Challenges of Macedonian iGaming regulation

Brief introduction - legal grounds and first legal iGaming site

iGaming in Republic of Macedonia is a very young industry, practically in infancy. For more than a decade internet gaming was forbidden by law for Macedonian residents. But, without effective mechanisms for barring this activity, Macedonian players have been frequent guests and clients of many internet gambling sites without any significant restrictions. That was due to change as of 1st of January 2013, with the new Law or Games of Chance which included the possibility for operators to apply and be awarded internet gaming license for Macedonian market and thus make internet gaming legal for Macedonian residents …with one small catch.

Namely, the law had been written in favour of the newly formed private-public joint venture company that was to enter the Macedonian gambling market and offer Video lottery terminals and internet gaming web site. The law gave this new company exclusive rights to organise internet games of chance in period of 2 years after the launch of its internet gaming platform. After the expiry of this exclusive right period, companies can apply for an internet gaming license and can be awarded the license upon meeting the financial, technical and organisational requirements specified by the Ministry of Finance.

Arguments for this kind of transition period was that the operation of government controlled operator will bring the necessary knowledge and experience to the regulatory bodies for managing privately owned operators.

This new company named National Videolottery of Republic of Macedonia (NVLM) started operating its internet gaming site www.2win.mk on January 1st 2015 and provides real money gambling to Macedonian residents only. Consecutively the market liberalisation is scheduled as of January 1st 2017.

Licensing and other regulation of internet games of chance

The official government body regulating the market of games of chance is the Ministry of Finance. The body for controlling the operation of gambling operators is the Public Revenue Service (PRS). Macedonia still doesn't have a Gambling Authority agency specialised in regulating and supervising games of chance market and operators.

Law on Games of Chance defines 3 categories of games of chance: "General" games of chance (lottery, electronic RNG games), "Special" games of chance (games of chance in casinos, slot machine clubs and sport betting shops) and "Internet" games of chance, where internet games are composed from first two categories and other games that can be played over the internet. It is very odd seeing that categorisation of games of chance is without a common differentiation principle. For "General" games the differentiation principle used is the method of draws, whereas in case of "Special" games it is a model of typical gambling venues. Similarly, "Internet" games is not a game vertical nor a venue type but actually a sales channel.

The license for operating internet games of chance is issued by the Government of Republic of Macedonia, upon an applicant request addressed to the Ministry of Finance. There are two type of licenses that can be issued: "License for internet games of chance Platform supplier" and "License for Operator of Internet games of chance".

The Platform Supplier license is awarded to an owner of the rights of the internet platform software, thus enabling him to lease the platform to operators or act as an operator himself (after becoming a licensed operator). The Platform supplier license fee costs 25.000 EUR for duration of 4 years. The internet gaming platform must be certified by meeting minimal technical standards and conditions for hardware and software functions for operating internet games of chance. Other conditions also apply.

The license for Operator allows the company to organise, manage and operate internet games of chance. The operator must own or has a right to use a certified internet gaming platform from a licensed Platform supplier and also provide a functional integration of the platform with the PRS IT system for supervision and control of the operations. The Operator license is awarded for duration of 4 years and costs 50.000 EUR. The operator must also provide a bank guarantee in amount of 50.000 EUR as a warranty for paying out winnings. Operators pay special gambling tax rate of 0.5% from the total player stakes on a monthly basis. Corporate profit tax rate is 10%.

Besides the Law on the Games of Chance and Entertainment Games, several other laws govern the operation of an internet gaming in Republic of Macedonia:

• Law on Personal Income Tax,
• Law on Personal Data Protection,
• Law on Electronic Trading and
• Law on Prevention of Money Laundering and Terrorism Financing.

Some of these laws are harmonised with EU laws and will be familiar to the existent internet gaming platform suppliers and operators in the EU.

Drawbacks, confusing and incomplete regulation

Unfortunately, up to this date, Ministry of Finance has not published any details about the technical and functional requirements for certification of an internet gaming platform. Neither the details about integration with the PRS IT system has been provided. About the latter, it is expected to be a functional addition to the existing control system used by Betting shop operators and Slot machine clubs.

The Law on the Games of Chance and Entertainment Games sets various constraints on the internet gaming operations. As an example, internet gaming operator is allowed only three types of payment methods: credit cards, debit cards and electronic transfer. Internet gaming operator is forbidden from receiving or paying out in cash. All payment transactions (deposits and payouts) must be carried out through a commercial bank seated in Republic in Macedonia. All player funds must be kept on a dedicated bank account in a commercial bank seated in Republic of Macedonia.

Other law that is very specific for Macedonian regulation is the Law on Personal Income Tax. In context of gambling, personal income tax (10% at present) is calculated and deducted from all gross winnings, with following exemptions: in case of a win on sports betting, tax base is the net win (win amount minus stake amount); for "General" games of chance, the tax is not paid for individual gross win amount less than 5000 MKD (about 80 EUR); also an individual win is excluded from taxation if it is win from a spin or a draw during a game session.

Although not explicitly stated in the Law on Personal Income Tax, Public Revenue Service officials consider that personal income tax rules must be applied to ALL player's winnings, regardless of being won by Macedonian residents or foreign citizens.

One other remark on the Law on Personal Income Tax is the reporting obligations of the operator towards the PRS and the players. According to the law, for winnings received from the "Special" games of chance, the player (Macedonian resident) is not required to list the winning amounts in the Annual Personal income report. But in case of winnings from "General" games of chance, the operator must issue to player a yearly certificate listing the player's winnings and deducted taxes, and the player must list this data in his/hers Annual Personal Income report.

This makes the present internet gambling regulation applicable only for local betting shops operators, who can relatively easy amend their existing web sites with deposit and payout options.

It is obvious that Ministry of Finance as a regulator has a lack of clear vision about development of the internet gambling industry in Macedonia. Parts of the regulation has been pushed ahead without preparing a long term strategy and aligning the laws regulating the area with it.

Reminiscences of old regulatory solutions hound the laws and create inconsistent and confusing rules for potential investors. Any investor trying to create and operate a fully-fledged global internet gaming site will face an insurmountable wall of uncompetitive taxes and payment constraints among other things.

Protection of licenced operators from unfair competition

The NVLM has been operating its internet gaming platform on the Macedonian market for more than a year. Although the law is clear and the exclusive right of NVLM for operating internet games of chance in Macedonia is not legally disputed, little has been done by the state authorities to ensure this exclusivity in real life.

Unlike examples from neighbouring countries like Bulgaria and Romania, where the regulatory bodies have taken serious measures to disable operation of unlicensed operators (using IP address filtering and banning foreign operators that violate the law to apply for a local gambling license), Macedonian authorities have not taken any measures to protect the market. Whatsoever, Ministry of Finance has declared itself as incompetent or without legal grounds to enforce any of the proposed measures by the NVLM. As a result, Macedonian citizens are still mostly active on unregulated foreign gambling web sites.

The only successful action by the PRS has been on a local gambling operator trying to sneak in an internet betting site as a betting shop supplement. After reporting it to the PRS and explaining the violation, the betting site was closed in a short notice.

Future considerations

Clearly, if Macedonian government wants to establish a real competitive industry and compete with other countries leveraging on internet gambling industry like Malta, Gibraltar or Curacao, it must create and implement a well conceived national strategy and target global operators with complete, consistent, stable and internationally harmonised regulation.

Forming a National Gambling Authority body will be a move in the right direction. Currently the Ministry of finance and PRS are lacking the gambling industry expertise and knowledge to analyse and propose changes to the regulation that would move the industry forward.

Some concessions will have to be made. The idea to collect taxes on (non-existent) foreign player's winnings can be discarded and substituted with opportunity for new investments, new jobs openings and taxable company incomes and profits. Simplifying and unifying personal tax rules for domestic players will hugely facilitate software compliance and development.

Real costs arising from money outflow toward foreign internet gaming sites and opportunity costs from not creating jobs, profits and collecting taxes will remain high if nothing is done.

It is really only a matter of vision and will of the policy makers that is needed at this moment.