After a long period of discussion in the Brazilian Parliament, the Sports Betting Law (Federal Law No. 14,790/2023) was enacted by President Lula on December 30th, 2023, opening a new chapter for the gaming industry in Brazil.
TozziniFreire iGaming team prepared below a summary of the main aspects of the law that are worth mentioning. Basically, the Sports Betting Law provides new rules and amends the existing law on iGaming and lottery (Federal Law No. 13,756/2018), especially focusing on taxation, compliance, advertisement, and inspection of the sports betting operators:
- What does the law authorize? As per article 3, fixed-odds betting in Brazil will comprise: (i) any real sports event or (ii) virtual online games.
- How bets will be explored in Brazil: as per the new law, only operators authorized by the Ministry of Finance will be able to operate within the Brazilian territory, always in a competition regime. Further rules related to other matters involving the regulation of the industry will be soon published by the Federal Government.
- Requirements to operate in Brazil: companies must set up headquarters in Brazil, abide by the new law rules, and further regulation to be issued on the matter. As of now, the Sports Betting Law imposes the obligation for betting operators to have at least 20% of their share capital with a Brazilian partner.
- Mandatory corporate policies: the new law also imposes the obligation for all operators to abide by mandatory corporate policies to prevent fraud, by developing anti-money laundering, compliance/integrity, responsible gaming rules and ombudsman for bettors. Further regulation will be published in this regard.
- Timing: operators may request or apply for authorization at any time, considering the procedure set forth under the law. Companies in the process of being granted a license will have up to 6 months (180 days) to adjust their activities and business to the law requirements.
- Maximum grant: Sports Betting Law established that the fixed grant shall be up to 30 million Brazilian Reais. Further regulation will be published in this regard.
- Advertisement: specific rules for advertisement and marketing were also included in the new law. Although further regulation will be published by Ministry of Finance in this regard, it is already stated advertisements and marketing must consider, at least:
- Warning about possible harms arising from the gaming/iGaming practice.
- Advertisement must include warning to prevent pathological gambling disorder (ludopathy), as well as prohibiting the participation of minors under 18 (eighteen) years old.
- Advertisement must be focused on adults, so as not to have children and adolescents as the target audience.
In addition to that, CONAR (Brazilian Self-Regulation Council), a non-governmental organization (NGO) that seeks self-regulation of the advertising sector – as an entity interested to maintain the Brazilian advertising environment ethical and intact, avoiding abusive or misleading practices –, published Annex X right after the Sports Betting Law was enacted. The Annex X brings new guidelines for advertisement within the sports betting sector and iGaming industry. A summary of this Annex can be found here.
- Payment methods: all payment transactions must be done by operators duly authorized by Ministry of Finance. Only financial institutions authorized by BACEN (Brazilian Central Bank) will be able to provide financial services within the sports betting industry. Further regulation will be issued to establish rules and effective systems and processes for monitoring bettor activity, to identify harm or potential harm associated with gambling and other matters as provided for in articles 21 to 25 of the Sports Betting Law.
- Inspection by government bodies: the Ministry of Finance will issue further rules on the inspection process of operators under this law. The regulations to be issued will provide the manner and procedure for operating agents to send or make available clarifications, technical, operational, economic-financial and accounting information, data, documents, certifications, certificates, and reports that are considered necessary to monitor the activities carried out by betting operators.
- Penalties: Sports Betting Law sets forth several mechanisms for imposing sanctions. Especially article 39 covers the hypotheses in which the government will consider an operator is in breach, such as: exploring fixed-odds betting lottery without prior authorization from the Ministry of Finance and carrying out operations or activities that are prohibited, unauthorized or in disagreement with the authorization granted.
- Forbidden conducts: Sports Betting Law forbids the following conducts:
- granting, in any form, advance, bonus or prior advantage, even if merely as a promotion, publicity or advertisement, for placing a bet.
- entering any partnership, agreement, contract or any other form of arrangement or business adjustment to enable or facilitate access to credit or commercial development operations by bettors.
- installing or allowing to be installed, in physical establishments, any agency, office, or representation of a legal or natural person that grants credit or carries out commercial development operations for bettors.
- Taxation: Sports Betting Law provided that net prizes obtained from betting on the fixed-odds betting lottery will be taxed the Individual Income Tax (IRPF) at a rate of 15% (fifteen percent). The original wording of article 31 also included three paragraphs, which provided, respectively:
- the net winnings would be the result earned on fixed-odds bets placed each year, after deducting losses
- the tax would only be levied on the value of the prizes that exceeded the value of the first bracket of the annual progressive IRPF table; and
- the tax would be calculated annually and paid by the last working day of the month following the calculation.
However, all paragraphs mentioned above were vetoed by the Brazilian President Lula on the grounds that they provided for a form of taxation different from that seen in other lottery modalities. Nonetheless, this veto does not overlook the fact that taxation can only be levied on net winnings. The form and period of calculation, however, will be under regulations to be issued by the Ministry of Finance. Although the idea of the vetoes was to subject sports betting to the same treatment of other lotteries, there is still a discussion as to whether taxation will be imposed as a withholding tax at the source of payment or as a self-reporting income on the individual income tax return, which was the original idea (par. 1 to 3) of the law approved in Congress, before the vetoes.
Considering the vetoes on the new law, from the tax standpoint, operators would be subject to the following taxation: (i) the income tax, at a 15% rate, can only be levied on the bettor’s net winnings, and (ii) the form and period of calculation, however, will be regulated by the Brazilian Ministry of Finance.
From a tax policy perspective, we understand that the modality of withholding tax for the purposes of calculating the income tax owed by bettors would be more efficient for Tax Authorities and could mitigate risks of tax evasion.
Considering that President Lula vetoed eight provisions of the Sports Betting Law, the approved provisions were already enacted, and the vetoed ones returned to the Brazilian Congress (a joint session of the House of Representatives and the Federal Senate) for further analysis. If these vetoes are maintained, the law remains as it is. If they are overturned, the previously vetoed sections become part of the law. The Brazilian Congress has up until March 3rd, 2024, to analyze the vetoes.
