Dutch Tax & Regulatory Impact and Opportunities for Online Gambling Service Providers as of 1 January 2021

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Offering online gambling services is currently prohibited in the Netherlands, but there is a fast growing group of people that use online gambling platforms provided by foreign companies. The Dutch government has now decided to modernize its gambling legislation by regulating the providers of online gambling services. The aim is to bring the legislation in line with social and technological developments and with the regulatory framework of other EU member states. Regulating the online gambling sector provides the Dutch government with a tool to better monitor the online offerings (e.g. to ensure fair play) and prevent the addiction to online gambling by requiring a proper registration system for online gamblers.

Providers of online gambling services may apply for a permit to offer their services related to betting games for sports or horse races and casino games legally in the Netherlands as of January 1, 2021. The permit will be valid after six months counted from the entry into force of the new legislation, for a period of a maximum of five years.

In this tax & regulatory alert we discuss (1) the background of the new legislation to put the changes into perspective, (2) what’s new and the tax and regulatory impact and opportunities for the providers of online gambling services, (3) the impact for payment service providers and (4) key take aways.

1. Background

Until 2021, it is prohibited to provide access to online gambling services in the Netherlands. However, due to social and technological developments and in line with the amendments in other EU member states, the Dutch government has acknowledged the benefits of legalizing online gambling and has decided to modernize its online gambling legislation. The following two published legislative documents are key:

  1. February 19, 2019 - the Dutch Senate passed the Remote Gambling Bill, which is likely to entry into force on January 1, 2021, and which will allow the provision of online gambling services in the Netherlands.
  2. March 3, 2020 - the Decree on Remote Gambling was submitted to the Dutch parliament. The Decree is an addition to the Remote Gambling Bill in the form of secondary legislation and provides a more detailed description of the conditions applicable to online gambling permits.

2. What’s new - Tax & regulatory impact and opportunities

Since offering online gambling services in the Netherlands is currently not allowed, a lot of service providers are established outside the EU/EEA (e.g. Costa Rica, Antigua) or in EU member states that already allow online gambling services (e.g. Malta). As a result, gambling service providers currently do not run their business through an entity registered in the Netherlands and often not in an EU/EEA member state.

With the Remote Gambling Bill, the Dutch government intends to regulate the participation of illegal remote gambling. It is expected that at least 80% of all the remote gambling offerings in the Netherlands will be provided by service providers that obtain a permit. In other European member states, e.g. Denmark, the level of channelization is over 90%. The Dutch government will increasingly combat illegal offerings of online gambling. This policy has already resulted in the blocking of online gambling websites and the imposition of penalties.

To be able to collect taxes from these illegal activities nowadays, the online gambler/player is subject to Gambling Tax in the Netherlands at a rate of 30.1% on its net gains (price won -/- funds contributed to the game).

Under the new regime, the Dutch Gambling Tax is levied as follows: (i) if it concerns an illegal gambling service (no permit granted) the online gambler/player is still taxed on its net profits against a rate of 29% or (ii) if it concerns a legal gambling service (a permit was granted), the online gambler/player is no longer required to file a tax return indicating the net gains. Instead, the service provider withholds Dutch Gambling Tax. The Gambling Tax will no longer be applied to the net gains of the gambler/player, but will be calculated on the gross profit margin of the service provider (i.e. funds contributed by all players -/- price money paid) against the applicable rate of 29%.

Applying for a permit to legally offer online gambling services in the Netherlands is possible as of July 1, 2020 for an estimated fee of €45,000. Such an application can be submitted to the Dutch Betting and Gambling Authority (DGBA). In order to be eligible for an online gambling permit, the service provider must comply with conditions, such as:

  1. The provider of online gambling services is established in a member state of the European Union (EU) or the European Economic Area (EEA) in the form of a public limited company (Naamloze Vennootschap) or private limited liability company (Besloten Vennootschap). If the service provider is not established in the EAA, it is required to open a branch in the Netherlands and perform a certain level of activities related to the online service offerings.
  2. The provider of online gambling services will be subject to a comprehensive reliability assessment by the DGBA. Relevant factors for the assessment by the DGBA are the ultimate beneficial owner, the directors, the corporate structure and the financial structure of the enterprise.
  3. The provider of online gambling services is required to have a thorough policy on addiction prevention to protect their players.
  4. The provider of online gambling services is required to identify its gamblers/players by registration of the (Dutch) social security number. It is also required to verify their bank account in order to prevent money laundering.
  5. The DGBA is responsible for the monitoring of Dutch legislation regarding online gambling. The provider of online gambling services is required to cooperate with the DGBA in order to effectively execute the Dutch legislation regarding online gambling.
  6. The online gambling permit will only be granted for a maximum period of five years.

Service providers that apply for a permit have to determine whether the requirements to obtain such a permit are met. The DGBA already provided the guidelines for the drafting of the request to provide interested parties with the possibility to anticipate the entry into force of the new legislation and to make sure that permits can be granted in a timely fashion. There are multiple ways to meet the requirements listed in the Remote Gambling Bill and the Decree on Remote Gambling. However, the choices made by the service provider may have an impact in other areas, for example in the area of taxation.

With respect to taxation, the incorporation of a Dutch public limited company or private limited liability company or the opening of a branch in the Netherlands through which a part of the company’s activities are performed, may result in corporate income taxes in the Netherlands. The same goes for the establishment of such a presence in other EU/EEA member states. However, the fiscal climate and the applicability of bilateral and multilateral tax treaties differ significantly per jurisdiction, also within the EU/EEA. Some member states, including the Netherlands, offer certain tax incentives for digital companies developing innovative products and others do not. In brief, the Dutch tax regime offers:

  • A competitive Dutch corporate income tax rate of 15% for the first €200,000 of profits and 21.7% for the excess as of 2021.
  • A special regime for certain innovative activities and the development of new technologies (including software). As of 2021 an effective corporate income tax rate of approximately 9% applies to the profits generated with these activities.
  • A competitive dividend withholding tax rate. Dividends paid by a Dutch company are in principle subject to a withholding tax of 15%, but due to the exemptions and reductions provided in the bilateral/multilateral Dutch tax treaties or the unilateral measures this rate is often reduced.
  • An exemption from Dutch value added taxes (VAT) for online gambling services.
  • The opportunity to apply for an advance tax ruling to obtain upfront certainty about tax positions.

Furthermore, on an EU/OECD level there is an intention to introduce a digital service tax for services offered online. An online gambling service could be subject to such a digital services tax. However, the Netherlands expressed that it is not planning to introduce a digital service tax in the near future.

Hence, apart from the regulatory environment, the running costs and the technical aspects of a location, other areas such as (international) taxation should also be taken into account when entering the Dutch of EU/EEA market.

3. Impact for payment service providers

The Dutch National Bank (DNB) has recently warned payment service providers (PSPs) that they should not provide payment services to illegal online gambling service providers. DNB says that institutions subject to supervision must avoid becoming involved with or providing services to clients that could damage their reputation. According to the DNB, this is the case for companies that offer online games of chance and that focus on Dutch consumers as this is not (yet) permitted.

In light of the Remote Gambling Bill, DNB indicates that together with the DGBA it will jointly consult on the approach to unauthorized payment services for online gambling providers. This year, DNB will also pay extra attention during its investigations to such undesirable forms of payment service provision.

4. Key take aways

  • Online gambling service providers may apply for a permit as of January 1, 2021 to offer their services legally in the Netherlands. The guidance for the application is already published, so an assessment of feasibility can already be performed. A fee of €45,000 is charged for the application. Also non-EU/EER service providers may apply.
  • A (partial) business restructuring could be required to meet the regulatory requirements to apply for a permit and legally offer gambling services in the Netherlands, so take into account the impact in other areas, such as taxation.
  • Dentons has broad experience with gambling companies. We provide an integrated regulatory, tax and corporate service to assist your company in successfully entering the Dutch and European market.
  • We can also assist other companies, including payment service providers, in determining whether their clients or partners, are subject to a licensing requirement as an online gambling service provider.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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