Fancy a wager? Well, soon you may be able to (responsibly that is!). The General Commercial Gaming Regulatory Authority (GCGRA), the federal authority responsible for implementing and overseeing commercial gaming in the UAE, has recently issued its first commercial gaming license and guidance on applications for various types of licenses. We know the Wynn Resort in Ras Al Khaimah will have gaming activities, and many others are looking closely at the UAE market. With all this activity, there are questions on the future of gaming activities in the UAE, and among these questions are: How will such activities be taxed?
Currently, the UAE tax regime doesn’t specifically cover gaming activities since they have only recently become regulated. This could leave a degree of ambiguity regarding how commercial gaming activities will be taxed in the UAE.
Legislative changes could ultimately come, and it is therefore worth considering how other jurisdictions with pre-existing legal frameworks approach the taxation of gaming activities. It wouldn’t be so far-fetched to think that a specific tax on gaming activities could be introduced, as in other jurisdictions. Currently, though, the local tax landscape is relatively simple and operators in the UAE (including online gaming sites) would need to consider Value Added Tax (VAT) as well as Corporate Tax for those with establishments here, whilst importers of equipment and materials (e.g. gaming machines) would need to also consider Customs Duty.
Specifically for Corporate Tax, net profits are subject to a very competitive headline rate at 9%, and for the largest multinational groups, subject to Global Minimum Tax, potentially a top-up to 15%, which will need to be factored into the economics of operations. Equally, all new operators entering the market will need to consider the Transfer Pricing rules to ensure that all related party transactions (e.g. IP, services, financing) are priced on an arm’s length basis. In this sector, particularly in Europe, the VAT and TP analysis go hand in hand as there is a similar focus on substance and decision-making when considering the application of the rules. It is possible some of this perhaps won’t be as important in the UAE, as gaming activities aren’t expected to be exempt from VAT. That exemption in Europe has often been a driver for ensuring inter-company transactions are minimised and, indeed, has been a big factor in online gaming locating offshore as it can give VAT advantages.
Right now, because of the absence of that exemption, I would expect that, in practice, the existing VAT regime would likely be the principal means by which tax will be collected on these activities.
If I were to take a bet, gaming activities would be treated as a taxable service under the VAT Law. The law was drafted to catch pretty much any activity, and gaming is no exception!
However, the uncertainty lies more in determining the value i.e. on what VAT should be applied. Considering most games of chance are only profitable based on the net margin, a taxation system that taxes each bet could potentially render games of chance uneconomic, as the house edge wouldn’t be sufficient to cover the VAT cost per bet.
For example, in the game of blackjack, a player can play for several hours with the same stake–is VAT due each time a stake is placed? If so, the same cash could be subject to VAT multiple times in a sitting. Given the margin on a game such as blackjack can be as low as 2% on the total game in a sitting, the notion that VAT would be due at 5% on each bet would soon render the game uneconomic.
One solution for policymakers to consider could be that VAT is applied on the periodic margin (such as the daily or monthly margin on bets taken, etc.) as in other jurisdictions.
One thing that is sure is that further developments will come with the increase in commercial gaming activities. How these activities are taxed will be crucial for commercial gaming operators to consider–as the method of taxation could result in their activities being uneconomic. Applying VAT on a per bet basis would be a compliance nightmare (reporting each bet, applying VAT on each bet, issuing a tax invoice for each bet)–not to mention all the VAT implications arising from giving free or complimentary bets, accounting for loss/fraud, etc. Much needs to be considered, but given VAT has and continues to be the principal taxation of such activities in other countries, I would expect that, short of a new tax being introduced, VAT will be the principal means of taxing commercial gaming activities in the UAE.
