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What makes Alderney a World leader in eGambling regulation?

The Alderney Advantage

eFocusedalderneygambling.com

ALDERNEY - YOUR ACCESS TO WORLD MARKETS

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PO Box 1015, Alderney, British Channel Islands, United Kingdom GY9 3HT Phone: +44 (0)7990 015888 Email: susan@alderneygambling.com

alderneygambling.com

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Introduction 04

Licensing with Alderney 05

Jurisdictions comparison 06

The future of the regulator 07

Tax hurdles 08

Latest developments 10

A closer look 11

Contents

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We’ve found our publication to be the perfect channel for sharing all the vital information about licensing in Alderney. It is sent out as our very first contact with new enquirers so if you are new to the Alderney regime and all it can offer – welcome, and thank you for reading!

In this latest issue you’ll find everything you need to inform your decision making about eGambling licensing. From the types of licence required and why you should choose Alderney, to information about the ways in which we’re working to ensure that we maintain our position as a world leading online gambling destination.

The Alderney Gambling Control Commission (AGCC) has been around for many years and most in the industry will recognise it by name. Spending my time travelling the globe I’ve been able to speak to hundreds of people who know about Alderney, but interestingly, it’s what they don’t know about us that’s of most interest.

So I’d like to open this issue of eFocused by enlightening readers with some (mostly) unknown truths about licensing with Alderney:

1. Flexibility – The AGCC take a risk-based approach to the entire process of licensing and regulation. This means that the level of regulation and administration required can be adjusted according to the risk factor of the business activities or even the geographical location of the business. Applications are assessed on a case by case basis. All of this serves to ensure that the process is straightforward for all parties involved – minimising administrative and regulatory burden when a lighter touch can be applied.

2. Approachability – The AGCC does not reside in an ivory tower far out of the reach of its licensees. The AGCC is run by very real, approachable individuals, all with many years’ experience of the industry. Unique to Alderney’s structure, each licensee is appointed a relationship manager at the start of the licensing journey. The relationship manager will be the first port of call for all enquiries, updates, annual audits and renewals. They will really understand your business and their expertise can be called upon anytime to assist you to grow and develop your activities – tailoring their services to your operational requirements.

3. Stability – Alderney forms part of the Bailiwick of Guernsey and therefore enjoys a unique relationship with the larger Island. Being neither part of the EU or EEA, the jurisdiction remains unaffected by Brexit. Alderney offers a stable political environment and a transparent and low tax system with no corporate tax, gaming duty or VAT. In its latest Moneyval inspection, the AGCC was given a glowing report with hardly any recommendations - testament to the excellence of its approach to maintaining the highest standards of AML/CFT.

Of course there are far more advantages to licensing with Alderney and I hope this publication provides you with a flavour of what we offer.

I’d be delighted to talk to you anytime about your licensing requirements and the opportunities available to you. Please feel free to call or email to start the conversation.

Susan O’LearyDirector of eCommerce States of Alderney

Introduction

Welcome to our new look eFocused magazine

No part of this publication may be copied or reproduced without the written permission of the publishers. Opinions expressed in eFocused are not necessarily those of AlderneyGambling.com or Langlois Robertshaw and Delbridge (LRD). AlderneyGambling.com and LRD do not accept responsibility for advertising content. PLEASE NOTE: Whilst every effort has been made by the publishers and their agents to ensure that this magazine is comprehensive and accu-rate, they cannot be held responsible for any errors or omissions, or the results thereof.

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Alderney’s world renowned licensing regime

The activity of your business will determine the kind of licence required from Alderney. Our modular approach to regulation has not only simplified the requirements for operators, but has ensured longevity of the regulation in an ever evolving marketplace.

Fundamentally, our licensing regime separates the two distinct functions of eGambling. A Category 1 Licence covers all aspects of player management and the Category 2 Licence covers all aspects of providing the games and betting activities.

Licensing with Alderney

Category 1 Licence Business to Customer

Registering, verifying and contracting with the customer and managing player funds.

Once player verification has been completed, the player can be offered activities from either a Category 2 licensed platform in Alderney, or any other platform licensed by a competent authority. Operators are free to build up their own portfolio of games and activities.

Category 2 Licence Business to Business

Effecting the gambling transaction including operational management of a gambling platform located in an approved hosting centre in Alderney or Guernsey.

Any number and type of gambling activity can be approved onto a single Category 2 Licence. Alderney has the widest definition of gambling and gaming and can approve any activity from the traditional to the contemporary and innovative.

Category 2 Associate Certificate Business to Business (outside of Alderney)

Effecting the gambling transaction including operational management of a gambling platform located outside of Alderney. This is the foreign based equivalent of a Category 2 Licence.

Core Services Associate Certificate (CSAC)

Providing gambling specific software – such as games – to an Alderney Licensee. A Core Services Associate Certificate is required if an operator wishes to provide 3rd party services (gambling software, player fund deposit, company management) to an Alderney operator.

Fees

Alderney is a low tax jurisdiction and only levies a modest licence fee as explained here.

Fees for a Category 1 (B2C) Licence are based on Net Gaming Yield (NGY). However, for the first year a new licensee receives an introductory fee of £17,500. Thereafter, £35,000 p.a. up to £500k NGY. A banded fee structure applies up to NGY of £30m. There is a maximum fee of £400,000 (all activities included).

A Category 2 (B2B) Licence has an introductory fee of £17,500 in the first 12 months, thereafter fixed at £35,000 per annum regardless of the amount of business transacted over the platform or the number of activities installed on the platform.

The Category 2 Associate Certificate has an introductory fee of £35,000 in the first year, thereafter £50,000 p.a.

Finally, fees for the Core Services Associate Certificate are £10,000 p.a.

In order to avoid any element of “double taxation” following the UK introduction of POC regulation and taxation, the NGY from any UK facing activities is excluded from the calculation of the fee for the Category 1 licensee. Also to minimise any element of “double regulation” the AGCC has streamlined its regulation of UK facing activities for those holding a UK Gambling Commission licence.

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Jurisdictions comparison

How Alderney compares with other jurisdictions

Alderney Isle of Man Gibraltar Malta

Corporate Tax

0% 0% 10% Headline 35%, can be reduced to 5% for non-resident shareholders

VAT 0% 20% 0% 18%

Fees & Gaming Taxes/Duties

One licence covers all types of activities

One licence covers all types of activities

Separate licence required for each type of activity, fees and minimum/maximum taxes apply to each licence

Separate licence required for each type of activity, fees and mimimum/maximum taxes apply to each licence

Gaming Duty

0% Gambling Duty of 1.5% of Gross Gaming Yield/ Retained Profit up to £20m, 0.5% on the next £20m, 0.1% on amount over £40m. 15% on pool betting. Relief on Yield/Profit from UK market actvities. No maximum

Minimum Gaming Duty £85k.Fixed Odds and Betting Exchanges 1% of Turnover. Casinos 1% of Gaming Yield or Gross Profit.Maximum Duty £425k

Class 1 Casino standalone flat £70k pa (33% discount applies to first six months of operation), £12k pa if hosted on Class 4. Class 2 Sports 0.5% of Gross Bets. Class 3 Poker 5% of real income. Class 4 Hosting £46k pa (effective 50% discount over first year) + £12k for every operator hosted who does not hold a Malta licence. Maximum Tax £388k

Fees

B2C utilising third-party B2B platforms

Category 1 Licence, £17.5k first year. Thereafter Band A £35k pa up to £0.5m NGY inceasing to £400k maximum at Band G for NGY above £30m. NGY from UK market actvities excluded from NGY

Sub Licence £5k pa if exclusively using IOM licensed B2B platform otherwise £35k pa for a Full Licence

£2k pa per licence £7k pa per licence

B2B offering services to B2C operators

Category 2 Licence, £17.5k first year. Thereafter £35k pa plus £3k per client not part of same group and not holding a Category 1 Licence.

Full Licence £35k pa if not offering platform to any clients not holding an IOM licence. Otherwise Network Licence £50k pa plus £5K pa per client not holding an IOM licence.

£2k pa per licence £7k pa per licence

B2C with own B2B platform

Category 1 & 2 Licences, £35k first year thereafter Cat 1 Banding and Cat 2 client fees apply resulting in minimum of £70k pa and maximum of £435k fee.

Full Licence £35k pa if not offering platform to any clients not holding an IOM licence. Otherwise Network Licence £50k pa plus £5k pa per client not holding an IOM licence.

£2k pa per licence £7k pa per licence

n.b. Alderney also offers a Category 2 Associate Certificate at £35k pa for first year, thereafter £50k pa for operators wishing to locate their B2B servers in an AGCC approved data centre in other jurisdictions.

No equivalent offered No equivalent offered No equivalent offered

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The future of the regulator

Taking the reins at the AGCCJorn Starck is the Executive Director of the Alderney Gambling Control Commission, having taken over from André Wilsenach at the start of 2016. He reveals the jurisdiction’s latest developments (and achievements) and discusses his plans for the future of the regulator.

Being a regulator first and foremost then a director at the AGCC for five years placed me in good stead to take the helm at the AGCC and I am enjoying the challenge of the role.

I joined the AGCC just after the jurisdiction had acquired white-listing status in 2007, but my interest in gaming dates back long before this time when I represented Finland at international level at junior chess competitions and also took part in backgammon tournaments. Spending around eight years working for international sports books and also working for a Scandinavian-focused affiliate before joining the AGCC has given me insight into life on the other side of the fence too.

A regulator needs to be very structured and understand how the industry operates. You need to be able to analyse licensing structures and proposed operating procedures.

You also need to assess whether these are compliant with the legislative framework of the jurisdiction and whether the licensee’s controls meet the compliance standards of the AGCC.

My predecessor, André Wilsenach, who I had the pleasure of working with for a number of years, spent 14 years building a very high standard of regulatory environment with the help of an experienced team and commissioners and he paved the way for the jurisdiction in this regard.

I have been keen to ensure that there is stability and continuity so I have not wanted to change too much; my personal style is probably more analytical and more focused on the legislative and regulatory environment.

André wanted to bring in experienced input and skills from other jurisdictions and regulators so was very active in the International Association of Gaming Regulators and on the Gaming Regulators European Forum. I hope to continue the success that André had in this area and ensure that the Alderney flag continues to fly internationally.

Where we are now We are currently at the stage where the regulatory changes are starting to impact on the operators in the industry quite significantly. In the past few years the industry in Europe has moved towards Point Of Consumption regulation (POC).

National regulators have been given fairly free reign by the European Commission to implement their own interpretations of the gambling industry regulations, therefore the landscape has changed.

Offshore jurisdictions will always have their role to play but there is also a need to recognise that the operators need different solutions for their products and services.

There are still a large number of jurisdictions that haven’t implemented their own online gambling legislation. With our experience we are very confident that Alderney can also contribute to the development of the industry in those jurisdictions across the world: Eastern Europe, the diverse Asian markets, South America and African countries.

If possible the regulator should only monitor from the sidelines and the industry handles itself responsibly. The challenge for the AGCC will be to continue to represent the top tier of online regulation in the new jurisdictions we associate with but to also continue to liaise closely with national regulators as well as remaining relevant and liaising with other jurisdictions.

Jorn StarckExecutive Director Alderney Gambling Control Commission

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Tax hurdles

The global online gambling industry continues to grow at a phenomenal rate in emerging and established markets all over the world. But despite this rapid expansion, operators are being squeezed more than ever due to tighter regulations and higher taxes. Changes to where and how operators pay tax on their income has caused serious headaches of late, dealing a hammer blow to bottom line and profitability.

But tax doesn’t have to be taxing, and here at Grant Thornton we have been helping gambling companies navigate complex global tax systems for many years. We have the expertise and knowledge to assess changes to legislation and regulation, and understand how to achieve the optimal tax position. To do this, operators must consider several factors when deciding where to base their business, and how they are structured and run.

The key to success is stability, and despite being a small island, Alderney offers solid foundations from which companies grow their businesses. Below are three key areas of taxation to consider, and how operators based on Alderney can take advantage of each.

VAT:

Under European legislation, betting and gaming is exempt from VAT. While this has its perks, it means only a limited recovery of VAT can be incurred on costs. There is no VAT system in place in Alderney, meaning any supplies made to a company based on the island are outside of its scope.

This leads to a material saving, both in terms of cash flow and genuine cost benefit, as VAT normally applies to most costs incurred. Standard VAT rates vary across the EU; Luxemburg is the lowest at 17% and Hungary the highest at 27%. While Alderney is VAT exempt, other EU jurisdictions are now working towards introducing a VAT system, or similar sales tax.

Gaming duties:

Unlike other jurisdictions, there are no gaming duties in place on Alderney, only licensing fees. Take Gibraltar, for example. There is a minimum level of gaming duty set at £85,000 per annum which is payable at 1% of turnover for fixed odds and betting exchanges and 1% of gaming yield or gross profits for casinos. This is payable up to a maximum of £425,000 per annum per licence on top of any licence fees.

It is worth noting that individual jurisdictions are starting to bring in betting and gaming duties that apply where there are local customers, also known as a Point of Consumption (PoC) tax. This type of taxation model was introduced in the UK back in December 2014, and means operators now pay a 15% tax on all bets placed by UK punters regardless of where their business is located. The remit of PoC is set to be further extended later this year to tax free bets offered to punters as an incentive or reward.

Gambling operators based on Alderney are in a much stronger position to ride the PoC storm than those located elsewhere. Because Alderney has no gaming duties there is no double taxation; this is boosted further since Alderney disapplies any net gaming revenues from UK customers when calculating the level of licence fees payable.

Corporation tax:

Corporation tax, a word that makes CFOs the world over shudder. Depending on where a business is located, corporation tax need not be a massive burden. Take Alderney, for example. It is subject to the Bailiwick of Guernsey’s corporation tax regime which taxes most companies, including betting and gaming operators, at a rate of 0%. In comparison, the headline rate of corporation tax in Malta is 35%, although it’s worth noting that this can be reduced to 5% for non-resident shareholders subject to certain special reliefs.

Tax shouldn’t be taxingIrena Nelson, Senior Tax Manager at Grant Thornton, looks at some of the tax hurdles online gambling operators need to clear

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A word of caution:

One of the most important points to consider is that global online gambling companies are international by their very nature. For example, it is common for groups to list on the UK Alternative Investment Market with a UK tax resident holdings company rather than an operating company.

But the Organisation for Economic Co-operation and Development has wised up to this and has attempted to align transfer pricing outcomes with value creation, recognising the importance of intangibles in the digital economy. It has emphasised entities will earn economic returns based on the value they create through functions performed, assets used and risks borne in the development and exploitation of intangibles; legal ownership alone will not determine entitlement to reward. This is being done through the Base Erosion Profit Shifting (BEPS) project.

The UK has implemented a new Diverted Profits Tax (DPT) to run alongside BEPS. If a company is party to arrangements with connected entities involving the use of transactions which lack economic substance and are deemed to divert profits from the UK, then 25% DPT will be charged, though there are certain exemptions in place.

The licensing regime in Alderney is powerful and flexible, and largely allows licensees to organise themselves depending on what works for them from a commercial perspective. However, those who commit substantial assets to the Bailiwick of Guernsey and who have genuine economic substance will be at less risk from BEPS and DPT than those with little or no weight behind them. The global online gambling industry is as large as it is complex, so it’s always worth companies seeking individual tax advice. Tax Authorities worldwide are becoming more and more aware of the global gambling industry and I have found that pre-emptive advice is more important than ever.

Irena Nelson is a Senior Tax Manager at Grant Thornton. She advises across all area of indirect taxation, with a particular specialism in the betting and gaming sector. Irena has more than seven years’ experience in the sector and, as part of this, spent more than two years in the in-house tax function for a FTSE-250 multinational gambling group.

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Latest developments

Asian Agency Model

Multi-Jurisdictional Testing Framework Developments

The AGCC has created a unique regulatory structure incorporating the agency model for Asian betting markets.

The AGCC recognised that, in a typical Far-Eastern extended social structure, bets on popular sporting events may be placed by just one person on behalf of others and that credit may also be extended by ‘agents’ to linked sub-accounts, where individuals can place their own bets. This activity is fraught with challenges for the gaming companies who wish to operate, and be seen to operate, to the highest regulatory standards.

Working closely with the industry to ensure compliance with internationally acceptable standards - specifically in the area of AML/CFT - and after an in-depth review of Alderney’s FATF compliant regulatory requirements, the AGCC launched the Asian Agency Model. The model has already been adopted by a number of licensees.

This development is another example of our uniquely pragmatic yet innovative approach to regulation that will be of genuine benefit to many operators.

B2C Licensee (Category 1) Registration, Verification,

Fund Management

Super Master Agent

B2B Licensee (Category 2) Online Sports Betting Platform

BETTING

*MA sub accounts (Funded by credit from MA)

Master Agent 1

+ Master Agent(s)

Sub* Sub* Sub* Sub*

The first phase of the International Association of Gambling Regulator’s (IAGR) working group project to establish a Multi Jurisdictional Testing Framework (MJTF) has been completed.

The MJTF project is an important step towards harmonising regulatory requirements across all IAGR jurisdictions and we continue to actively work towards further standardisation of games software testing requirements. Working closely with gambling regulators in the UK, Denmark and the

Isle of Man to assist licensees and certificate holders in achieving the best speed to market whilst minimising regulatory duplication and games software testing costs.

The IAGR working group has continued its efforts throughout 2016 and the aim is to complete the second phase - covering mainly game fairness - before the end of Q1 2017. This will likely benefit all Alderney licence holders.

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A closer look

Alderney under the microscopeAlderney’s latest assessment from The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval), offered the jurisdiction hardly any recommendations for improvement in eGambling regulation.

The 322-page report contains an analysis of Guernsey’s implementation of International and European standards on money laundering and terrorist financing, as well as a recommended action plan.

With regards to eGambling and the AGCC’s contribution, the report highlights that Alderney’s approach to eCasinos is compliant with the 3rd EU AML/CFT Directive, noting that the AGCC has built and maintained relationships with foreign gambling regulators to highlight and prevent fraudulent operations. To have received this Moneyval stamp of approval affirms the AGCC’s approach in following international best practice.

The high level evaluation really is testament to Alderney’s strength as a jurisdiction and demonstrates how

well the Alderney regime is run. Such a respected accolade is not awarded to every jurisdiction and we are very proud of this recognition. We continue to work with

our financial regulator, the Guernsey Financial Services Commission (GFSC) and the Guernsey Financial Intelligence Unit (FIU) to ensure the highest level of protection for players and industry is adhered to.

The high level evaluation really is testament to Alderney’s strength

as a jurisdiction and demonstrates how well the Alderney regime is run.

PO Box 1015, Alderney, British Channel Islands, United Kingdom GY9 3HT Phone: +44 (0)7990 015888 Email: susan@alderneygambling.com

Alderney’s big advantage, our partners

alderneygambling.com

international.sure.com fortgroup.comc5alliance.com/eGaming- alderney-guernsey-jersey jtglobal.com/egaming

Alderney’s offering is reinforced by its partnership with a number of industry experts, dedicated to providing a specialist service to eGambling licensees.