The Ministry of Finance, through its Secretariat of Prizes and Betting (“SPA”, in Portuguese), published on May 22nd the Ordinance SPA/MF No. 827/2024 (available here in Portuguese), which outlines the rules and conditions for obtaining authorization for the commercial operation of the lottery modality of fixed-odds betting (sports betting) by legal entities in Brazil.
The Ordinance came into effect on May 22nd, and interested companies can now apply for authorization. The authorization is non-transferable and will be valid for five years, subject to payment of BRL 30 million. It also allows the operation of up to three trademarks through its electronic channels.
In addition, the Ministry of Finance and the General Attorney’s Office (AGU), published on May 23th the Ordinances MF/MESP/AGU No. 28/2024 (available here in Portuguese), including the Ministry of Sport and the General Attorney’s Office in the analysis procedure.
TozziniFreire’s Gaming and e-Sports team highlights the main provisions of the Ordinances and points out specific considerations companies interested in operating legally in Brazil should carefully review.
Definitions
The Ordinance commences by outlining key definitions of specific entities, the details of which must be supplied by the applicant during the authorization request process:
- Final beneficiaries: Refers to quotaholders or shareholders, natural persons, meeting the criteria as control or hold qualified interest, and situated at the highest level of the corporate ownership hierarchy within the economic group.
- Controllers: Designates quotaholders or shareholders who, either individually or collectively with other members of a controlling group, whether natural persons or legal entities, directly or indirectly (a) hold or exercise rights that permanently grant them dominance in the social deliberations and decision-making bodies and powers to elect the majority of the administrators within the legal entity seeking the authorization; or (b) effectively direct the social activities and guide the activities and operations of the applying company.
- Holders of qualified interest: Refers to quotaholders or shareholders, whether natural persons, legal entities, or investment funds, who do not exercise control over the applying company, but, either directly or indirectly, possesses an individually stake exceeding 10% of the voting capital in the case of a corporation, or greater than 10% of the social capital in the case of a limited liability company.
- Economic group: All natural persons, legal entities or investment funds involved in the ownership chain of the applying legal entity.
- Control group: A group of individuals linked by a voting agreement or under common control who assume the role of controller of the applying company, directly or indirectly.
Conditions
Only legal entities incorporated in Brazil under Brazilian law, in the form of a limited liability company or corporation, with headquarters and administration in Brazil, will be eligible for authorization to operate.
A Brazilian subsidiary of a foreign company can be authorized to operate in the country, provided that there is a mandatory participation of a Brazilian as a partner holding at least 20% of the capital stock of the legal entity.
A branch, agency, or representation in Brazil of a legal entity headquartered abroad is not eligible for authorization to operate the fixed-odds betting lottery.
Requirements
To seek authorization, the applicant company must submit its legal qualification, tax and labor compliance, integrity, economic-financial standing, and technical capabilities to the Ministry of Finance. This is to be done by providing the documents listed in Articles 8 through 12 of the Ordinance, along with the forms and statements available in the Annexes of the Ordinance.
Companies should pay special attention to each qualification type:
- Legal qualification: Along with other required documents, companies submit the following forms, which entails a comprehensive disclosure of information about the company's corporate structure:
- Identification form for controlling shareholders, holders of qualified interest, directors, and final beneficiaries (template available in Annex II of the Ordinance).
- Registration form for controlling shareholders and holders of qualified interest, applicable to legal entities (template available in Annex III of the Ordinance).
- Registration form of the legal representative, controlling shareholders, holders of qualified interest, final beneficiaries, and managers, applicable to natural persons (template available in Annex IV of the Ordinance).
- In the form for identifying controllers, the applying company must list all administrators, reducing the pool of potential candidates for company positions. In addition, this form should designate the individual responsible for (i) accounting and finance; (ii) integrity and compliance; (iii) assistance to bettors and ombudsman; (iv) relations with the Ministry of Finance; (v) processing and security of personal data; and (vi) operational security of the betting system. Individuals holding positions (i) through (iv), must hold the position of director or an equivalent role, positions which cannot be cumulated.
- The company is required to register with a Brazilian Board of Trade under the main corporate purpose of "Operation of Fixed Odds Betting", utilizing the National Classification of Economic Activities (CNAE) No. 9200-3/99, subclass "Operation of games of chance and bets not previously specified".
- Proof of integrity:
- In order to demonstrate the integrity of controllers and holders of qualified interest, when they are legal entities, even if based abroad, the applying company must submit a statement affirming their good reputation and the legal origin of the resources that makes up the corporate capital (templates available in Annexes VI and VIII of the Ordinance).
- For controllers, holders of qualified interest, ultimate beneficiaries, administrators, and legal representatives who are natural persons, even if they are foreigners, they are required to provide a statement attesting to their clear reputation and the lawful origin of the resources form the corporate capital of the applying legal entity. Additionally, negative civil and criminal records issued by the Federal Police and Federal Justice or by must be submitted competent authorities in the country of origin (templates available in Annexes VII and VIII of the Ordinance).
- Economic and financial qualification: The applying company must meet, among other requirements, the following conditions:
- Maintain a financial reserve, in the minimum amount of BRL 5 million, through investments in federal bonds kept in custody with a financial institution.
- Proof of payment in current currency of the minimum share capital of BRL 30 million.
- Evidence of a net worth of BRL 30 million.
- Submission of a statement regarding the economic-financial capacity of the controllers (template provided in Annex X of the Ordinance).
- For companies established for less than one year, in lieu of financial statements, the Ordinance requires the submission of (i) an opening balance sheet; (ii) a projected cash flow for the next 2 financial years; and (iii) a report signed by the financial director or equivalent function outlining the economic and financial assumptions used in the projections.
- If a legal entity requests an additional authorization to operate more than three trademarks, SPA stipulates the following requirements:
- Payment of the new grant in the amount of BRL 30 million.
- Financial reserve of BRL 5 million.
- Subscription in the currency of the share capital of BRL 15 million and maintenance of a net worth not less than the share capital.
- Technical capability: The applying companies must also provide the following:
- Receipt of request or technical certificate of the betting system, issued by a laboratory with operational capacity recognized by the SPA (the list of entities certified by SPA are available here in Portuguese).
- Description of the structure of the betting service system based in Brazil, offering assistance in Portuguese through free electronic and telephone channels, operating 24/7.
- Proof of knowledge and experience in gaming, betting, or lotteries by at least one of the controlling group members.
- For natural persons, evidence of a minimum professional experience of 3 years in gaming, betting, lotteries, or related fields; or for natural persons or legal entities, proof of being a qualified shareholder in entities with gaming, betting, or lotteries-related corporate purpose.
- Proof of registration on the “consumidor.gov.br” platform.
- Proof of the applying company being part of or associated with a responsible advertising monitoring organization.
- The administrators of the applying company must provide evidence of integrity and demonstrate either (i) a minimum of 3 years of professional experience in a field related to their role as administrators; or (ii) higher education degree in a field relevant to the position they will hold.
- Documents originally produced abroad, in a foreign language, must be translated into Portuguese by a sworn Brazilian public translator. The Ordinance does not specify whether these documents must be legalized or apostilled, however, it can be inferred that this procedure will be necessary since it is usually required in public procedures.
- The authorization request, statements and other forms attached to the Ordinance must be filled out and digitally signed via a digital certificate issued by a Certification Authority of the “ICP-Brasil”, following the “PadES” standard; or through an “gov.br” account with a silver or gold security level and access.
- For foreign individuals and legal entities, both signature methods require the signer to be registered in the Individual Taxpayer Registry (CPF) or National Registry of Legal Entities (CNPJ).
Procedure of analysis
The application for authorization must be submitted online through the Betting Management System (“SIGAP” in Portuguese) of the Ministry of Finance, available at https://sigap.fazenda.gov.br.
During the analysis, SPA may request additional documents or information. In this case, the company will have a period of 15 days from the date of notification for the submission.
In light of the Ordinance MF/MESP/AGU No. 28/2024, the application, forms, statements and all technical documents submitted by the companies will be available for the evaluation of the Ministry of Sports, which will have up to 45 days to analyze the authorization request and issue an opinion. In case SPA and the Ministry of Sport disagree on the final decision, the matter will be submitted to the analysis of the General Attorney’s Office.
SPA will have up to 150 days, counted from the date of the authorization request, to notify the company to provide the payment of the authorization fee or to communicate the rejection of the authorization request.
If granted, the act of authorization will be published in the Official Federal Gazette (DOU). If rejected, the company may file an appeal within 10 days of notification by SPA.
In addition, as an incentive to apply for the authorization as soon as possible, SPA guarantees to the companies that submit the authorization request within the first 90 days from the publication of the Ordinance (i.e., until August 19, 2024) (i) an additional period to pay the authorization’s fees; and (ii) the approval of the authorization request until December 31st, provided that all the requirements of the Ordinance are met.
Term
For legal companies that were active in Brazil at the time of the publication of Federal Law No. 14,790/2023, the deadline for adapting to the rules and regulations in force on sports betting ends on December 31st.
From January 1st, 2025, the companies operating in Brazil without the authorization from the Ministry of Finance will be subject to the applicable penalties.
Possibility of revision
The authorization granted may be reviewed by the Ministry of Finance if the authorized company carries out mergers, split, incorporation, transformation, as well as transfers or modifications of direct or indirect corporate control.
However, it is possible for the authorized company to submit prior consultation to the SPA to ensure that the intended corporate changes will not result in a review of the authorization granted.
Renewal of authorization
Once authorized and to prevent the interruption of their activities, the companies must apply for a new authorization at least 180 days prior to the expiration date of the authorization granted.
Termination of authorization
In the event of termination of the authorization, the Ordinance provides that (i) the open bets of real sports-themed events that have not yet occurred must be canceled; and (b) the operator must return to the bettors the funds held in the transactional accounts, including the amounts corresponding to the available financial balance of each bettor, the open bets, as well as any unpaid premiums.
Attention points
- It is crucial for companies to apply for the authorization within the 90-day window to ensure approval by SPA before December 31st.
- Companies that apply for the authorization after this period are at risk of not having their request granted by December 31st, leading to the prohibition from operating in Brazil until the authorization process is completed and/or being subject to penalties if they continue to operate.
- The structure of the requirements and documents needed to obtain authorization closely resembles what is typically required in international bids, which my raise concerns about the compatibility of documents issued abroad.
- The Ordinance does not clarify the rules that apply to Brazilian shareholder (refer to the “conditions” section above). However, the current Secretariat of SPA, Regis Dudena, has requested the Attorney General of the National Treasury (PGFN) to issue a legal opinion on the matter.
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