Q&A: land-based gambling in Brazil

Land-based gambling

What types of land-based gambling are permitted in your jurisdiction, and is gambling regulated at a national or subnational level?

Land-based gambling is restricted to federal and state lotteries, horse race betting at racetracks and agencies, poker rooms, and future LOTEX (the national instant lottery) and sports betting points of sale. They are mainly subject to national and federal regulations, with the exception of poker. Poker is recognised as a sport by the Secretariat of Sports (formerly the Ministry of Sports), which is an agency of the Ministry of Citizenship. As a skill-based game, poker is largely permitted, but there is no regulation in place.

Additionally, due to a decision in 2020 by the Brazilian Supreme Court, states were granted greater autonomy in operating state lotteries at a subnational level. Since the recent decentralised approach related to state lotteries breaks down the centralised system that had been in place for the past six decades, new forms of engagement with private stakeholders are being considered by member states but have not been formalised in the current subnational legislation so far.

Please describe the licensing criteria and procedures to operate land-based gambling of each type or classification. Does your jurisdiction limit the number of available licences?

Premises licensing varies according to the form of gambling offered.

Federal lotteries can only be state-owned. Caixa, a Brazilian bank, was granted control of the federal lottery as a result of Decree No. 50,954/1961, which cancelled all lottery licences granted to the private sector. Caixa’s lottery agencies are concessions granted by the federal government and the licences for premises are granted by Caixa.

According to the latest public statements made by the Secretariat for Public Policy Evaluation, Planning, Energy and Lottery (SECAP), the government unit in charge of regulating lotteries, including fixed-odds sports betting modality, it is likely to be a concession model with a limited number of licences to be sold in a public tender.

State lotteries run by member states and the Federal District are not legislated at subnational level and therefore there are no limitations on the number of future licences. As of March 2022, there are no lottery licences available in Brazil but several state lotteries are looking for service providers.

Horse race entities must apply for their agents’ and agencies’ licences through the Ministry of Agriculture, Livestock and Food Supply. The horse racing entity is fully responsible for the agent’s actions. The agent – which can be either an individual or a legal entity – is granted a licence to facilitate betting at the specified location only. The Ministry of Agriculture, Livestock and Food Supply issues a licence, called a carta patente, for horse race betting. The licence does not expire and there are no limitations on the number of available licences.

To request a licence, the applicant must:

• be a non-profit entity legally incorporated in Brazil;
• own or have the rights to use a racetrack;
• demonstrate the technical and economic viability of the weekly racing schedule;
• present the floor plan of the race field; and
• present the draft of a general betting plan (which includes the rules applicable for each game to be run by the operator, such as prize, ticket value, minimum and maximum betting amounts, and payout).

Must individual directors, officers or owners of licensees also be licensed or reviewed for suitability?

There are no regulations regarding the assessment of suitability for individual directors, officers or owners of licensees.

May a gambling location be part of a resort, restaurant or other multi-purpose location? What limitations apply?

There are no explicit regulatory restrictions on lawful land-based gambling activities in terms of multi-purpose locations.

Are there provisions for passive or institutional ownership that allow for exemption or modification of licensing requirements?

Considering the limited forms of gambling allowed and regulated in Brazil, there are no provisions for passive or institutional ownership that allow for exemption or modification of current licensing requirements as of March 2022.

What responsible gambling obligations apply to licensees?

There are currently no responsible gambling requirements in force and no gambling management tools defined in the law. However, Caixa, the operator of federal lotteries, voluntarily established a responsible gambling programme, aimed at aligning its lottery practices with the best lottery practices worldwide.

What type of tax and what tax rate applies to each form of lawful land-based gambling activity?

Gambling activities are subject to the levy of corporate income tax (IRPJ) and social contribution on net profit (CSLL) at a combined general rate of 34 per cent. The CSLL rate is 9 per cent. The IRPJ rate is 15 per cent, plus an additional surcharge applicable to taxable income exceeding 240,000 reais per year.

The effective tax rate may vary according to the system adopted by the Brazilian legal entity to calculate the IRPJ and the CSLL, which can be either the real profit regime or the deemed profit regime. Companies with overall revenues above 78 million reais in the previous year are, by default, subject to the real profit regime.

In the real profit regime, taxation is dependent on the accounting net profit, adjustable to the combination of non-deductible expenses and the exclusion of specified amounts. The Program of Social Integration (PIS) and the Contribution for the Financing of Social Security (COFINS) are subject to non-cumulative taxation, at respective rates of 1.65 per cent and 7.6 per cent and allow the use of credits from acquisitions.

In the deemed profit regime, the basis for taxation of services is 32 per cent on the company’s gross revenues, accrual or cash basis. The PIS and COFINS are subject to the collective cumulative system, at the rates of 0.65 per cent and 3 per cent respectively, without the option of using credits.

In addition to ordinary corporate taxes, gambling activities are also subject to the following taxes.

The gross revenue of the LOTEX operator is 18.3 per cent of total sales. This is the tax basis for the PIS (1.65 per cent), COFINS (7.6 per cent) and the Municipal Service Tax (ISS) (2 per cent to 5 per cent).

According to article 732, I of Decree No. 9,580/2018 and article 56 of Law No. 11,941/2009, lottery cash prizes that surpass the value of the first tier of the individual income tax monthly rate table (ie, 1,903.98 reais) are subject to income tax withholding at a rate of 30 per cent.

If the prizes offered are in the form of goods or services, they are subject to income tax withholding at a rate of 20 per cent, as set forth in article 733 of Decree No. 9,580/2018.

According to article 737 of Decree No. 9,580/2018, prizes paid to horsemen, breeders and jockeys are subject to income tax withholding at a rate of 15 per cent.

According to article 732, II of Decree No. 9,580/2018, bettors’ prizes are subject to income tax withholding at a rate of 30 per cent.

According to Law No. 13,756/2018, 3 per cent of the total online handle and turnover, and 6 per cent of the total land-based handle and turnover had to be paid to public funds, social security and sports entities.

Following the first public consultation conducted by SECAP in July 2019, it was clear to the regulator that these tax burdens were unreasonable. Consequently, the re-drafted decree published by SECAP in the course of the second and third public consultations suggested a new tax framework, with a flat tax of 1 per cent on turnover and transactions for both land-based and online operators. This proposition was abandoned by the regulator.

However, on 14 July 2021, the Provisional Measure No. 1.034/2021 resulted in the Law No. 14.183/2021, which modified the taxation basis to social transfers to gross gaming revenue (GGR) instead of turnover. Additionally, according to the new draft, mandatory payments for social security are calculated on turnover at a rate of 0.1% for land-based and 0.05% for online bets. Complementary payments are calculated based on the GGR at 0.82% for educational entities; 2.55% to FNS (Public Safety National Fund) and 1.63% for Brazilian sports entities, with 95% at most to cover expenses of costs and maintenance of the operator.

Furthermore, according to article 732, I of Decree No. 9,580/2018 and article 56 of Law No. 11,941/2009, fixed odds sports betting lottery cash prizes that exceed the value of the first tier of the individual income tax monthly rate table (ie, 1,903.98 reais) are subject to income tax withholding at a rate of 30 per cent.

In tournaments, the operator’s gross revenue is calculated by the sum of the tournament’s entry fees minus the amount reserved for the prize pool. This is the tax basis for the PIS (0.65 per cent or 1.65 per cent), COFINS (3 per cent or 7.6 per cent) and the ISS (2 per cent to 5 per cent).

In ring games, the operator’s gross revenue is the rake collected in each hand played. This is the tax basis for the PIS (0.65 per cent or 1.65 per cent), COFINS (3 per cent or 7.6 per cent) and the ISS (2 per cent to 5 per cent).

As dictated by the Brazilian Revenue Service, whenever the prize is conditional on the participants' performance, that prize is deemed as work remuneration, irrespective of the fact that the prizes are payable in cash or in the form of goods and services. Accordingly, if a prize is being paid by a Brazilian legal person to an individual residing and paying taxes in Brazil, that prize is subject to personal income tax withholding calculated based on the following progressive tax rates:

• from 0 reais up to 1,903.98 reais – income tax exemption – no deductible amount;
• from 1,903.99 reais up to 2,826.65 reais – 7.5 per cent withholding tax – 142.80 reais deductible;
• from 2,826.66 reais up to 3,751.05 reais – 15 per cent withholding tax – 354.80 reais deductible;
• from 3,751.06 reais up to 4,664.68 reais – 22.5 per cent withholding tax – 636.13 reais deductible; and
• from 4,664.69 reais and above – 27.5 per cent withholding tax – 869.36 reais deductible.