SOFTSWISS expert comment: regulation of sports betting and online gambling market in Peru

In August 2022, the President of the Republic of Peru signed a law that regulates the operation of online gambling and sports betting. The law came into force immediately upon signing. The SOFTSWISS Regional Business Development Manager, Jonathan F. , gives his expert view in the comment below.

Undoubtedly, the approval of the law regulating the exploitation of remote games and sports betting is good news. On July 15, the Congress of the Republic, with a majority vote, approved the bill.?

On August 12, in a special ceremony, the President of the Republic, Pedro Castillo, signed Law No. 31557, which formalises and promulgates it. Three presidents and three congresses passed since 2018 when the general regulation of casino games and slot machines of the Ministry of Foreign Trade and Tourism (MINCETUR) formally presented the initiative of the draft regulation. After four years, the approval was finally achieved, and the law became official, with joint work and consensus between the legislative and executive power for the benefit of the country and the industry of games of chance.

For SOFTSWISS , as an industry leader, the passing of this law plays an important role. Firstly, it opens up the potential for the company's present and future clients. Experts are predicting that the Peruvian market will quickly grow because of the iGaming industry’s development in the region. Secondly, the regulation of the Peruvian market will open up opportunities for new partnerships in LatAm, where SOFTSWISS is rapidly expanding its influence.

This law consists of 63 articles that, from our point of view, give a legal, administrative, and tax framework that favours and encourages the development of the Peruvian market and international investments of multinational companies and investors in general. The law establishes that the regulator MINCETUR will act as the General Directorate of Casino Games and Slot Machines in charge of executing this role.

We consider that this law favours the development of the Peruvian market because Article 7 refers to the Authorisation of Exploitation of technological platforms that include companies incorporated in the country, but also foreign companies headquartered abroad.

Chapter X articles detail the obligations to pay taxes, the complementary and amending provisions, the creation of the responsibility, and taxation, while Chapter IV refers to payment methods and obligations, which begin from the moment the first bet ticket is sold.

In that sense and knowing the level of professionalism and supervision of the Peruvian tax agency (SUNAT) it is difficult to think that any company will stop paying, in addition to the rights of use, other taxes such as income tax because it would be providing a technological service within the Peruvian territory. On the other hand, we believe that any tax gaps will be corrected through a Supreme Decree of this agency, in that sense we believe that this point will be detailed in the technical regulation that the regulator has to develop and present in the next four months. In this tax matter, we fully believe the tax agency has sufficient powers to issue the rules and complementary provisions.

Article 8 refers to the Authorisation and Registration (Homologation) to which technological platforms, games, progressive systems, all game components, and payment method gateways, among others, must undergo additional procedures. According to this article, in order to request authorisation to operate on the market, each company will be subject to a rigorous due diligence process, KYC, and AML, with the participation of the Financial Intelligence Unit (UIF) and the Superintendency of Banking and Insurance (SBS).?

After passing and approving this procedure, the companies will obtain the authorisation (ONLINE licence) for six years. They will also have to pay a guarantee equivalent to 200 UIT (Tax Units: 01 UIT = 4,600 PEN), which equals 240,000 USD. This guarantee can be presented through a bond letter, bank deposit, or a surety policy and must be renewed annually for the authorisation period.

The authorisation also includes face-to-face betting agencies (retail channels) that may link to the same holder of the online licence or another related legal entity. The law has fixed the payment for each betting agency with a guarantee of 5 UIT, equivalent to 6,000 USD.

It must be renewed every year for the period of authorisation. We think this is the main point that has generated opposition to this law because it could constitute a high financial budget for some local companies: the total budget of the payment of this guarantee is a function of the number of agencies that are defined to oversee the market. In this new scenario, we consider it necessary to restructure each operation's business plan and commercial strategy focused on developing and further empowering the online channel in the coming years, maintaining a strategic presence in the retail channel in the country.?

The law also includes certification laboratories, which in addition to going through the registration and accreditation process before the regulator, must pay a guarantee of 100 UIT, equivalent to the 120,000 USD, which must be renewed each year.

Regarding the tax for rights of use, the law has set it at 12% per month on the NET WIN (NGR), and it also considers a 2% deductible expense for technical maintenance of the platforms. The payment of this monthly tax by companies operating within the country is regarded as a deductible expense to calculate the annual income tax payment. The regulator and related government institutions such as the tax agency (SUNAT), Financial Intelligence Unit (UIF), Superintendency of Banking and Insurance (SBS), the National Institute for the Defense and Protection of Intellectual Property (INDECOPI) and the National Police will develop a joint role in supervising the activity according to the competences of their functions and the provisions of this law.?

For example, the law states that as part of the tax audit and audit functions, SUNAT must have access to each operator's player databases and transaction records. The regulator within its competencies must proceed to block and report to the competent authority all platforms and applications that do not have authorisation and continue to operate illegally when the law comes into force.

Regarding the technological aspects, the law has established that hosting, servers and databases can be located in suitable computer centres and by the rules established for these within the country or abroad. The operator must guarantee and provide the access required for the supervision and audit functions of the regulator and the tax agency.

The law has established that there will be no more anonymous players and bets on the client side. Each operator through the platforms must formally comply with the registration and identification of players who must prove to be of legal age, whether they are Peruvians or foreigners. It has also established that the payment methods to be used will be all those allowed by law (cash, debit and credit cards, bank transfers, others). Cryptocurrencies remain prohibited.

The regulator still plans to prepare and present the technical regulations of this law, which must be approved and published through the official newspaper El Peruano within a maximum period of four months from the signing of the law by the President of the republic. At this stage, we suggest to the government and the regulator that it convene companies, entrepreneurs and specialised consultants at home and abroad to listen and receive the contributions of each one and facilitate the elaboration of complete technical regulation.

After the approval of the technical regulation, the law will enter into force after 2 months. According to the established period, the law would enter into force in March 2023, the date from which the Peruvian state will receive the income from the exploitation rights of this activity and will distribute it as follows:?

– 20% income to the public treasury,?

– 20% will be transferred to the Ministry of Health for the Mental Health program?

– 40% of income for MINCETUR (25% will be allocated for tasks of control and supervision of gaming activity; 75% will go towards the promotion and development of tourism)

– 20% will be transferred to the Peruvian Institute of Sport (IPD) to promote sports to the masses at the national level

According to the government regulator’s calculations, it is expected to raise 160 million PEN (40 million USD on average). However, from our analysis and knowledge of the development potential of the Peruvian market, we believe that the final sum could be higher every year. It consolidates the maturation of the Peruvian gaming market and the entry of new operators. We are also reminiscing on the development and growth of the Colombian market and the first growth figures of the Argentinian market.

There is a long way to still. Countries such as Colombia, Argentina, and Panama have already regulated such processes and the fact that Peru has joined that count is an essential and decisive step. We are optimistic and will carry on monitoring any developments. Moreover, we are willing to contribute to the sector by working with the regulator as we have done before with regulators such as Coljuegos (Columbia) in a regulated market.