Gaming in Brazil: The first six months after the enactment of Law no. 14,790/23 and what still to expect this year?
Neil Montgomery, Founding and Managing Partner of Montgomery & Associados Brazil, provides an exclusive analysis for Gambling.Re regarding the regulatory changes, emerging challenges, and future outlook for Brazil's gaming industry following the recent landmark legislation.
At the time of writing this article, six months will have passed since the enactment of Law No. 14,790/23, which further regulated fixed odds sports betting and legalized igaming in Brazil. The legal framework for gaming and betting has seen several developments since then.
First, a new Prizes and Betting Secretary (SPA) was created, within the Ministry of Finance, to spearhead the regulatory and licensing processes at federal level (which will also include the intervention of the Ministry for Sport). In April, the SPA issued Ordinance No. 561/2024 establishing the timeline for the regulations of the above-mentioned law to be rolled out. So far, only four out of the eleven ordinances contemplated have been issued, namely:
(i) Ordinance No. 300/24 – regulating the accreditation process for testing laboratories;
(ii) Ordinance No. 615/24 – regulating authorized payment methods;
(iii) Ordinance No. 722/24 – regulating the technical and security requirements for betting systems; and
(iv) Ordinance No. 827/24 – regulating the licensing process at federal level.
The remaining ordinances are expected to be issued by the end of July but the delays experienced so far signal that such deadline may potentially be extended).
Operators interested in applying for a federal license have now put their skates on to gather all information, personnel and documentation required for this exercise. In order to secure a license on 31st December 2024, operators must upload their online application (and supporting documentation) with the SPA by 20th August 2024. Only one operator (Betano) has done so so far.
The incomplete series of regulations has created an intricate and costly structure operators will have to implement. Foreign operators will at least be relieved to learn, as I have sustained since the enactment of Law No. 14,790/23, that the SPA recently confirmed that the “Brazilian shareholder” required to hold at least 20% of the share capital of the local licensed operator can be either an individual or a corporate entity.
This means that the local two-tier corporate structure I was the first Brazilian lawyer to advocate will be acceptable. This would require the foreign operator to first incorporate a local holding company (owned 100% by the foreign operator) and this entity, as a Brazilian company, incorporating a wholly owned subsidiary to act as the local operator applying for the federal license. It must be noted, nonetheless, that a number of resident officers will have to be appointed by the applicant operator.
It is important to mention that operators accessing the Brazilian market that on 1st January 2025 do not hold a valid license (whether federal, state or municipal), will be considered to be part of the black market and, as such, suffer from the restrictions on advertising and payment means.
Another point that has been resolved is the methodology for bettors to calculate and pay personal income tax. The overriding of President Lula’s vetoes to Law No. 14,790/23 means that Brazilian bettors will calculate and pay income tax annually on their net winnings at the rate of 15%, levied on what exceeds the exemption threshold.
The intricate and costly structure required from operators under the federal licensing regime has made many operators consider applying for a state license, in particular, the state license granted by the regulator of the State of Rio de Janeiro (LOTERJ). At least 13 operators have been attracted by the simpler corporate structure, lower license fee (BRL5 million instead of BRL30 million at federal level), lower GGR tax (5% instead of 12% contemplated at federal level), no monthly inspection fee and the fact that such state license allows their holders to accept bets from outside of the state borders (i.e., in practice, providing for national coverage). The latter has triggered litigation involving other state regulators and the federal government. We will have to wait and see what the outcome of the same will be and whether such judicial proceedings will drag on for years, as is common in Brazil.
The latest development in the Brazilian legal framework saw this week Bill of Law No. 2,234/22 (formerly numbers BL No. 442/91), which legalizes land-based casinos, bingo parlours and jogo do bicho (a form of animal based lottery), being approved by the Senate’s Constitution and Justice Commission. This is a major victory for the gaming industry since it signals that the bill may be ultimately approved by the Senate’s Plenary and ultimately sanctioned as a law by President Lula (who has signaled is inclined to sanction). This Bill of Law would complete the legal framework for gaming and betting in Brazil.
It can be inferred from the above that the second half of 2024 will be a busy period for the industry and Congress alike. We hope that the New Year will finally see the birth of a fully regulated gaming industry in Brazil.