The evolution of the market
It has been widely reported that Colombia, and South America as a whole, are being targeted by major gambling industry players seeking to broaden their geographic reach and attracted by the perceived demand for online gambling services in the region. No doubt, there has been a rapid increase in the number of gambling operators and service providers interested in investing in those markets.
In October 2016, Colombia became the first South American jurisdiction to approve national online gambling legislation. Coljuegos, Colombia’s national regulatory body, believes the market could generate around COP8 bn ( approximately US$ 2.7bn) in revenue during its first year of operation, and that there will be at least seven licensed operators in the local market by the end of this year. To date, Coljuegos has approved one online gambling licensee, Aquila Global Group’s Wplay.co, which commenced its local online operations in June.
Earlier this year, Coljuegos also published a blacklist of 325 online gambling sites which it considered to be offering unauthorised gambling services to Colombian punters, and has since required local internet service providers to block the domain of the Curacao-licensed Play2Win online casino. In similar vein, Pokerstars has exited the market, pending the outcome of its discussions with the Colombian authorities to obtain a local concession on mutually acceptable terms.
Below, we summarise some of the principal requirements and issues which business should bear in mind when considering to apply for an online gambling licence in Colombia and for establishing a local presence in the jurisdiction.
Online gambling in Colombia is principally governed by the rules that regulate the gambling monopoly in Colombia. Those rules are provided in Law 643 of 2001 and Decree 4142 of 2011. These have been supplemented by the technical regulation provided for in the Agreement 04 of 2016 and the requirements of Resolution 20161200025334 of 2016, both issued by Coljuegos.
Certain government procurement regulations are also relevant in the context of the award of concessions.
Requirement to establish a local presence
Foreign companies that intend to obtain an online gambling concession need to establish a presence in Colombia.
This can be achieved through the use of one of three corporate vehicles (simplified stock corporation, stock corporation or limited liability company) or by establishing a branch of a company located outside of Colombia. It is likely that most entrants to the market would opt for the simplified stock corporation, given the relatively light requirements which apply to its establishment. Whilst there are no specific nationality requirements, there is a requirement to have a legal representative for the vehicle and at least one appointed alternate. As a matter of practicality, it would make sense for at least one of those individuals to be a Colombian resident.
Additional eligibility and on-going requirements
Applicants will be required to demonstrate the financial wherewithal of their local operation in terms of:
– minimum level of working capital (currently set at approximately US$360,000);
– maximum level of gearing (no greater than 70%);
– minimum level of interest cover (interest must be covered by operating profit); and
– equity value (currently set at approximately US$ 60,000).
The website used for the gambling operation is required to have a Colombian ( “.co”) domain.
Players must be domiciled in Colombia; players’ balances must be deposited in a Colombian bank account; and transactions must be conducted in Colombian pesos.
Applicants must provide a surety with a value of at least COP$ 615m (approx. USD$ 205,000), either in the form of a trust executed with a Colombian bank or Colombian bank issued guarantee.
The game mechanic must ensure that players receive a return of at least 83% of the gross revenue generated.
Payments of winnings or other withdrawal requests must be made within 72 hours following the request from the player.
Operators must have in place the following insurance:
– a default guarantee with a default coverage of 15% of the contract value, and a salary and mandatory benefits coverage of 5% of the contract value; and
– a torts liability policy, the amount of coverage of which will depend on the contract value.
Payments to the regulator
Operators are required to pay to Coljuegos:
(a) an amount (payable monthly) equal to 15% of net gaming revenue;
(b) an annual fee (payable yearly) of approximately USD$ 200.000; and
(c) an amount equal to 1% of the aggregate of (a) and (b).
Colombian tax law is complex and subject to frequent amendment. Its tax system is formed by taxes at a national level and taxes at a Regional and Municipal level. Colombia has signed several treaties for the avoidance of double taxation, and are others under negotiation.
Foreign companies, branches and non-resident individuals are only taxed on their Colombian source income. Companies and branches are subject to income tax at the rate of 34% (33% from 2018). There is an additional surcharge of 6% (4% from 2018) if the company or branch has a tax base higher than approximately US$ 266,000. Dividends paid to foreign companies are taxed at 35% unless the relevant profits were already taxed at a corporate level, in which case a 5% tax rate applies.
Capital gains are taxed at a rate of 10%. Capital gains resulting from gambling are taxed at a rate of 20%.
Payments to foreign non-residents will generally be subject to a withholding tax at a rate of 15%, although if a double taxation treaty applies, this can reduce to 10% or zero. Online gambling operators must withhold capital gains tax payable by any winner at a flat rate of 20% in respect of pay outs in excess of c USD$ 500.
The provision of online gambling products and services is excluded from VAT, although operators will be liable to pay a financial transactions tax at the rate of 0.4% on winnings paid out to a punter.
Employer’s are required to make contributions to employees’ pension funds at the rate of 16% of an employee´s salary (of which 12% is borne by the employer and 4% is contributed by the employee by way of salary deduction). Employees with a salary greater than four times the minimum legal wage have to contribute an additional 1% to 2%. For employees earning less than ten times the minimum legal wage, employers are also required to pay 8% of relevant payroll, broadly equivalent to national insurance in the UK.