Brazil Gaming Regulations: Outcomes and Threats

Brazil’s gambling regulator has now concluded the rule-making process to implement a landmark national law on online betting and gaming, through the publication on August 1 of the final three of ten regulatory ordinances establishing formal rules on responsible gaming and advertising, among other key topics.

In this blog, we analyse the series of positive outcomes for the industry on key policy questions that were addressed through implementing rules, as well as several key regulatory threats that remain unresolved ahead of an initial licensing deadline later this month. 

Brazil Industry Scores Series Of Lobbying Wins In Implementation

Following the publication of the last of Brazil’s scheduled regulatory ordinances for fixed-odds betting on August 1, the industry may now be able to reflect upon a series of positive outcomes to key policy or regulatory matters that were all left uncertain by Law 14.790.

Despite stated concerns by government officials as to whether certain popular casino-style games would meet the legal definition of a fixed-odds bet, a July 31 ordinance establishing technical requirements for online gaming expressly recognises a full range of casino products, including slot games, roulette, blackjack, crash games and virtual sports.

Another area of uncertainty had been whether a statutory requirement for each operator to be at least 20 percent owned by a “Brazilian” would necessarily require foreign operators to take on a local investment partner. In June, the SPA clarified that the “Brazilian” could be either an individual or a legal entity, enabling foreign companies to meet the requirement by applying via a subsidiary incorporated and headquartered in Brazil.

Industry groups were earlier able to persuade Brazil’s Congress to overturn a partial veto by President Lula and reinstate a player winnings tax of 15 percent to be applied against each player’s annual net winnings. Otherwise operators may have been required to withhold 15 percent from every winning sports bet or online gaming session.

On another front, Brazilian regulators have agreed to interpret a statutory ban on bonuses and “prior advantages” for placing a bet as applying strictly to welcome bonuses offered to new players. One of the three regulatory ordinances published by the SPA on August 1 expressly allows operators to set their own rules for loyalty bonuses and other incentives that may be offered to established players.

The above victories are not to say that the implementation has not presented new compliance and policy challenges for the industry, such as tricky requirements related to the location of betting systems, prize payouts and withdrawals, among others. Still, the industry has at least avoided more restrictive rules on casino games, local partnerships, winnings taxes and bonus offers that may have dampened interest in Brazilian licences and materially reduced the attractiveness of the market overall.

Pending Policy Threats In Brazil

Although the SPA has published all of its scheduled regulatory ordinances and addressed most, but not all, of the key pending questions of prospective operators, there are still a series of policy threats for the industry to be aware of that are outside the direct control of Brazil’s new betting regulator.

State-Level Regulation: Citing a landmark Federal Supreme Court decision of 2020, at least three states and other municipal-level governments are moving forward with introducing their own local regimes for fixed-odds betting. The major states of Paraná and Rio de Janeiro have already issued licences to several operators, with Rio’s regime proving to be especially disruptive to the Brazilian federal government’s mandate to establish a national regulatory system that will apply across the county. The Rio lottery authority is being challenged in court over its position that state-level licensees may operate throughout Brazil, provided all players legally acknowledge that their bets are deemed to occur within Rio de Janeiro. More recently, major operators have seen their websites blocked both in Rio and beyond based on a legal action taken by lottery regulator LOTERJ. The scope of state-level licensing and the ability of state authorities to enforce their regimes remain a critical area to watch, both in the short and medium term. 

Federal Tax Reform: In July, Brazil’s Chamber of Deputies provisionally approved a major tax-reform bill that would apply a new consumption tax to fixed-odds betting, among other forms of gambling and further products deemed harmful to public health. As things stand, the rate of the new so-called “sin tax” is still undetermined and industry groups are also preparing to lobby against the proposal in Brazil’s Senate, citing the specific taxes that are already due to be applied to licensed betting operators under the new federal regulatory regime. Still, the prospect of operators being hit with an additional tax in the coming years is very much in play. What’s more, a new consumption tax would come on top of related tax reforms that are set to already materially increase the effective tax rate applied to online betting over the course of the next decade.

Casino Expansion: Implementation of a licensing regime for sports betting and online gaming in Brazil before the end of 2024 is set to overlap with further debate on wider forms of gambling expansion in Brazil’s Congress. In June, a Senate committee approved a bill that was passed by the lower house in early 2022 to enable a widespread expansion of land-based casino-resorts and bingo halls across the country. That pending bill was initially intended to also be the vehicle to regulate online gaming, before provisions for online casino games were added to the separate legislation for sports betting enacted last December. As the Senate prepares to vote on Bill 2234/2022, aligning that proposed regime for land-based gaming with the new regime for fixed-odds betting will be one challenge for policymakers. Anti-gambling senators are also likely to propose amendments that could conceivably impose new statutory restrictions, too. 

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