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September 2011PwC
Foreword
Kevin ValenziaTerritory Senior Partner
In the last few years, a large number of remote gaming operators have established themselves in Malta and the Lotteries and Gaming Authority has to date issued over 400 licences. The industry is in a trail-blazing stage with several countries changing policies seeking to find a stance that addresses the balance between citizen freedom and protecting the same citizen from fraud, crime and addiction.
PwC recognises the importance of the industry to the economy of Malta and supports the concept that good governance and regulation is the solution to protecting players and particularly vulnerable groups. History has shown that protectionism generally serves the unscrupulous more than the righteous.
As the leading and largest professional services organisation on the island, with seventeen partners and over 300 staff, we provide a range of assurance, tax and advisory services to a large and varied client base, including reputable remote gaming companies that choose Malta as a base.
This document presents an overview of how we perceive a dynamic and rapidly evolving industry and the services we are geared up to provide.
We look forward to being of service to you.
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Contents
The Industry
About PwC
Our Experience
Our Services
The Team
AppendicesRegulatory FrameworkLicensing Costs & Gaming TaxDoing Business in Malta
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Remote Gaming IndustryLocal Views
• Malta has rapidly evolved into becoming the gaming centre of Europe.
• There has been a steady increase in the number of gaming providersthat moved their operations to Malta since the inception of the Lotteries and Other Games Act in 2001, but more pronouncedly since the Remote Gaming Regulations were introduced when Malta joined the EuropeanUnion in 2004.
• In fact, Malta was the first EU Member State that establishedcomprehensive legislation on remote gaming in 2004 and is currentlyconsidered by the industry to be one of the foremost tried and testedjurisdictions.
• In the past five years the Lotteries and Gaming Authority (LGA) has received hundreds of applications for a gaming license. Currently there are over 400 licensees across all classes that can conduct remote gaming activities.
• The LGA is responsible for the governance of all forms of gaming in Malta including remote gaming. The LGA has a licensing framework based on four different classes, as well as sophisticated evaluation and monitoring activities, systems and processes.
• Apart from a stable and comprehensive regulatory framework protecting both operators and players, there are various factors which have contributed to Malta‟s success in attracting remote gaming operations. Some of the principal advantages include:
– Attractive gaming licensing fees, gaming taxes and beneficial effective corporate tax rates on gaming operations
– Rapid, efficient and relatively low cost licensing application procedures
– Availability of an English-speaking skilled work-force and highly competitive salaries
– Malta has a sound reputation as an ICT hub with global operators present such as IBM, Oracle, Microsoft, and Cisco Systems
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• Gaming operators in Malta can benefit from industry knowledge, global resources and the reputation for quality of PwC.
• Since Malta's establishment as a leading jurisdiction in the remote gaming sector, the local firm has developed a team of experts to service some of the larger and more renowned gaming operators that are licensed in Malta. Over the past few years, our team has gained considerable expertise in a vast array of issues that gaming operators face, across all types of gaming sectors.
• Our firm benefits from an excellent relationship with the LGA, and we have advised the LGA in the areas of taxation, regulation, risk management and process improvement.
• Through our Advisory line of service, we have developed a specialist team that provides assistance to the LGA, in conducting system reviews as part of an applicant‟s licensing process.
• Industry experience includes some of the largest and most successful corporations in gaming today, and a large number of operators through compliance/systems reviews for the LGA.
• Several of the gaming clients that we service operate across various jurisdictions. We are accustomed to operating as a global network working closely with our counterparts abroad, to offer a seamless service to our customers.
• We are committed to promoting the highest quality of professional standards and practices across all of our engagements.
• We provide assistance in evaluating operational, technology and financial performance of organisations bringing industry best practices and expertise from other industries for similar business issues.
• The financial, operational and tactical skills of our gaming specialists, combined with the full service resources of a global network, give us the unique ability to analyse relevant information, solve complex problems and ultimately assist our clients in making sound business decisions.
About PwCHow We Can Serve You
PwC provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 161,000 people in 154 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
PwC Malta is the leading and largest professional services organisation on the island, with seventeen partners and over three hundred staff. We provide a range of assurance, tax, and advisory services to a large and varied client base. It is also the basis which has given our firm the critical mass required to attract and develop high quality specialists. You can be assured that PwC has the depth of resources locally and the breadth of experienced professionals that your company would require.
In recognition of the continued and sustained growth of the i-Gaming sector in Malta and its requirements for high quality audit, tax and business advisory services, the Maltese firm is dedicating resources and professionals to serve this industry. We have a dedicated team that specialises in this particular sector. The scale of this experienced resource pool cannot be matched by any other service provider in Malta.
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• We have performed various types of engagements in relation to the gaming industry in Malta including:
– External financial audits of a number of the larger and more mature remote gaming operators in Malta. The work covered during the external financial audit includes an in-depth review of the risks and underlying processes of the operators. External financial audit clients include Portomaso Casino, Unibet, Betsson, Entraction, King.com and Tipico.
– We have performed over 60 system reviews on behalf of the LGA, in which we review the gaming and control systems of prospective licensees to ensure compliance with relevant regulations and the LGA‟s policies.
– We have actively led and participated in various workshops with the LGA in relation to identifying changes that are necessary toimprove the compliance reviews performed by the Authority.
– We have been working closely with the LGA and the industry to address VAT related regulatory aspects.
– We have performed an analysis of player behaviour patterns in utilising credit/debit card funds over time on behalf of a leadingglobal bank serving major gaming operators. The task involved millions of transactions with a total value of several hundred million Euros.
– We performed a Business Process Review and a Tax Review of the Lotteries and Gaming Authority in Malta.
– We have reviewed the business plan and prepared the Terms & Conditions for remote gaming operators in the process of setting up in Malta.
– We have provided direct and indirect tax related services to various gaming clients and their related entities.
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Our Experience in some more detail
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Our ServicesTax and Company Administration• PwC Malta‟s tax practice has significant experience in dealing with international structures, including but not limited to clients in the
gaming sector.
• Our firm has assisted a large number of clients in setting up Malta structures. Our expertise in this field is enhanced by our membership of the PwC network.
• Given the particular VAT related circumstances applicable to gaming entities, we have been at the forefront in advising on the VAT implications that are specific to this industry and in providing relative solutions.
• Tax planning and advisory services vary depending on the complexity of the structures and the issues arising. It is our experience that some investment is required particularly in the initial stages in assessing the VAT implications of operating in the gaming industry and exploring possible solutions.
• Our firm can provide assistance with the incorporation of a Maltese entity.
• In addition, companies are required to deal with annual income tax compliance as well as annual return submissions to the Registrar of Companies. Our firm is well placed to assist with both of these legal obligations.
• We also assist with any tax refund claims that may be applicable in certain circumstances both in advising on the setting up of an efficient tax refund process, as well as assisting in the compliance aspect of tax refund applications.
• Particularly in the case of foreign owned gaming businesses or those employing individuals who are not ordinarily resident in Malta, we have the necessary expertise to advise and assist with personal income tax matters.
• We also provide other human resource related services such as advice on organisation design, policies, assistance with global mobility matters, job evaluation and compensation, and payroll administration services.
• Our practice is also well placed to provide various accounting services to gaming operators, which could range from assistance with the production of monthly or quarterly management accounts to involvement in day-to-day book-keeping and reconciliation processes.
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Our ServicesAssurance• PwC Malta provides audit services to some of the best-known names in the remote gaming sector. Services are provided to several
segments including, casinos (and land-based casinos), sports betting, bingo, poker and land-based gaming through licensed betting offices.
• PwC commits to a quality audit that adds value to your business. Our audit approach can be summarised as follows:
– We start by obtaining an understanding of the business and risks, which drives our assessment of materiality and the identification of audit risks, including key risks – audit risks that require special audit consideration.
– We then scale our audit approach based on the size and complexity of the business and entity-level and information technology controls, taking into consideration management‟s approach to its evaluation and testing of internal controls.
– We gather audit evidence in a number of different ways – tests of controls through inquiry, observation, inspection and re-performance including walkthroughs, reliance on the work of internal audit (or equivalent) and substantive procedures.
– Our field work will be performed by a team made up of qualified staff members. All fieldwork completed by the audit team will bereviewed by the team manager. The engagement leader‟s review will focus on the more material/high risk balances where significant levels of judgement or complex disclosure are required.
– We are experienced in managing the smooth delivery of company audits and in co-ordinating the review process in accordance with pre-agreed timetables.
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With PwC you get:• A well planned and controlled audit process• All staff sourced from our i-Gaming team• An agreed upfront timetable with open communication to ensure ‘no surprises’• Value added advice in relation to industry specific issues• Services that address your needs at pre-agreed fee levels
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Our ServicesAssuranceSPA (System and Process Assurance) is understandably integral to the audit of a gaming company. The following diagram maps the links between the audit of the financial statements and the systems related work.
Program Changes
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ISA Financial Statement Assertions
AccuracyCompleteness
Cut-offExistence
OccurrenceClassification
UnderstandabilityRights and Obligations
Valuation and Allocation
Information Technology General Controls
Automated Application ControlsManual Application Controls
Automated Accounting ProceduresApplication-Generated Reports
Information Processing Objectives (CAVR)
Business Performance Reviews
BusinessProcess
Financial Statement Line Item (Significant Accounts)
Transaction Class and Sub-Process
Computer Operations
Access toPrograms and Data
Program Development
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Our ServicesAssurance - continued
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Areas of focus Examples of processes that are typically examined by SPA
Focus on controls Assessment of the components of the control framework in order to understand the level of reliance that can be placed on controls and the underlying IT systems including assessment of the:
• Control environment
• Control activities (examples provided below)
• Management‟s risk assessment process
• Information and communication controls
• Monitoring of controls
Revenue cycle • Player registration/player identification and verification controls
• Controls over the game/gaming revenue
• Controls over player deposits and withdrawals/payouts
• Controls over suspected transactional frauds
• Controls over service providers (eg platform or payment providers)
• Controls over key reconciliations between the back end and third parties/accounting records
SPA processes in some more detail:
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Our ServicesAssurance - continued
Our audit will focus on the key risk areas in the context of the financial statements. Typical key audit risks include:
Examples of key risks and our approach
Legal and regulatory environment
A key concern for several i-Gaming operators, which is understandably equally important to us. Our approach in this area is to understand the Board‟s policy in entering new or servicing existing markets, and to assess whether restricted jurisdictions are consistent with management‟s policy through testing of the back-end and a review of contractual relationships with service providers. Citing of legal opinions in relation to relevant jurisdictions/legal circularisation are also considered
Standard internal tools have been designed to assess and test compliance matters that are specific to the Remote Gaming Regulations. These checklists are intended to provide an element of value added in an environment that is complex and heavily regulated. Customer complaints are also reviewed for an understanding of implications.
Fraud risk (with emphasis on customer funds)
The nature of the industry, including significant volumes and handling of client monies, lends itself to fraud risk. We will communicate with you on fraud and apply tailored fraud matrices to assess the extent of fraud risk through discussions with you, and within the parameters of our responsibilities as statutory auditors. We also evaluate company controls and procedures that address money laundering risk.
Reliance on third party service provides
It is typical for this industry to require reliance on third party service providers, such as platform support or payment service providers. We will assess management‟s due diligence processes in engaging third party providers and monitoring procedures exercised over day to day transactions with these external parties.
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Our ServicesAssurance - continued
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Examples of key risks and our approach
Revenue recognition
Not necessarily a straightforward topic in the context of the IFRS interpretation for a „wager‟ to be considered a financial instrument in terms of IAS 39. An evolving approach from an industry perspective - as part of the audit process we will assess revenue accounting against industry best practice with emphasis on „netting‟ of related items, and the fair valuation of related liabilities (in particular management‟s assessment of the exposure to open positions at the reporting date).
Taxation Our taxation team will review the taxation balances in the financial statements. As part of the audit process we will also consider management‟s assessment of VAT risk and the attendant exposure. Given recent changes in interpretation (2007) by the VAT authorities, and subsequent ongoing communications by the LGA, this is an area where the treatment of certain services and the attendant financial implications are not necessarily clear.
General disclosure and presentation
We will perform a thorough review of the financial statements for compliance with International Financial Reporting Standards as adopted by the EU. Our team has developed in-depth experience of disclosures and presentational matters that are typical of the i-Gaming industry.
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Our ServicesAdvisory
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• PwC Malta provides advisory services throughout the licensing process. These include:
– Fit and Proper & Business Planning
> Introduction to Maltese regulatory authorities and requirements for remote gaming
> Assist in the preparation and review the financial components in the business plan prior to submission to the Authorities
– Operational and Statutory Requirements
> Assist in the compilation of documentation required throughout the license application process.
> Assist in the compilation of the organisation‟s policies and procedures including:
> Design or review a Business Continuity Plan
– Systems Audit
> Readiness assessment in preparation for the Systems Audit performed by the Authority
> Threat and vulnerability assessment and testing.
• User/Player Terms & Conditions• Data Protection• Incident Management• Backups Management
• Risk Management• Information Security• Know Your Client• Acceptable usage
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Our ServicesAdvisory - continued
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• PwC Malta provides other advisory services in the Transactions and Performance Improvement domains such as:
– Merger and acquisitionWe identify merger and acquisition candidates, perform acquisition advisory procedures and disposition assistance of gaming operations. We assist our clients through every stage of a transaction, including deal structuring and fund raising, and help clients adapt quickly to the resultant changes.
– Financial analysis Our finance specialists prepare prospective financial analyses for proposed and existing operations. We evaluate actual results, and analyse the effectiveness of an entity‟s accounting and internal control systems for regulatory compliance and other purposes. Financial analysis services also include assisting entities in structuring joint venture agreements, negotiating management contracts and providing direction in the development of financial terms and the overall capital structure with lending institutions andinvestment banks.
– Performance Improvement Our gaming industry specialists work within an organisation to assess areas for operational improvement and enhanced financial performance. This includes in-depth analysis by department of current practices, funds flow, staffing, departmental objectives, marketing initiatives and internal communication tools to enhance customer satisfaction and property earnings. As part of our Performance Improvement expertise, we can also assist operators improve on the ongoing compliance with laws and regulations efficiently and effectively. We use our experiences with standard industry practices and benchmarks to develop operational refinements and process improvement recommendations.
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Since joining PwC in 1987, George has led a number of projects in Malta and abroad including Business Analysis, Systems Selection, Information Security Reviews, Disaster Recovery Planning, Systems Certification, e-Business strategy and implementations. George is also in charge of a team of Systems and Process Assurance staff dedicated to supporting audit
SPA Partner
Romina joined the firm in 1990 as an ACCA student trainee and was admitted to the partnership in July 2006. She is actively involved in the firm‟s assurance division, with special emphasis in the financial services field, and a leading role in the i-Gaming sector. She has developed considerable experience in audit and special assignments over the years, including a one-year
secondment to the insurance audit practice in PwC London. In recent years, she has led a number of gaming audit assignments and her current portfolio includes some of the more renowned gaming operators in the industry. Romina is a Certified Public Accountant (CPA), a member of the Association of Chartered Certified Accountants (FCCA), and the Malta Institute of Accountants (MIA). She sits on the firm‟s Risk Management Committee where her role extends to assistance in the firm‟s quality review processes.
Neville graduated in law from the University of Malta in 1993 and joined the firm in 1994 after specialising in International and EC taxation at the University of London. Throughout his professional life, he has acquired material experience of international tax, EC tax and related issues. His portfolio
of clients has included a number of gaming clients, in respect of which he has co-ordinated both local and international tax assignments. He also forms part of a team of PwC Malta personnel which is actively involved in making submissions to the Maltese authorities in respect of innovations that could be introduced within the Maltese tax treatment of international gaming activities. Neville also lectures and examines in International and EC Tax legislation at the University of Malta and in Tax law at the Malta Institute of Taxation. He has addressed various seminars and conferences on these subjects both locally and overseas.
[email protected] [email protected]
teams by assessing and reporting on security in the IT infrastructure, applications and management of more than 100 companies each year. George and his team also provide advisory services relating to IT systems and security effectiveness and performance improvement enabled by technology solutions. In recent years, the team has performed information systems reviews on more than 80 remote gaming operations on behalf of the Lotteries and Gaming Authority to verify technology, security and regulatory compliance as part of the licensing process.
[email protected] [email protected]
Since joining the firm in 1994, David obtained extensive experience in corporate taxation servicing a varied portfolio of clients, as well as VAT and other indirect taxation matters. He has specialised in VAT matters since 1997 and has assisted various clients in VAT tribunal cases.
He has also supported a number of University students compiling studies on indirect taxation matters. David is chairman of the Tax committee of the Malta Institute of Accountants and is a member of the Malta Institute of Taxation. David is primarily responsible for VAT related matters in the Malta practice of PwC and this has led him to be involved in various VAT related assignments with a number of gaming clients. He has also represented the local Institute of Financial Service Practitioners in discussions with the Maltese authorities on various matters related to the gaming industry.
George Sammut Romina Soler
Audit Partner
Neville Gatt
Tax Partner
David Ferry
Tax Partner
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Our Team
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Gordon has over 11 years of information technology and information security assurance and advisory experience. He has led several systems reviews of gaming operations in Malta on behalf of the Lotteries and Gaming Authority. He is also heavily involved in the statutory financial audits of gaming operators Gordon was also responsible for performing various due
SPA Senior Manager
Angelita joined the firm in 2002 after reading for a Bachelor of Accountancy (Honours) degree at the University of Malta. She manages varied assurance assignments, and her industry specialism is in i-Gaming. She has acted as engagement manager on most of the firm‟s clients in this sector and is in-charge of the i-Gaming assurance dedicated unit. Angelita was seconded to
the PwC London ABAS department for a 6 month period where she worked on CIPs clients, and to the PwC Rome office for 2 consecutive 6 month periods where she was in charge of the audit of a United Nations Organisation. She is a Certified Public Accountant (CPA) and a member of the Malta Institute of Accountants (MIA).
Ivan joined the firm in 2003 after having successfully completed his Accountancy degree at the University of Malta. He is also a Certified Information Systems Auditor (CISA), Certified Internal Auditor (CIA) as well as a member of the Association of Chartered Certified Accountants (ACCA). Ivan was seconded to
London twice, for a total period of 12 months. During his secondments, Ivan was involved on the information systems audit of several Insurance and Investment management clients. In London Ivan was involved on a SAS 70 audit on the controls of a world leading financial services company. Ivan has been involved in several reviews of system based and manual controls as well as cycle and system flow mapping. He has considerable experience in the performance of many i-Gaming systems and process controls reviews, including documenting and assessing controls over operations and their management, application change control, computer operations, security administration, physical and logical security, and disaster recovery planning.
[email protected] [email protected]
diligence engagements to the gaming industry. He is a Certified Public Accountant (CPA) and a Certified Information Systems Auditor (CISA). He was seconded for 3 months to the Systems and Process Assurance (SPA) practice in Philadelphia, U.S. and is the founding member and currently President of the ISACA Malta Chapter.
[email protected] [email protected]
Nathan has information systems security and audit experience and currently provides IT audit support to clients in various industries. Prior to joining PwC, he has worked as an assistant lecturer with the Institute of Information and Communication Technology (IICT) within MCAST for four years, and was
responsible for the development of a number of Software Development syllabi. He has also worked as a freelance solutions developer providing business & technical consultancy in the Tourism Industry regarding the set up of an online hotel reservations portal for a local client. Nathan has been involved in reviews of system-based and manual controls in a number of industries (e.g. financial, remote gaming, pharmaceutical industry). He is currently responsible to carry out web application security assessments and infrastructure penetration testing. He is also active in a number of special interest groups related to various information security domains.
Gordon Micallef Angelita Briffa
Audit Senior Manager
Ivan Grech
SPA Manager
Nathan Gatt
SPA Manager
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Our Team
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Appendix ARegulatory Framework in Malta (www.lga.org.mt)
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Application Area Process
Fit and Proper & Business Planning
The applicant must fill an Application for a Remote Gaming Licence and a Personal Declaration Form for each person with more than five per cent (5%) controlling interest. In the case that one or more of the controlling parties is another business entity, ownership and incorporation details need to be submitted. A business plan should also be submitted.
Operational and Statutory Requirements
The following documentation has to be submitted as part of the application process:
• A Maltese Company Registration Certificate;
• Memorandum and Articles of Association;
• Business Entity Information Form ;
• A detailed operational manual outlining the application architecture, the system architecture, the software developer, security and control procedures, back-up and disaster recovery procedures;
• The payment methods, the payment system/s and the provider/s;
• Agreements with business partners, affiliates, agents;
• A Service Provider Authorisation Form if applicable, including the agreement with the equipment hosting provider in Malta outlining clearly the functions and responsibilities to be carried out by such provider. A site plan of the data floor indicating the location of the equipment must be attached to the agreement.
Systems Audit Prior to a license being granted, an operator is required to undergo a risk based Systems Audit of the gaming and control system covering aspects such as management, security, operational , financial control, reporting functions. The objective of the audit is for the Authority to obtain comfort that the operator is able to fulfil the requirements of the regulations.
Licence Renewal On expiration of a five year license, the Lotteries and Gaming Authority may renew such Licence for a further five year term, subject to review of systems and procedures. Renewal Applications shall be submitted to the Authority at least 60 days before the expiration of the current licence.
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Appendix BLicensing Costs
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Licensing Costs (for any one licence) Fees
Annual License Fee €8,500
Renewal of License Fee (after the 5 year term) €1,500
Transfer or Assignment of License Approval Fee €1,500
Share Transfer Approval Fee €1,500
Simple Contractual Commercial Agreements Approval Fee
(per annum per contract - Aggregate amount for approved contracts shall not exceed €30,000 per annum)
€70
Complex Joint Venture Agreements Approval Fee Administrative Hourly Fee
Application Costs (for any one licence) Fees
Application Fee €2,330
Systems Audit Fee €2,330
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Appendix BGaming Tax
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Licence Gaming Tax Fees
Class 1 €4,660 per month (for the first 6 months)€7,000 per month (for the remaining duration of the licence)
Class 1 on 4 €1,200 per month
Class 2 0.5% on gross amount of stakes accepted
Class 2 on 4 0.5% on gross amount of stakes accepted
Class 3 5% gaming tax on real income
Class 3 on 4 5% gaming tax on real income
Class 4 Exempt from gaming tax (for the first 6 months)€2,330 per month (for the next 6 months)€4,660 per month (for the remaining duration of the licence)
Class 4 - Licensee hosting and managing an operator which is not in possession of the relevant Class 1,2, or 3 licence in terms of the regulations, however hosting an EFA licensed B2C operator.
€1,165 per month per operator (paid by the Class 4 Licensee)
Maximum tax capping per annum per licensee for any one licence is €466,000.
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Appendix CDoing Business and Investing in Malta• This Guide has been prepared for the assistance of those interested in doing business in Malta. It is not intended to cover exhaustively the
subjects it addresses but rather to answer some of the important, broad questions that may arise for a potential investor. When specific problems occur in practice, it will often be necessary to refer to the laws, regulations and decisions of the country and to obtain appropriate accounting and legal advice.
Doing Business and Investing in Malta
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The material contained in this guide was assembled up to September 2009 and, unless otherwise indicated, is based on information available at that time.
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PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.
“PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bindthem in any way.
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