The Brazilian sports betting market has been awaiting the applicable regulation by the Brazilian government for more than two years.
On July 24, 2023, Provisional Presidential Decree No. 1,182 ("Decree") was finally published to regulate sports betting and amend Federal Law No. 13,756/18 ("Law 13,756/18"), which, among other subjects, created the lottery method known as "fixed-odds betting", in which the bettor seeks to predict the outcome of a specific sporting event.
Law 13,756/18 also provided that the Ministry of Finance would regulate fixed-odds betting within two (2) years as of the date of its publication, renewable once. Based on this provision, the sports betting market has expanded considerably in recent years in Brazil. However, due to the uncertainty regarding the regulation, betting companies, usually denominated in Brazil as "BETS", have until now maintained their headquarters abroad.
This uncertainty resulted from Article 29 of Law 13,756/18 which provided that fixed-odds betting would be "exploited exclusively by the Federal Government". However, with the enactment of the Decree, this exclusivity was removed, making it possible for the private sector to exploit this activity. The Decree allows betting companies to operate in Brazil and pay the corresponding taxes.
The Ministry of Finance still has to regulate how the relevant authorizations will be granted, which should happen within the next four months.
Please find below a summary that we have prepared with questions and answers on the subject.
1. What is Fixed-Odds Betting?
A form of lottery that consists of a bet placed on the outcome of real sporting events, in which the odds are defined at the time the bet is placed.
Fixed-Odd is the multiplication factor of the amount bet that defines the amount to be received by the bettor in the event of a prize, for each unit of currency bet.
2. What are "Real Sporting Events"? Is authorization required to exploit Fixed-Odds Betting related to events other than sports?
Real Sporting Events are sporting competitions, tournaments, games, or tests with human interaction, individual or collective, with unknown results at the time of betting, and which are promoted or organized
(a) according to the rules established by the national sports administration organization, or its affiliated organizations, in line with the General Sports Law; or
(b) by sports administration organizations based outside Brazil.
The exploitation of Fixed-Odds Betting is not permitted when:
(a) related to events other than sporting events;
(b) it involves exclusively the participation of underaged individuals (under eighteen years old); or
(c) it takes place without human interaction.
3. What is the difference between virtual and physical betting?
Virtual bets are those placed electronically by the bettor, and physical bets are those placed in person through the purchase of a printed ticket. In both cases, bets must be placed before or during the corresponding event.
4. Is any form of authorization required to operate Fixed-Odds Betting in Brazil?
Yes, Fixed-Odds Betting is subject to a paid concession, permission, or authorization to be granted by the Ministry of Finance on an onerous basis and must be operated exclusively in a competitive environment. There is no limit on the number of concessions, and marketing through any commercial distribution means is allowed, both for physical and virtual betting.
The Ministry of Finance is already responsible, through the Secretariat for Economic Reforms (SRE), for authorizing and supervising commercial promotions, including contests and distribution of gift vouchers. Although there is no provision in this regard in the Decree, it is possible that Fixed-Odds Betting will also be under the responsibility of the SRE.
5. Who can exploit Fixed-Odds Betting?
Operating Agents, i.e., any national or foreign legal entity established in Brazil, with a concession, permission, or authorization from the Ministry of Finance.
6. Who can participate as a bettor in Fixed-Odds Betting?
Any individual, except:
(a) owners, employees or personnel with significant influence over an Operating Agent;
(b) public servants with roles directly involved in the supervision of betting activities;
(c) minors under the age of eighteen years old;
(d) persons who have or may have access to the computerized systems running Fixed-Odds Betting;
(e) persons who have or may have any influence over the outcome of a real sporting event—including
(i) sports managers, sports coaches, trainers, and members of technical committees;
(ii) sports referees, assistants sports referees, or equivalent;
(iii) sports entrepreneurs, agents, or lawyers representing athletes and coaches or members of technical committees;
(iv) members of the management or supervisory body of the management entity or organizers of a sports competition or event; (v) participants in competitions organized by entities that are part of the National Sports System—and
(f) persons registered in the national credit reporting agency.
7. Who supervises Fixed-Odds Betting in Brazil?
The Ministry of Finance may request technical, operational, economic, financial, and accounting information, as well as data, documents, certificates, and reports relating to the activities carried out by the operating agents. Refusal, falsification, or unjustified delay in providing information or documents may subject the offender to a daily fine of BRL 10 thousand, which may be increased up to 20 times, if necessary, to ensure its effectiveness.
8. Do taxes apply to the prizes?
Yes, winning prizes from Fixed-Odds Betting are exclusively subject to income tax withheld at source at the rate of 30% on amounts that exceed the exemption limit of the first tax bracket, currently BRL 2,112.00 (according to art. 1, X of Law 11,482, as amended by Provisional Presidential Decree 1,171/2023).
9. What taxes apply to Operating Agents?
In addition to the taxes normally levied on legal entities dedicated to providing services, i.e., Corporate Income Tax (IRPJ), Social Contributions (PIS and COFINS), and Tax on Services (ISS), Operating Agents must also pay the following:
(a) Inspection Fee due for commercial operation of Fixed-Odd Betting, at a fixed amount that may vary from BRL 54,419.56 to BRL 1,944,000.00, depending on the amount of monthly prizes; and
(b) charges corresponding to 18% of the Operating Agent’s revenue after payment of prizes to bettors; and
(c) income tax on prizes, known as GGR – "Gross Gaming Revenue", distributed as follows:
(i) 10% contribution to social security;
(ii) 3% to the Ministry of Sports;
(iii) 2.55% to the National Public Security Fund;
(iv) 1.63% to sports clubs, in consideration for the assignment of their name; and (v) 0.82% for education.
10. Are there any restrictions on advertising?
Yes. Communication, advertising, and marketing actions related to Fixed-Odds Betting must abide by the best corporate social responsibility practices directed at the operation of lotteries, with self-regulation being encouraged.
The Operating Agent will promote informative actions to raise awareness among bettors and prevent pathological gambling disorders, by drawing up codes of conduct and disseminating good practices.
The National Advertising Self-Regulation Council – CONAR may establish additional restrictions and guidelines to the Ministry of Finance’s regulations and issue specific recommendations for advertising communication actions.
According to the Decree, it is forbidden, within the national territory, to carry out commercial advertising and marketing of Fixed-Odds Betting without concession, permission, or authorization granted by the Ministry of Finance. This prohibition will become effective within a period to be defined by the Ministry of Finance.
In addition, the Decree also establishes that sports administration entities will prohibit sports practice organizations and athletes from using the names and trademarks of companies that offer or operate Fixed-Odds Betting in the regulations of their sporting events unless they have been granted a concession, permission, or authorization to operate under the terms of the applicable regulations.
11. Will foreign betting companies that do not have a concession, permission, or authorization from the Ministry of Finance be able to continue providing their services as is?
Yes, but only until the Ministry of Finance initiates the process to grant concessions, permissions, or authorizations. After that date, only legal entities with a concession, permission, or authorization from the Ministry of Finance will be able to continue operating Fixed-Odds Betting in Brazil. The Central Bank of Brazil will regulate payment arrangements to prevent payments aimed at Fixed-Odds Betting by unauthorized operators.
In this sense, only entities authorized to operate by the Central Bank of Brazil will be able to offer transactional accounts that allow the bettor to carry out payment transactions for Fixed-Odds Betting, and to receive prizes.
12. Are there any cross-shareholding restrictions?
Yes, the member or controlling shareholder of a Fixed-Odds Betting operator, whether individual or part of a control agreement, may not hold any direct or indirect participation in a soccer corporation or professional sports organization, nor act as manager of a Brazilian sports team.
13. What does the Decree say about integrity and corruption?
The Operating Agent must
(a) adopt security and integrity mechanisms when carrying out Fixed-Odds Betting;
(b) establish actions to mitigate the manipulation of results and corruption in real sporting events;
(c) be a member of a national or international sports integrity monitoring body; and
(d) report events suspected of manipulation to the Ministry of Finance within five working days as of the date the operating agent becomes aware of the suspicious event.
The Ministry of Finance may, within the exercise of its supervisory activity, order the suspension or prohibition, for all Operating Agents, of bets on intercurrent or specific events, occurring during a race or match, other than the specific prediction of the final result.
14. What happens if bettors do not claim their prizes?
Bettors lose the right to receive their prizes or request refunds if payment is not claimed within 90 days from the date of the first announcement of the result of the last real sporting event for which the bet was placed. Unclaimed prizes will go to the Brazilian Student Financing Fund (Fies).
15. Should information on bettors be provided to a public body?
The betting market is subject to money laundering prevention rules and although still subject to regulation, suspicious activities must be reported to the Financial Activities Control Council – COAF.
16. Who will regulate the use of the clubs’ intellectual property by Operating Agents?
The Ministry of Finance will regulate the form and process by which authorizations will be granted for Operating Agents to use
(a) athletes’ images, names, and other intellectual property rights; and
(b) the names, trademarks, anthems, symbols, and other intellectual property of sports organizations.
17. What acts are subject to sanctions?
The following are subject to sanctions under the terms of the Decree:
(a) operating Fixed-Odds Betting without a prior concession, permission or authorization from the Ministry of Finance;
(b) carrying out operations or activities that are prohibited, unauthorized or in violation of the relevant concession, permission, or authorization;
(c) obstructing any inspection by the competent administrative body;
(d) failing to provide the competent administrative body with documents, data or information required by legal or regulatory rules;
(e) providing the competent administrative body with inaccurate documents, data or information or in violation of the deadlines and conditions established in legal or regulatory rules;
(f) broadcasting commercial marketing and advertising of unauthorized Fixed-Odds Betting operators;
(g) failing to comply with applicable legal and regulatory rules; and
(h) carrying out, encouraging, allowing or, in any way, contributing to or competing in practices that undermine sporting integrity, the uncertainty of the sporting result, the transparency of the rules applicable to the sporting event, equality between competitors, and any other form of fraud or undue interference capable of affecting the fairness or ethics of the conduct associated with the proper performance of a sporting activity.
18. What sanctions may apply?
The sanctions provided for in the Decree are:
(a) warning;
(b) in the case of legal entities, a fine of between 0.1% and 20% of the proceeds of the last financial year prior to the initiation of the administrative sanctioning proceeding, which will never be lower than the advantage gained, when it is possible to estimate it, nor higher than BRL 2 million, per infraction;
(c) in the case of other individuals or legal entities governed by public or private law, and any associations of entities or partnerships duly organized or implied, even temporarily, with or without legal personality, that do not carry out any business activity, where it is not possible to use the criteria of the proceeds, the fine will be between BRL 50 thousand and BRL 2 million per infraction;
(d) partial or total suspension of activities, for a period of up to 180 days;
(e) revocation of authorization, termination of permission or concession, cancellation of registration, disqualification, or similar act of clearance;
(f) ban from seeking a new authorization, grant, permission, accreditation, registration or similar act of clearance for a maximum period of ten years;
(g) prohibition from carrying out certain activities or modes of operation, for a maximum period of ten years;
(h) ban from participating in public bids for the concession or permission of public services, with the federal public administration, direct or indirect, for at least five years; and
(i) disqualification from participating in public bids.
The Decree came into force on July 25 (with some articles becoming effective only in the following months) and must be approved by the Brazilian Congress within 120 days to remain in force. The Decree is an important step to regulate and internalize operations of a market that has been moving a large sum of funds among Brazilians.
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