VAT and how it applies to Gaming operators

In this article, we shall be reviewing certain aspects of the VAT legislation currently in force in Malta, the impact these may have on operators working in the industry and the obligations of such operators in relation to VAT compliance.

Background
VAT is regulated by the Value Added Tax Act (Chapter 406). There are three rates of VAT in Malta, the standard 18%, the reduced 5% and the 0%. Most of the goods and services provided fall under the standard rate.
Since Malta’s accession to the EU in 2004, the Act has been amended to bring on board changes in EU legislations. A comprehensive set of amendments were carried out in 2008 through a number of EU directives. These amendments come into force at various stages in 2010, 2011, 2013 and 2015.

Gaming Operators
The services provided by Gaming Operators are classified under the VAT Act as ‘Exempt without Credit’ effectively meaning that the services offered do not attract VAT, but operators cannot recover VAT incurred on the goods and service they purchase. VAT, therefore, is an added cost to Gaming Operators.

Recent Amendments
On 1st January 2010, a number of amendments were introduced in relation to, amongst others, the Place of Supply of Services rules. These new rules distinguish between a Business to Business transaction and a Business to Customer transaction. In the first instance the place of supply is determined where the customer is established, whilst in the latter instance the place of supply is determined where the supplier is established. These rules are particularly relevant in cross border supply of goods and services.

As from 2010, gaming operators who receive services for which they are liable to pay Malta VAT under the reverse charge mechanism are obliged to register with the VAT Department under Article 12. Previous to this, gaming operators did not need to register unless they made intra-EC acquisition of goods exceeding €10,000 in a calendar year.

So what does this mean and how does it apply to gaming operators?

It is normal for gaming companies to receive services from non-Maltese registered service providers and therefore the obligation to register under Article 12 kicks in. On receipt of the services (whether from EU or non-EU service providers), the gaming operator, as the Business Customer, is liable to pay VAT in Malta. Such obligation is satisfied through the compilation of a standard form (VAT 004/2010), which needs to be submitted together with the payment by not later than 15 days from the second month from the date of invoice or the month during which the service was provided. As an example, VAT on a service rendered (and invoiced) in December 2010 needs to be settled by 15th February 2011.

So, are all costs incurred by gaming operators subject to VAT? The answer to that question is that typically one would expect all the goods and services provided to gaming operators to be taxable, however, in effect, there are certain costs that have been specifically exempted from VAT. These relate to services which are strictly required, related and essential and which form part of the on-line gaming transaction itself and in respect of which transaction the company has been licensed in terms of Remote Gaming Regulations.

Rules exist as to which services fall under the above categories and what conditions need to be satisfied in order for a transaction to be classified as ‘Exempt’. Gaming companies receiving services falling under the above categories effectively do not need to pay Malta VAT.

In view of the above ‘exemptions’ it is very important that gaming operators seek to register under Article 12 at the earliest possible time. Apart from being an obligation on the gaming operators, the same operators can only benefit if they are registered. Let us take an example of a Maltese gaming operator acquiring gaming software for which it pays license fees from a service provider based in the EU outside Malta. The service is carried cross-border and therefore the place-of-supply rules kick in. The service could possibly classify as being VAT exempt if satisfying certain conditions. The EU based Service Provider asks for a VAT number which allows him to transact cross-border with his customers. If the Malta based gaming operator is registered under Article 12, the Service Provider will not charge VAT, as the place of supply is deemed to take place in Malta, and becomes the liability of the Maltese gaming operator (reverse charge mechanism). In Malta, the transaction is exempt and therefore no VAT is incurred by the gaming operator. If, on the other hand, the Malta based gaming operator is not registered for VAT purposes and therefore cannot supply a valid VAT number which allows it to transact cross-border, then the transaction becomes a Business-to-Customer supply. The Service Provider will issue an invoice and charge VAT at the rates applicable in its country. This means higher costs to local gaming operators.

So how are these Cross-Border transactions monitored?

An integral part of the amendments introduced in 2010 is the Recapitulative Statements that business doing cross-border transactions need to submit to their respective VAT authorities. The statement is completed by the business providing the service and contains the details of all the cross border transactions that were carried out during the particular period being reported. Information that needs to be supplied includes the VAT number of the business to whom the supply was made as well as the value of the transaction. EU suppliers providing services to gaming operators established in Malta will be compiling these statements and submitting them to the VAT authorities of their country. Such information can be forwarded to the Maltese VAT authorities, who, are in a position to reconcile the transactions with the declaration and payments made by the gaming operator.

VAT Compliance

Ensuring that gaming operators are compliant in all aspects of local regulations, be it, Gaming, Tax, VAT and any other legislation rests with the management of each individual business. As directors and officers of the companies, it is important to understand the relevant obligations and strive to meet such obligations. Non-compliance can be costly both to the gaming operator, and the directors and officers of the company. Awareness, and more importantly compliance within the timelines established by local legislation will ensure that gaming operators are not burdened by added costs.

Author: Angelo Vella
Contact Advisory Services
Date: Nov2010