Despite an announcement at the end of 2020 from the Chilean Ministry of Finance that it was bringing forward a bill to regulate online gambling, progress towards regulated gaming in Chile has been slow. However, in March 2022, a regulation bill was presented to Congress, and it is currently under analysis by the Economy Commission of the Chamber of Deputies. Carlos Baeza examines what the bill contains and forecasts when it is likely to become law.
At the end of 2020, the Chilean Ministry of Finance announced that a Bill to regulate online betting platforms would be presented to Congress. The ministry was acting under the exclusive initiative of the President of the Republic. Although the initial intention expressed by the Treasury was to submit this Bill to Congress during the first semester of the year 2021, political circumstances caused it to be delayed until March 2022 when it was presented to Congress. Congress is in the process of analyzing the regulation but the hope is that from here progress should be smoother. Although it is unlikely that this Bill will become law in the short term it will hopefully pass in late 2023, or early 2024. This means that now is the moment that potential investors should consider Chile. It is an emerging market that could become the next destination for operators looking for lighter operational conditions and a more financially sustainable and profitable place to do
business. The new Bill, once it is passed, combined with one of the highest per capita incomes in the region and a bank usage rate of approximately 75 percent will make Chile a very interesting market.
CONTENTS OF THE BILL TO REGULATE ONLINE GAMBLING PLATFORMS
Under the Chilean constitution, gambling must be the subject of a law, and the exclusive initiative of the President of the Republic. There are two reasons for this: first it establishes new taxes, and second, because it establishes new powers and modifies public services.
What has been presented by the Ministry of Finance is a Bill that regulates the operation of Online Gaming Platforms, and in addition, establishes a series of amendments to Law 19.996 that regulates the operation of gaming casinos and the Superintendence of Gaming Casinos. This regulatory body will be renamed Superintendence of Casinos, Betting and Gaming (The Superintendency). The Superintendence of Casinos is already an institution with a good reputation. The Bill amends it and gives it the authority to monitor and control online gaming giving it new tools to meet those objectives. At this stage there is confidence that it will be an effective regulator.
The project establishes and regulates an Operating License regime that allows the exploitation of an Online Gambling Platform. Licenses that may be General or Special, as we shall see. Among the concepts or matters dealt with in the project are the following:
- Betting Account
The Bill establishes that bets may only be placed from a “Betting Account”. Each natural person may have only one Account in each Betting Platform. It establishes that payments to these Betting Accounts may only be made by a means of payment authorized by the Superintendency. The Bill prohibits operators from granting credit or loans to users of the same Online Gaming Platform.
- Online Betting Platforms: two concepts are introduced by the Bill
- Only those companies that have an Operating License may operate in Chile.
- Platforms that, regardless of the location of the infrastructure that supports their operation or the country that hosts their domain or their system or servers, allow one or more users to place bets from the national territory, are understood to operate in Chile.
- Operating Licenses
The project considers two types of Operating License, the General Operating License and the Special Operating License.
- General Operating License: is a license granted for a renewable term of five years.
- Applicants must be incorporated in Chile as closed corporations, with a maximum of 10 shareholders, individuals or legal entities, and must have an exclusive purpose. They must submit an Operating Plan, provide a guarantee to cover the prizes to be determined by the Superintendency, and comply with the other requirements established by the Regulations and instructions of the Superintendency.
- There is no limited number of licenses; all those licenses whose applications meet the requirements will be granted.
- Special Operating License: is a license granted for single events or events that take place in a period up to 60 days.
- Applicant companies must be incorporated in Chile as a capital company (S.A. or SpA).
- They must present an Operation Plan.
- They must provide a guarantee and other requirements to be established in the Regulations.
- In neither case is there a limit to the number of licenses: all licenses will be granted to those whose applications meet the requirements.
- There is no specific number of licenses: all those whose applications meet the requirements will be granted.
- Licensees are not required to hold a physical Casino Operating License.
- The Objects of the Bet
Only gambling objects authorized by the Superintendency may be developed. The development of objects containing or transmitting graphics, messages or sounds that threaten public order, national security, the honor of persons, that are directed to minors, or any other content that could seriously damage the health or the physical or mental development of the users may not be authorized. Lottery draws or numbers are expressly excluded as betting objects.
The project allows the advertising of Online Gambling Platforms, with the following limitations:
- Promotion and advertising may only be made by the Platforms that have an Operating License, which must be verified by the broadcaster.
- It must be clearly and precisely stated that the service is for persons over 18 years of age.
- The use of graphics or symbols or characters that appeal to minors is prohibited.
- Technical Standards and Certifications
Online Gaming Platforms may only operate if they use software, equipment, systems, terminals and servers that comply with the standards defined by the Superintendency and are duly certified by the entities authorized by the Superintendency. The project establishes the creation of a Registry of Certifying Entities.
The Superintendency is responsible for overseeing compliance with the regulations. The Bill establishes infractions (minor, serious and very serious) as well as crimes. Anyone who develops or exploits an Online Gambling Platform without an Operating License will be sanctioned with imprisonment.
An interesting aspect regarding control is the fact that the Bill empowers the State Defense Council (Consejo de Defensa del Estado) to file complaints for the crimes established in the Law. Among the powers granted to it is the power to request certain precautionary measures, such as, for example:
- An order blocking their addresses to telecommunications companies or Internet access providers.
- An order instructing banks and financial institutions and other payment methods to block accounts and transactions.
- Tax Burden and License Fees
The Bill establishes that companies that obtain an Operating License to operate an Online Gambling Platform will be subject to the following taxes:
- Income Tax on profits:
- Rate: The rate that corresponds according to the tax regime chosen by the Operator, i.e. 25%, 27% or Global Complementary), which is the general tax.
- Taxable Base: Profits, as defined by the Income Tax Law.
- Payment: Annual.
- There are two taxes of specific allocation:
- The first one is levied on the platforms that develop sports bets (national or international) and benefits the corresponding sports federation or, in its absence, the Chilean Olympic Committee – rate: 2%.
- Taxable Base: Gross income (bets minus prizes).
- Payment: Annual direct to corresponding sports federation or the Chilean Olympic Committee.
- The second specific allocation levy is a tax destined to the treatment of gambling addiction or other pathologies or for the promotion of what is called the National Responsible Online Gambling Policy – rate: 1%.
- Taxable Base: Gross Income (bets minus prizes).
- Payment: Direct annual payment to non-profit legal entities authorized by the Superintendency.
- Additionally, the Bill establishes a VAT substitute tax – rate: 20%.
- Taxable Base: Gross Income (bets minus prizes).
- Payment: Monthly.
- Annual levy or license costs:
- General Operating License: 1,000 monthly tax unit (CL$55,537,000.-cUS$70,311.-) (Annual payment).
- Special Operating License: 100 monthly tax unit (CL$5,537,000.- US$7,311-).
- Deposit in money, for an amount determined by the Superintendency for the payment of the expenses for the Platform’s authorization and
- Finally, the Bill establishes a USER Tax, as a substitute for the Income Tax, per Platform – rate: 15%.
- Taxable Base: Gross Income (prizes minus bets).
- Payment: Each withdrawal.
Withholding Agent: The Operator with monthly payment. This is a complicated tax that presents many doubts regarding its practical application.
The granting of Operating Licenses considers the following economic guarantees:
- Surety or Guarantee issued in favor of the Superintendency, in the form and amount defined by the Superintendency, to guarantee the seriousness of the application.
- Surety or Guarantee issued in the form and amount defined by the Regulations to guarantee the payment of prizes to the players.
- Regulations included in the Bill10. Regulations included in the Bill
1. The Law (Bill).
2. Regulations (Ministry of Finance).
3. Technical Standards (Superintendency) (Art. 3 letter h).
4. Payment Means Requirements Regulation (Ministry of Finance) Art. 4e inc 22.
5. Resolution regulating the self-exclusion procedure (Superintendency) Art 5 final inc.
6. National Policy on Responsible Online Gambling (Ministry of Finance in consultation with the Superintendency and Ministry of Health). Art 50.
- Entry into force
The Law will enter into force once the Regulations have been issued. Regulations must be issued within six months of publication. Within those six months, the first call for general licenses must be issued for 60 days. No other licensing process will be opened for two-and-a-half years from the date of publication.
SUMMARY AND CONCLUSIONS
The Bill will establish an open and competitive process for granting licenses which is different and unconnected with land base casino operation licenses. The bill does not set a pre-established number of licenses but an open market in which any company that meets the requirements can apply. It will be the market itself that will determine the number of operators and the size of the market, not the regulator or the law.
Under the Bill, licensed operators will enjoy a competitive advantage over unregulated platforms, and a measure of protection from gray market activities. It should be enough to establish the necessary incentives for operators whilst protecting the rights of users. As such, there is likely to be a significant migration towards the regulated market. The Bill establishes a series of mechanisms that will give the Chilean authorities more tools to combat illegal gambling. These include the possibility to lock web domains and freeze payments, among other things and. It also levels the playing field between local and foreign operators and players will certainly follow that trend. The provision that licenses will only be granted to companies with Chilean shareholder companies means that investors that are interested in the Chilean market will be obliged to incorporate a Chilean company and pay the same rates of tax.