Underregulated since Ukraine became independent in 1991, the gambling industry developed haphazardly in the country, making Ukraine a “grey jurisdiction” in Eastern Europe for games of chance. A comprehensive ban introduced in 2009 resulted in winding down legal businesses and boosted the development of illegal gambling. According to some estimates, the approximate turnover of illegal gambling operators amounted to at least EUR 1 billion a year.
Several unfruitful attempts at bringing gambling out of the shadow were made before the Ukrainian Parliament adopted The Law of Ukraine On State Regulation of Organising and Con- ducting Gambling (Gambling Law) on 14 July 2020.
The Gambling Law came into force on 13 August 2020, and after a 10-year fight to legalize this industry again, Ukraine finally returned to the green map of regulated jurisdictions.
It is worth noting that the Gambling Law does not regulate lotteries. They are not considered games of chance and are governed by the existing Law of Ukraine On State Lotteries with certain amendments.
Apart from the Gambling Law, the following are key legal acts:
Gambling law: key developments
The Gambling Law regulates five major verticals:
Poker in poker clubs is not allowed, except for sport poker (not considered to be gambling). Land-based casinos may offer in-house poker games.
Gambling operators from different verticals shall comply with identical requirements, although additional rules apply to each of the gambling verticals.
The Gambling Law introduced a new regulatory body for the industry. The Gambling and Lotteries Regulation Commission (Gambling Commission) is the only licensing body in the gambling industry. It shares an oversight role with the State Tax Service of Ukraine.
The Gambling Commission also issues so-called B2B (servicing) licenses to gambling software providers.
The Gambling Law provides for state control and supervision of the gambling market through the introduction of the State Online Mon- itoring System, a set of programmes used to monitor the activities of gambling operators in real time. All operators shall connect their online systems to it. The system is currently under design and the Gambling Commission expects to launch it sometime in 2021.
Requirements for gambling operators
Those interested in starting a gambling business in Ukraine are now able to apply to the Gambling Commission for the relevant licences.
General requirements for a gambling operator
Gambling operator may not:
Additional rules related to specific verticals
Slot machines halls
Betting activities can be carried out both online and offline in bet- ting shops via a single license.
Online verticals: online betting, online casinos and online poker
Requirements made of online gam- bling are unified across all verticals.
The main issues to consider are certification of the online systems of gambling operators and the location of their hardware used to provide services of the online system.
Online systems shall pass a certification process against technical regulations. As of March 2021, such technical regulations are under development. Before adopting the new ones, the market opted for certification of online systems for conformity with legacy rules that were applicable before the Gambling Law. Please note that the Gambling Commission does not require gambling operators to have their games certified independently.
We expect major developments in this area in 2021 with the adoption of technical regulations developed for gambling activities only and emergence of international certification brands in Ukraine.
The Gambling Law requires that the gambling operators use hardware based in Ukraine to maintain and operate their online systems. It is an obvious obstacle for foreign gambling operators considering entering Ukraine. The consolidated market position is that these norms will be modified by changing the provisions of The Gambling Law.
The Gambling Law introduced B2B licenses (or software licenses) to regulate provision of software-related services to gambling operators. Pursuant to The Gambling Law, resident business entities providing software services shall obtain a B2B license.
Despite a vague legal concept, it may be expected that introduction of B2B licenses will contribute to the development of new software solutions (software for fantasy sports, live casinos, etc.) and provide additional protection for those businesses engaged in the development of IT/software.
Licensed software providers may provide their services to both Ukrainian and foreign clients.
Gambling operators may engage in one or several gambling verticals once they obtain the relevant licenses. The license term for each license is five years. Licenses may be reissued freely, subject to the gambling operator’s compliance with the Licensing Conditions.
License fees are based on the amount of the minimum wage as of 1 January of the year in which a license was granted and payable in equal tranches during the license term. It means that a license fee for a license issued in 2021 is fixed until expiry of the 5-year term and will not be affected by any increase in the minimum wage.
The entire 5-year license fees for the year 2021 are as follows:
In addition, casino operators pay the following annual equipment license fees:
Please note that the amount of the annual tranche of a license fee for an online casino license, betting license and annual payment for a slot machine is trebled until introduction of the state monitoring system.
It is worth noting that The Gambling Law provides for so-called ‘investment licenses’. Holders of such licenses may operate a casino situated in a newly-constructed 5-star hotel with 200 rooms (in the case of Kyiv) or 150 rooms (in other cases) and enjoy a 10-year grace period without payment of license fees. It is expected that these li- censes will boost interest in developing certain regions and will bring new partnerships between leading casino operators and local developers to bring a world-class experience into one of the newest casinos in Europe.
As of March 2021, the Gambling Commission works on implementation of the mechanics for investment licenses.
Taxation of gambling
The legacy tax regime that existed before The Gambling Law provides for a combination of gross gambling revenue tax (GGR) and corporate income tax (CIT). The GGR tax does not reduce profit before tax for CIT purposes.
Several draft laws were submitted to the Ukrainian Parliament to update this taxation scheme. In particular, Draft Law 2713-d (recom- mended by the Ukrainian Parliament’s Committee on Finance, Tax and Customs Policy) provides for the following tax rates:
• GGR — 10 per cent rate across all verticals;
• CIT — 18 per cent rate (amounts paid as GGR reduce the profit before tax for CIT purposes).
It would also abolish the trebling of annual license fees.
As to personal taxation, gambling wins above eight minimum wages will be taxed at 19.5 per cent of the excess.
It is expected that the Ukrainian Parliament will adopt an updated taxation regime in Q1 2021.
The gambling market in Ukraine used to be known far beyond its borders. It is now reappearing on the radars of major international op- erators. As greenfield as it is now, Ukraine may become an outstanding jurisdiction to test the newest products on a 40-million people market in open communication with the regulator and the market.