.

A large number of companies from around the world expressed interest in Malta, including Stanley Leisure, William Hill, Ladbrokes, Paddy Power, Unibet, GC Sports, International Allsports, and Eurofootball.

According to the gaming regulator’s 2011 industry update, by the end of 2009 Malta had attracted 330 remote gaming companies and processed over 500 licences. These businesses employ about 5,200 people in Malta, and service around 10% of the world’s internet gaming market. They generated tax revenues for the government of EUR52.5m in 2009.

The e-gaming industry in Malta is regulated by the Lotteries and Gaming Authority, which was established in 2002 and is responsible for the governance of all gaming activities in Malta including casino gaming, commercial bingo games, commercial communication games, remote gaming, sports betting, the National Lottery and non-profit games. According to its mission statement, the Authority’s role is to ensure that “gaming is fair and transparent to the players, preventing crime, corruption and money laundering and by protecting minor and vulnerable players.”

In 2002 the Malta Lotteries and Gaming Authority put together the legislative framework for a new licensing regime encompassing online casinos, sports betting, betting exchanges and lotteries, which came into effect in early 2003. Said the Authority: ‘This framework has the objective of providing regulation which is strong and serious but not unnecessarily bureaucratic, ensuring vigorous protection for users of online gaming, and dovetailing with Malta’s long-established and reputable financial services sector.’

There are four classes of licence available to operators in Malta, as follows:

  • Class1 – For operators managing their own risk on repetitive games. This class covers casino-type games.
  • Class 2 – For operators managing their own risk on events based on a matchbook. Under this class operators can offer fixed odds betting.
  • Class 3 – For operators taking a commission from promoting and/or betting games. This class includes peer-to-peer games, poker networks, betting exchanges and online lotteries.
  • Class 4 – To host and manage remote gaming operators, excluding the licensee themselves. This is intended for software vendors who want to provide management and hosting facilities on their gaming platform.

Licenses are granted for a period of five years and licensees must have the core part of their online operation physically located in Malta.

The amount of tax paid by online gaming companies located in Malta depends on the type of licence they hold: Class 1 licence holders pay EUR4,660 for the first six months, then EUR7,000 per month thereafter; Class 2 firms involved in fixed odds betting pay a 0.5% tax on the gross amount of bets accepted; Class 3 licence holders pay a 5% tax on real income; and Class 4 licence holder pay no tax in the first six months of operations, then EUR2,330 per month for the following six months, and EUR4,460 per month thereafter. The maximum amount of tax payable annually in respect of any one licence is EUR466,000. In 2011, application and annual licence fees are EUR2,330 and EUR8,500 respectively for all classes of licence.

Moves to tax and regulate online gaming and gambling elsewhere in the European Union have been to the benefit of the industry in Malta in recent years. In mid-2007 it was reported that applications to the Maltese gaming regulator surged in the run up to the introduction of more stringent e-gaming regulations in the UK, with interest shown from the likes of Intercasino, William Hill, Littlewoods, Playboy Casino and Virgin Games. This was prompted by the UK former Labour government’s announcement that only companies based in territories on its so-called ‘white list’ would be able to market their services in the UK from September 1, 2007, when the Gambling Act 2005 came into force. It was estimated at the time that this could effectively ban one thousand firms from advertising in the UK. To gain a place on the UK white list, countries must meet stringent new standards which are designed to stop children gambling, protect vulnerable people, keep games fair and keep out crime. Countries in the European Economic Area (EEA), which includes Malta, are automatically accepted onto the white list. But the white list is fairly exclusive, and only a small list of other territories, including the Isle of Man, Alderney, and the Australian state of Tasmania, were deemed to have suitably adequate regulatory regimes.

It remains to be seen, however, how changes to the UK’s remote gambling tax and licensing regime proposed by the Conservative-led coalition government will affect e-gaming firms and the remote operations of traditional bookies.

Under the proposals, announced on July 14, 2011, the UK Gambling Act would be amended so that remote gambling is regulated on a point of consumption basis, and all operators, whether from the UK or abroad, will be required to hold a Gambling Commission licence to enable them to transact with British consumers. Importantly, the tax regime for remote gambling is also being reviewed, with the intention of taxing operators on the basis of customer location. Changes to the licensing regime are being looked at because, according to the government, the current system for regulating remote gambling “doesn’t work”.

“Overseas operators get an unfair advantage over UK-based companies, and British consumers who gamble online may have little or no protection depending on where the operator they deal with happens to be based,” said Minister for Tourism and Heritage John Penrose. “So our new proposals are an important step to help address concerns about problem gambling and to plug a regulatory gap, ensuring a much more consistent and higher level of protection for those people in the UK who gamble online.”

In June 2010, Malta disagreed with the conclusions of an EU Competitiveness Council meeting which adopted a definition of illegal gambling as: “gambling in which operators do not comply with the national law of the country where services are offered, provided those national laws are in compliance with EU treaty principles”. Having taken note of some recent European Court of Justice rulings that apparently support attempts to restrict Europe-wide regulation in favour of local monopolies, and of national legislation which appears to contravene the principles of the freedom of services, such as that now in force in France, Malta fears that it may suffer if a new, illiberal regime is voted through based on the Green Paper. The Maltese government says that the Competitiveness Council’s definition does not properly take into account that Malta has a very advanced regulatory regime in full compliance with EU legislation.

The primary aim of the Green Paper consultation, launched by the EU on March 24, 2011, is, according to the European Commission, “to obtain a facts-based picture of the existing situation in the EU on-line gambling market and of the different national regulatory models”.

“The on-line gambling market in the EU continues to grow rapidly and generates important revenues that are sometimes channelled into good causes,” the Commission says. “Its expansion must go hand-in-hand with a determination to protect our citizens, especially minors, and to ensure that offers of these types of services within the EU are sound and well-regulated. It responds to calls from the European Parliament and the Member States for us to address these questions jointly. This consultation is not about liberalisation of the market, it is about ensuring that the market for on-line gambling services within the EU is well-regulated for all.”

Clearly then, there are developments to be watched with regard to e-gaming regulation in the EU in the coming years.

Malta’s economic policy encourages information technology operations, and the territory has invested heavily in state-of-the-art telecommunications. With the e-gaming sector using an estimated 50% of Malta’s available bandwidth, there are now four high-capacity fibre-optic submarine cables linking the island with mainland Europe. As a result of this investment, there are already a number of Internet Service Providers in Malta, with clear interest being shown in continuing offshore e-commerce development. This was confirmed in 2008 by the European Commission, which recognized the jurisdiction as “well advanced in information society, with many benchmarking indicators significantly above the EU average.” The Commission’s study showed that Maltese businesses are the 4th best connected in Europe to broadband and Malta’s population is the 5th most covered by DSL coverage in the EU. The report also found that the ratio of Maltese employees with ICT skills is the 5th largest in Europe, and the ratio of ICT specialists in Malta is also ahead of the European average. These findings were confirmed by a study published by Oxford University in late 2010 which ranked Malta sixth in the world with regard to broadband quality.