Czech Republic: Revolution in gambling is coming

20.04.2016

The Chamber of Deputies has recently approved a package of new legislation on gambling games and their taxation. If both of these acts are approved by the Senate and signed by the President, which is not improbable, they will mean big changes in the legal regulation of gambling in the Czech Republic.

The new Gambling Act applies to gaming and betting in the territory of the Czech Republic and to online gambling focused or targeted on persons who reside in the Czech Republic. The Act defines gambling, and regulates individual types of gambling games that can be operated in the Czech Republic. The list of gambling games in the Act is exhaustive, i.e. it may not be expanded or altered, and so no other gambling may be organised in the Czech Republic.

The operator of gambling may only be the Czech Republic or a legal entity having its registered office in the Czech Republic, in the European Union, or in a country that is a contracting party to the Agreement on the European Economic Area. Legal entities are subject to additional requirements set out by the Act, which vary depending on the type of gambling (e.g. minimum amount of own funds, mandatory supervisory body, a transparent ownership structure).

Licences issued before the effective date of the new Act may not be extended, supplemented or prolonged. That means the existing authorisations will remain valid, but once their validity expires, the operator will have to apply for a licence under the new legislation.

Gambling can be operated on the basis of either an authorisation, or notification (the latter relates to raffles and small-scale tournaments). Other gambling will be subject to an authorisation scheme, i.e. their operators will have to obtain the so-called “basic licence” (the decision to grant authorisation to operate a specific type of gambling) from the Ministry of Finance. As concerns the operating of bingo, technical games and live games (with the exception of online games), a two-phase authorisation scheme will be introduced – the operator will have to first obtain the basic licence from the Ministry of Finance, and then a permit to locate the gaming room, which permit will be granted by that municipal authority, in whose district gambling games will be operated.

The Act establishes a more meticulous protection of players. All information and data related to the operation of gambling games will have to be easily available to everyone in the Czech language. The Act imposes an obligation on the operator to offer and allow participants to set self-limiting measures (e.g. maximum amount of bets per day or month, maximum amount of net loss per day or month). If such self-limiting measure set by the participant is exceeded, the operator will disable such player from further participation. Also, the operator of gambling may not allow a person entered in the register of natural persons excluded from participation in gambling, to engage in gambling. This register is maintained by the Ministry of Finance and will include persons banned from gambling, i.e. individuals who receive benefits due to their material distress, individuals against whom insolvency has been determined on a non-appealable basis, individuals who are subject to any interim measure (preliminary injunction) that prohibits them from gaming and betting, or to a limitation or obligation to refrain from gaming and betting, or to a protective treatment consisting in curing the gambling addiction. The register will also include persons who apply for registration.

The Act defines a gaming room (a detached, structurally separated area in which a technical game is operated as the main activity) and a casino (a detached, structurally separated area in which a live game is operated as the main activity), and prevents the so-called quasi-casinos, i.e. gaming rooms operated as casinos, from coming into existence by setting the requirement that a casino must allow a live game at a minimum of three tables throughout the operating hours. The operator of a gaming room or casino will have to identify the customer, verify his age and check whether or not he is entered in the register of persons excluded from participation in gambling once the person enters the facility, meaning that identifying the person during the game will not suffice. Operators will also be required to furnish a gaming room or casino with monitoring devices complying with the relevant legal requirements, and to keep records obtained by using such devices for two years.

The operation of gambling games over the Internet by foreign entities will now be legalised. However, such operation will have to meet the requirement that the server of the online game and the equipment used to operate a numerical lottery game as an Internet game must be located in the territory of a member state of the European Union, or a country that is a party to the Agreement on the European Economic Area. The duty of Internet providers to block access to websites that will occur on the list of websites with illegal online gaming, which list will be kept by the Ministry of Finance, is perceived as controversial. Any entry in the list will be decided by the Ministry of Finance in administrative proceedings. The way of blocking is to be decided by the Ministry of Finance. In this regard, more and more voices are heard which point out that these measures are too reminiscent of the censorship of the Internet.

Moreover, payment accounts of illegal online games operators may be blocked, meaning that no money transactions crediting or debiting such accounts may be performed by payment services providers.

Although the original version of the bill contained a ban on operating gambling games in areas adjacent to protected areas (e.g. schools and school facilities, health care/medical facilities, facilities used by any component of the integrated rescue system, areas serving religious communities), such prohibition was lifted by an amending bill, and so gambling can be operated in areas adjacent to such protected areas.

Oversight over the compliance with the Gambling Act will be carried out partly by the Ministry of the Interior, and partly by the customs authorities, which will be authorised to enter and inspect gambling areas. Customs authorities will deal with administrative torts in gambling activities, except for online gaming, and may impose and enforce fines for such administrative torts.

If the rest of the legislative process goes smoothly, the Gambling Act should come into effect at the beginning of next year. However, the provisions concerning the basic licence and permit to locate the gaming area are an exception and will become effective once the Act is promulgated; i.e. operators of gambling games will not have to wait with filing an application for the licence under the new Act until January 2017, but may file the application once the Act is promulgated in the Collection of Laws.

A draft of the related Gambling Tax Act sets out that a payer of tax on gambling is not only the holder of the basic license or entity notifying a gambling game, but also a person that operates a game the operation of which requires such authorisation or notification. The Government bill originally envisaged three tax rates (35% for technical games, 30% for lotteries, bingo and live games, 25% for odds betting, sports betting, raffle and small-scale tournaments), but the adopted amendment stated that there would only be two tax rates, namely 35% for technical games and 23% for the other games. Tax on gambling will be tax deductible, and will therefore influence the amount of income tax.

If the new legislation is passed, it will lead to some other changes. Although the proposed legislation is in many respects clearer and more transparent, and better reflects practice, this newly adopted Act, like any other extensive regulation, will undoubtedly bring unresolved and disputable issues. Some of these questions are being discussed by professional public already, others will be revealed if and after the cited Acts come into force.

Our law firm is ready to assist and advise you on both the overall adaptation to the new legislation, and resolving any ambiguities that may come with these Acts.