License for Games of skill in Estonia

In Estonia, Games of skill are defined as games whose outcome depends mainly on the physical skills, abilities or knowledge of the player. They are mainly poker, board games, sports requiring precision and dexterity, and other games where success does not depend entirely on chance. These games are played using a special machine or electronic device (e.g. phone or computer in online mode).

Games of skill in the country can be organized by a joint stock company or a limited liability company (LLC) with a share capital of at least 25,000 euros.

In addition, the operator is obliged to create a cash reserve from sources of profit or other sources that can be put into the reserve. But, fortunately, such reserve is one third of the authorized capital, accordingly, for the operator of Games of skill it is approximately 8300 euros.

Specifics of Games of Skill in Estonia

The state establishes special rules for such type of gambling as Games of skill.

• Reward. For land-based gambling, the prize in a game organized through a slot machine for Games of skill is an object, but in no case money. At the same time, the value of such an object must not exceed 50 euros. The winnings are distributed only by the slot machine, and the operator is not authorized to give players the opportunity to exchange the prize of the game (if the prize is not given in chips) for money or services, as well as to conclude contracts with other persons, according to which the prize can be exchanged for money or services.
• For online gambling, the value of the prize may not exceed 50 euros, but there are no restrictions on the form of the prize.
  The operator of Game of skill, when organizing the game, must create all the necessary conditions (to ensure the full independence of the croupier, the work of electronics, if the game is online, etc.) when:
• in a situation where two players with different levels of skill take part in the game, the player with a higher level of skill than the opponent due to knowledge or other
  1. characteristics will have a better chance of winning;
  2. a player gets a prize only if he actively uses his skills (he can’t get a prize without using his skills, if you don’t take into account the chance);
  3. a player who plays inactive will either not get a prize or will get some insignificant prize.

Obtaining a license

A company registered in Estonia must apply for a license to organize gambling activities.

However, the organization license does not give the full right to operate itself, which is a peculiarity of Estonian gambling legislation. After obtaining the organization license, the company must apply for a separate operating permit.

The operating permit defines a clear framework within which the operator can operate, both for land-based and online operators. More specifically, this means that the permit includes a complete list of games provided, website, domain, etc.

Only after obtaining a license to operate and an operating permit can the company begin to conduct gambling.

Gambling permit is issued for the organization of a particular type or subspecies of gambling in the form of remote gambling. The remote gambling permit is issued only to the gambling operator whose electronic accounting and control system is properly connected with the information system of the Estonian Tax and Customs Board.

It should be separately specified that several web domains can be covered by one application for a permit.

License validity period: The permit for the activity of organizing remote gambling, lottery and skill games is issued for a period of up to five years.

Procedure for applying for a license and requirements to the applicant

The organization of gambling must be the only sphere of activity of the gambling operator.

Shareholders holding a qualifying block of shares of the gambling operator, or beneficial owners, or members of the board of directors of the gambling operator’s company must meet the following criteria:

• Absence of a criminal record;
• Presence of a clear and understandable SOW of the shareholder, extracted from transparent sources;
• The person must not be seen in the management bodies of a legal entity that has organized gambling without a license or permit for such activities; or
• The person must not be subject to court rulings, in bankruptcy proceedings, indicating that the person caused the insolvency of the company as a result of gross mismanagement.

In order to obtain a license to conduct Games of skill in Estonia, an application must be submitted to the Tax and Customs Board specifying:

1. Passport data and registration code of the applicant;
2. residence and contact details of the applicant;
3. type of organized gambling;
4. position, name and signature of the person completing the application;
5. date of payment of the state duty.

Before deciding on the issuance of a license, the Tax and Customs Service verifies whether the applicant meets the requirements described in the section above, as well as its tax history for the last three years, and, if necessary, the collection of additional characteristics confirming the applicant’s reliability and good business reputation.

To verify the documents submitted with the application for a license, as well as the trustworthiness and good reputation of the applicant for a license to operate, the Tax and Customs Service has the right to request information both from the applicant and from state databases.

The following documents shall be attached to the application for issuance of an activity license:

• Information and documents on the members of the Management Board of the applicant for a license to carry out activities, including their name, personal identification code and date of birth, place of residence, full list of places of work and positions, as well as documents confirming the reliability of the members of the Management Board of the applicant for a license;
• Information on the auditor of the applicant for a license to operate, including his name, place of residence or location, personal identification code and date of birth;
• List of shareholders of the applicant for a license to operate, including all information in the paragraphs above, as well as information on the number of shares or the size of the shareholding and the number of votes to be acquired or already held by each shareholder; and
• Information and documents on the persons holding a qualified block of shares of the license applicant.

Timeframe for obtaining a license:

The overall timeline for the licensing process is usually between 4 months, depending on the complexity of the application and the responsiveness of the authorities. In some cases, the review time can be extended to 6 months.

However, it is important to clarify that the 4 month review period starts from the date of submission of a complete initial application. However, in case the Commission requires additional clarifications – the review time will increase, which may delay the process of obtaining for a year or more.

List of required documents from the company:

• Statutory documents of the company:
  • Certificate of Incorporation
  • Articles of Association
  • Register of shareholders and directors
• Business Plan — should include a full description of the applicant’s gaming activities, strategy, expected profits based on specific, detailed calculations.
• Proof of origin of funds: bank statements or financial statements that prove the financial strength of your company and its founders.
• Technical documentation: Detailed technical specifications of your gambling platform and software.
• A description of the technical methods for protecting users’ data as well as AML/KYC compliance.
• Responsible gambling measures: a description of the operator’s Responsible gaming policy approaches and implementation. A comprehensive plan describing the measures you will take to promote responsible gambling, as well as a timely response to players with “suspicious gambling behavior”.

Technical inspection of equipment for land-based operation

To operate any type of game in Estonia, the operator must pass a special inspection of his equipment. This check consists of the fact that information about the gaming equipment and its software is submitted to the Tax and Customs Board so that the equipment and software can be identified and checked for compliance with the requirements of the law.

That said, if a single gaming machine allows multiple players to bet or play at the same time, it is considered a multiple gaming machine, which is important to emphasize.

Taxation

Operators are required to pay taxes on their activities every month.

For Games of skill, there is a tax of 6% of the amount received from bets, less prizes.

In addition, there is a state tax in Estonia, which is also collected from the operators of Games of Skill. In this case, the fee for such operators is 3,200 euros and is paid when applying for a license to organize games of skill.

The corporate tax in Estonia is set at 20%. However, there is no tax on withdrawn capital in Estonia, so as long as the money is part of the company’s turnover, no tax will be charged.

Penalties for violating legislation

The Estonian government sets penalties for violators of legislation.

In the case of land-based Games of skill games, an operator violates the legislation if:

• gives away money as a prize;
• exchanges a prize for money or services;
• gives away a prize by any means other than a slot machine;
• circumvents the limits set on the value of the prize.

In case of one of these violations, the company will be obliged to pay a fine of up to €2,600.

In addition, operators in Estonia are prohibited from offering their services to persons who are under 21 years of age. The fine in case of a violation is €2,600.

Conclusions

Games of skill in Estonia are fully regulated at the state level, which makes the work for experienced operators convenient, and for new ones opens the opportunity to create their own business offering players these types of games.

The process of obtaining a license is clear and has no pitfalls (except for the obligation to obtain not only a license, but also an operating permit).

The cost of a license for Games of skill in Estonia is quite cheap and affordable for most operators. However, the volume of income from such business will be corresponding.

At the same time, it is worth taking into account all the restrictions imposed by Estonian regulators, including technical, material, etc. Also, it is worth considering the size of fines for violating the legislation, as a fine of ¾ of the license fee is quite significant.