Brazilian lawyer Neil Montgomery, founding partner of the law firm Montgomery & Associados, pioneer of the Lean Full Service – LFS model and specialized in gaming law, sports betting and lotteries and specialist in sports betting laws, wrote an article for the edition of January from IMGL MAGAZINE.
Montgomery addressed the new law that legalizes sports betting in Brazil, the consequences for bettors and operators and the obligations that companies will have if they want to operate in the Brazilian market.
The full content will be available at ICE London 2024, as well as on the official IMGL Magazine website.
Check out the full article below.
After the Bolsonaro government (2019-2022) failed to regulate Law No. 13,756/2018, which legalized fixed-odds sports betting in Brazil as a form of lottery, the Lula government, which took office on January 1, 2023, Over the course of twelve months, it managed to approve in Congress (although with several obstacles in the way) the long-awaited regulation of the aforementioned law. The regulation was enacted on December 30, 2023, as Law No. 14,790/2023.
For a market that in 2022 generated R$120 billion in bets, the Federal Government was eager to issue such regulations in 2023 to secure vital additional revenues to finance its social programs and strive for a zero fiscal deficit in 2024.
This article recaps the events of 2023 that culminated in this historic milestone in the legal structure of gaming and betting in Brazil, which has prohibited games of chance for more than eight decades, reviews the main elements of Law No. 14,790/2023 and indicates what expect in 2024.
2023 in a nutshell
In January 2023, the Ministry of Finance, headed by Minister Fernando Haddad, invited São Paulo sports lawyer José Francisco Manssur, from São Paulo, to be Special Advisor to the Executive Secretary and to lead the drafting of the regulation of Law No. 13,756/ 2018.
Manssur would have a colossal task ahead of him: interacting with all public and private actors so that the regulation could be carried out as quickly as possible, as time was of the essence. His profile proved to be the most suitable for the position. Considered as a skilled lawyer who gets the job done, has experience in working with the government and having co-authored the text of Law No. 14,193/2021 (Football Corporation Law – S.A.F.), these were the necessary credentials for office.
After several months of interaction with the industry and Congress (including in relation to the format to adopt for regulations), the Federal Government decided to present, in July, two bills:
- Provisional Measure No. 1,182/2023, which came into force from the date of its publication in the Official Gazette of the Union (July 25) and established a robust framework for the regulation of fixed-odd sports betting; It is
- Bill No. 3,626/2023, which also proposed the amendment of Law No. 13,756/2018, with regard to fixed-odd sports betting and amending the legislation governing commercial promotions commercial promotions/draws (dated 1971) .
As Congress considered that it had to play a central role in the construction of the Legal Framework, it decided to let Provisional Measure No. 1,182/2023 expire (on November 21) and focus on processing Bill No. 3,626/2023, which was reformulated to include much of the content of the Provisional Measure.
Subsequently, in October, while Bill No. 3,626/2023 was being analyzed in the Senate, the Ministry of Finance published Normative Ordinance No. 1,330/2023, establishing general conditions for the exploration of fixed-odd sports betting in Brazil. It also invited future candidates for a federal license to present their expressions of interest, with certain information and basic documentation, under the promise that operators who present the same will have priority in the analysis of their applications, once the federal licensing process begins.
134 expressions of interest were received. In December 2023, the Ministry of Finance contacted interested operators confirming an “alignment” video conference for January 10, 2024 to begin a testing phase of the systems that the Ministry had developed.
On December 12th, after strong opposition from the so-called Evangelical Bench, which traditionally opposes the legalization of gambling in Brazil, the Senate approved Bill No. 3,626/2023 which excludes iGaming and prohibits the exploitation of online betting in video terminals in physical establishments. The Senate also included the requirement that future operators (which must be incorporated in Brazil and have headquarters in the country) have at least 20% of their share capital held by Brazilians. Because the Senate changed the original text approved by the Chamber of Deputies, the Bill had to return to the Chamber of Deputies for deliberation, before being forwarded to President Lula for sanction.
On December 21, Bill No. 3,626/2023 was approved by the Chamber of Deputies with the reinclusion of iGaming, a defeat for the Evangelical Bench (which, until the last minute, tried to push the vote to 2024). After the Christmas holiday, the approved consolidated text was sent to President Lula, who sanctioned it with some vetoes that had been requested by the Ministry of Finance and which will be analyzed later in this article.
The bill became Law no. 14,790/2023 and was published in an extraordinary edition of the Official Gazette of the Union on December 30th. The expectation is that this new federal law will be regulated by a series of administrative orders, to be issued by the Ministry of Finance.
It is important to remember, however, that the legal framework for gambling will only be complete when Bill No. 442/1991, approved by the Chamber of Deputies in February 2022 and renumbered as Bill No. 2,234/2022, after arriving to the Senate, which aims to legalize physical casinos and bingo houses, as well as Jogo do Bicho, is enacted as federal law.
This should have been voted on by the Senate on December 20, 2023, but the session was cancelled, pushing the vote to 2024. The enactment of Law No. 14,790/2023 will certainly serve as a catalyst to move this process forward after Congress recesses, which ends on February 1, 2024.
Law No. 14,790/23: Main aspects
1. Scope of application
The law establishes the general conditions for the operation of the fixed-odds lottery in Brazilian territory, where bets can be placed by individual bettors over 18 years of age ((if there are certain impediments applied to bettors) in:
- Real sports-themed events that cannot exclusively involve minors, where the outcome is unknown at the time the bet is placed and which are carried out in accordance with the rules established by the national sports organization under the terms of the Brazilian Sports General Law , or affiliated entities, or by sports administration organizations, sports administration entities based abroad; It is
- Virtual gaming events, where virtual gaming is defined as the electronic channel that provides virtual bets on games for which the outcome is unknown at the time the bet is placed and is determined by the outcome of a future random event, using a generator randomization of numbers, symbols, figures or objects defined in the system of rules.
In addition to fixed-odd sports betting (the new law confirms that in-play bets are allowed), which have grown exponentially in Brazil since 2018, with the entry into force of Law No. 13,756/2018, practically any online game where the bettor knows what the return on the bet will be at the time it is made will be considered lawful, since the definition of online gambling is quite broad. The Ministry of Finance will have to better regulate which online games fall within the aforementioned scope.
2. Granting of licenses
While the details of the licensing process must be established by law, licenses will be granted on a discretionary basis, under an open licensing model (where there is no limitation on the number of licenses that can be issued), for a period of five years and valid throughout the national territory.
Candidates must be companies incorporated in accordance with Brazilian legislation and with registered offices in Brazil. The requirement to have a minimum Brazilian share capital of 20% was, unfortunately and unjustifiably, maintained, thus constituting a potential barrier to entry into the market for foreign operators. The law, however, is not precise as to what “Brazilian” means, whether in fact it is a Brazilian national (natural person)”, whether it is in fact a Brazilian national (natural person) or a Brazilian legal person (or that is, an entity constituted under Brazilian law and with its registered office in Brazil).
If the latter is accepted, foreign operators (who continue to represent the majority of those accessing the Brazilian market) may have to add another corporate level to their local business structures, first incorporating a local holding company to hold the capital social security – or at least 20% of it – of the local company applying for the license.
If the latter is not the case, then the foreigner will need to create a joint venture with a local company, it may be possible to implement other legal structures to satisfy this legal requirement (such as, for example, dividing the share capital into: capital with voting rights and non-voting capital).
The law also determines that the controlling shareholder cannot, directly or indirectly, be a shareholder of a SAF (football corporation) or a professional sports entity, nor be part of the administration of a Brazilian sports team.
The license fee to be set by the Ministry of Finance cannot exceed R$30 million (payable within 30 days after the Ministry completes the analysis of the application) and will cover up to three brands promoted by each operator. The license must also be granted to a specific operator and may be reviewed if the operator undergoes a corporate operation.
You will also have to specify whether the operator is authorized to offer the odds on virtual channels, or physical channels (or both). At least the 134 operators that expressed interest within the scope of Normative Ordinance No. 1,330/2023 and effectively submitted federal license applications when available, this will generate more than R$4 billion in license fees for the Federal Government.
It is important to note that the law confirmed that, although some tax provisions are equally applicable to (skilled) eSports, the exploitation of this gaming vertical (which, for the first time in Brazil, was adequately defined by law) would remain unregulated and it would not require a license (and could give out cash prizes).
3. Advertising, betting integrity and player protection
One of the advantages of a regulated market is the introduction of appropriate requirements regarding advertising, betting integrity and player protection. These requirements were incorporated into the new law, at least in general, and will be subject to subsequent regulation in the Ministry of Finance’s ordinances.
Once federal licenses are made available, only licensed operators will be able to continue advertising nationally. The advertisements must contain warnings discouraging gambling and warnings about the health problems it triggers, in addition to observing the applicable restrictions regarding sales hours and channels, targeting only the adult public. The law also encourages self-regulation, which is why the industry has been in close contact with CONAR – the Brazilian non-governmental organization that self-regulates the advertising sector and which began 2024 with the publication of its Betting Advertising Rules and what should be a responsible gaming advertisement.
The law also gives the Ministry authority to notify companies – including Internet Service Providers (FSI) – that publish advertisements that violate the provisions of the law that they must be deleted. Judicial intervention will be necessary if these companies do not delete this illegal advertising, which may include blocking websites, as was seen in 2023.
Operators will also have to implement betting security and integrity mechanisms and comply with the General Data Protection Law (LGPD). In line with the conclusions of the aforementioned CPI on the manipulation of results, the law also determines that operators will have to adopt mechanisms that prevent the manipulation of results, in addition to participating in a Brazilian or international sports integrity organization.
In addition to making express reference to the application of the Brazilian Consumer Protection Code (in force since the 1990s and known for being one of the strictest in Latin America) to this new regulated market, the law establishes some basic rights of the bettor, which do not include the “right to gamble”, which has wreaked havoc in many other countries.
As required in other Brazilian regulated markets, licensed operators will be required to operate a free customer support service in Portuguese and register on the Federal Government’s online complaints platform (www.consumidor.gov.br). .
4. Inspection
One of the hottest topics since the promulgation of Law no. 13,756/2018 has been taxation, both for operators and bettors. Although the 2018 law was changed in 2021, Law No. 14,790/2023 now finalizes the discussion regarding the GGR rate to be paid by operators, although companies in Brazil are also subject to other taxes and contributions, which increase the effective tax burden.
However, there may still be discussion regarding the tax that bettors must pay, since President Lula, at the request of the Ministry of Finance, vetoed the first three paragraphs of article 31 of the same that dealt with the topic. This veto, in addition to three others, can be analyzed by Congress within 30 days after the end of the recess.
a. For bettors
The caput of article 31, which was not vetoed, establishes that net winnings are subject to Personal Income Tax (IRPF) at a rate of 15% (half the rate paid in other forms of lottery). The veto excluded the definition of “net prize”, which was the net value of the positive result obtained in bets placed each year, after deducting the losses suffered in bets of the same nature in the same period.
The directive also excluded the IRPF exemption limit of R$2,112.00 per month (worth R$25,344.00 per year) and the methodology for calculating and paying the IRPF by IRPF bettors (only once a year).
Although the veto could be overturned by Congress in 2024, there would be legal arguments to maintain that bettors can still benefit from the exemption limit, although the period for calculating and paying IRPF on net winnings still needs to be defined, probably by a concierge.
b. For operators
Law No. 14,790/2023 establishes that from the proceeds from the collection of bets, after deducting the payment of prizes to bettors and the applicable IRPF, 88% will be applied to cover the operator’s maintenance costs and expenses.
In this regard, the balance of 12% should be applied on the GGR. The result will be affected and extended to certain sectors and specific public entities, including education, health, sports, public security and social security.
In addition to the GGR tax, it is important to consider that Brazilian companies are subject to corporate taxation calculated in accordance with the chosen tax regime, which must take into account the total expected annual turnover (annual turnover less than R$ 78 million to be eligible for the presumed profit regime, or turnover equal to or greater than R$78 million that triggers the adoption of the real profit regime).
Thus, subject to certain restrictions (i.e., when gross income does not exceed 78 million reais and depending on the activity), Brazilian companies have the option of calculating the Corporate Income Tax (“IRPJ/CSLL”) calculation using a presumed presumptive profit regime (i.e. PPM – Presumed Profit). According to PPM, profit is calculated quarterly on an amount of gross revenue (based on the entity’s activities) and adjusted as determined by current legislation.
If the operator’s estimated turnover exceeds R$78 million per year, he will be obliged to adopt the tax regime based on real real profit. In this sense, Brazilian legal entities with annual revenue equal to or greater than R$78 million are subject to the following rates applicable to this real profit regime:
- Corporate Income Tax (IRPJ) on your worldwide income annually. The basic rate is 15%, plus a 10% surcharge on annual taxable income that exceeds R$240,000.
- The Social Contribution on Net Profit (CSLL) is charged at a general rate of 9% per year. The IRPJ and CSLL calculation bases are basically the same. Therefore, the total effective corporate tax rate is 34% (25% IRPJ [including the 10% surcharge] plus 9% CSLL).
- Contribution for Social Assistance (COFINS), which is a monthly federal social assistance contribution calculated as a percentage of income, is charged at a rate of 7.6%.
- Contribution to the Social Integration Program (PIS), which is also a federal social contribution calculated monthly as a percentage of income, is charged at a rate of 1.65%.
- Municipal Services Tax (ISS – when in force), monthly. The rates for this tax vary from one municipality to another and range between 2% and 5%.
Law No. 14,790/2023 maintains the Inspection Fee established by Law No. 13,756/2018. Therefore, operators will be subject to monthly payment of the Inspection Fee, which varies from R$54,419.56 to R$1,944,000.00, depending on the monthly payment of premiums.
It is also important to note that a tax reform after the promulgation of Constitutional Amendment No. 132, of December 20, 2023 (starting with changes to taxes on goods and services), is to be implemented from 2026, being complementary legislation.
5. Other points of interest
Law No. 14,790/2023 also deals with many other topics, which could be the subject of an article each. They can be summarized as follows:
- The Ministry of Finance will grant six months for companies to adapt to the new legal framework;
- Advertising at sporting events involving minors will be prohibited;
- Payment service providers (PSP) must be duly licensed by the Central Bank of Brazil and will be prohibited from carrying out financial transactions for unlicensed operators;
- Bets placed as part of match-fixing schemes will be void;
- Operators will have to adopt facial recognition technology to verify player identification;
- Groups of companies with operators holding a federal license may only hold a state license;
- Bonuses and other benefits granted to players are prohibited;
- The law provides a list of applicable offenses and sanctions.
What to expect in 2024
The year 2024 will certainly be a year of great activity for all interested parties in the new regulated market. The Ministry of Finance will begin the year by moving forward with the testing phase of the systems it has already developed with the group of 134 operators. It will also issue the necessary ordinances to further regulate Law No. 14,790/2023 so that the market can begin operating in the second half of 2024.
In Congress, in addition to the analysis of President Lula’s vetoes, there is a good chance that Bill 2,234/2022 will be approved, thus legalizing physical casinos and bingo houses, as well as Jogo do Bicho, thus completing the regulatory cycle for Brazil.
The arrival of foreign operators in Brazil should fill corporate lawyers with work, not only in the form of establishing local entities to apply for federal licenses, but also more complex operations, such as joint ventures and mergers and acquisitions. The local presence established by foreign operators will likely encourage dissatisfied customers to take legal action against them in Brazilian courts, creating a first wave of consumer litigation.
This is the moment everyone has been waiting for. The time has come to start a strong and regulated market and we hope to score a few more goals.
