In review: licensing and taxation of gambling activities in Macau

All questions

The licensing process

i Application and renewal

Concessions to operate casino games of chance are awarded pursuant to a mandatory public tender, and granted through an administrative concession contract.

Applicants must be limited liability companies by shares incorporated in Macau, with a minimum registered share capital of 200 million patacas (5 billion patacas according to the draft law proposal), having the operation of casino games of chance as sole business scope (although correlated activities may be included pursuant to authorisation from the government) and a Macau permanent resident holding at least 10 per cent (15 per cent according to the draft law proposal) of the applicant's share capital as managing director.

Applicants (as well as their shareholders holding 5 per cent or more of the share capital, directors and key casino employees) need to be found suitable to be granted a casino gaming concession (through the assessment of suitability by the DICJ), and to demonstrate adequate financial capacity to operate the casino gaming concession (through proper guarantees provided either by financial institutions or the applicant's dominant shareholders).

The suitability assessment is based on specific forms that closely follow the Multi-Jurisdictional Personal History Disclosure Form of the International Association of Gaming Regulators. Suitability and financial capacity must be maintained throughout the concession period, being the casino operators subject to permanent and continuous monitoring from the DICJ.

The Gaming Law only allows for up to three casino gaming concessions (six according to the draft law proposal) to be awarded. Notwithstanding, there are currently three casino gaming concessions (awarded in 2001) and three casino gaming sub-concessions (one for each casino gaming concession) authorised (no sub-concessions are allowed under the draft law proposal).

The public tender may be simple or restricted with prior qualification and include one or more consecutive consultation stages with the applicant, which are essentially intended for the submission of award proposals and their consideration.

To conduct the public tender, a tender commission is appointed by the Chief Executive.

The tender programme shall specify, inter alia, the minimum requirements for admission of applicants and of the award proposals. It shall also contain the criteria for awarding the casino gaming concessions. Pursuant to Macau law, the awards can only be made to applicants that, in addition to being deemed suitable and with financial capacity, present the most advantageous conditions for the MSAR in the proper operation of casino games of chance. For the effects of determining the most advantageous conditions, the legislator laid down the following main criteria:

1. the amount of the overall premium proposed;
2. the amount of the special contributions proposed (one for a public foundation for the promotion, development and study of cultural, social, economic, educational, scientific, academic and philanthropic activities, and another for urban development, the promotion of tourism and social security);
3. experience in running and operating casino games of chance, in activities connected with the operation of games, or in managing casino games or other types of games; and
4. the existence and nature of investment proposals of relevant interest to the MSAR, especially when made from scratch.

The criteria are likely to be different once the tender regulation is amended.

In order to be admitted to the tender, bidders shall provide a guarantee deposit for admission to tender, in the amount determined by order of the Chief Executive (set at 1 million patacas in the public tender opened in 2001).

Concessions are granted by means of an order of the Chief Executive based on a substantiated report by the tender commission through an administrative concession contract, and for a period not exceeding 20 years (10 years under the draft law proposal). If a concession is awarded for a period shorter than the maximum allowed by law (currently 20 years), the government may, at any time and up to six months before the end of the concession, authorise one or more prorogations provided that the total period does not exceed the maximum term. Moreover, once the maximum term has been reached, the Chief Executive, may, exceptionally, extend the duration of the concession, one or more times, provided that does not exceed in total five years (three years under the draft law proposal).

As for pari-mutuels and operations offered to the public, in the absence of regulations on the granting of concessions for operating these types of gaming, the incumbent concessionaire is chosen by direct award following the discussion and negotiation of the terms and conditions under which the operation is to be conducted.

ii Sanctions for non-compliance

The government authorities that enforce prohibitions on gaming activities are the DICJ, as the primary regulator of all types of gaming, and the Judiciary Police, a criminal police body vested with exclusive powers to investigate crimes related to gaming committed in casinos or other gaming venues or their surroundings.

Sanctions of a criminal nature

The Basic Law and the Criminal Code establish the 'principle of legality' by which a criminal offence must be previously declared in the law.

Gaming-related crimes are not an exception, and the laws and regulations setting out criminal offences strictly related to or arising from gaming activities comprise:

1. Law No. 8/96/M of 22 July 1996 (illegal gambling), which sets the sanctions applicable to a significant number of unlawful gaming-related activities;
2. Law No. 9/96/M of 22 July 1996 (criminal offences related to animal racing), which sets the sanctions applicable to unlawful animal race-related activities;
3. Law No. 6/97/M of 30 July 1996 (organised crime), which defines what shall be considered as criminal association and sets the sanctions applicable to activities carried out by individuals who are part of criminal organisations;
4. Law No. 2/2006 of 3 April 2006 (AML), which sets the sanctions applicable to money-laundering activities;
5. Law No. 3/2006 of 3 April 2006 (terrorism financing), which sets the legal framework and the sanctions applicable to individuals involved in financing of terrorism financial operations;
6. Administrative Regulation No. 7/2006 of 15 May 2006, which sets the preventive measures for the crimes of money laundering and terrorism financing;
7. Law No. 6/2016 of 29 August 2016 (enforcement of freezing of assets), which sets the legal framework to enforce UN Security Council sanctions involving the freezing of assets and funds of identified terrorists; and
8. DICJ Instruction No. 1/2016 of 21 April 2016 (anti-money laundering and terrorism financing for the gaming sector guidelines), as amended by DICJ Instruction No. 1/2019 of 29 January 2019, which sets the procedures to be applied under casino-related financial operations and the procedures to be followed by casino cages and gaming promoters.

Sanctions of an administrative nature

The framework for the breach or non-fulfilment by casino operators or to their management companies of the provisions of the Gaming Law, complementary regulations or casino gaming concession contracts shall be determined by administrative regulation. However, no administrative regulation was ever enacted, despite for many years the government announcing such an enactment, in particular in the annual government policy address.

The scarce administrative offences provisions provided in the law can be found in Law No. 8/96/M of 22 July 1996 (illegal gambling), Law No. 10/2012 of 27 August 2012 (entry, work and gaming restrictions in casinos), as amended, and Administrative Regulation No. 6/2002 of 1 April 2002 (gaming promotion activity), as amended.

Other legislation related to the operation of casino gaming providing for administrative offences applicable to the gaming sector include Law No. 7/89/M of 4 September 1989 (advertising activity), Decree Law No. 47/98/M of 26 October 1998 (administrative licensing of certain economic activities), Law No. 2/2006 of 3 April 2006 (AML), as amended, and Law No. 5/2011 of 3 May 2011 (ban on smoking), as well as DICJ Instructions that foresee the application of those offenses.

Despite the above, the draft law proposal includes provisions on administrative offences with penalties clearly defined, notwithstanding the concession contracts' penalty clauses. Fines vary between 100,000 and 500,000 patacas for less serious offences (e.g., breach of the duties of accounting and internal controls), between 600,000 and 1.5 million patacas for serious offences (e.g., failure to increase the share capital), and between 2 and 5 million patacas for most serious offences (e.g., operation of other games of chance without authorisation and operation of games in properties not owned by the concessionaire). Additional penalties may be imposed, including the closure of casinos or publication of the administrative sanctions decisions.

Sanctions of a contractual nature

The casino gaming concession contracts stipulate sanctions, with the nature of penalty clauses, in the case of assignment, transfer, disposal or encumbrance of the operation of a casino or gaming area.

Moreover, termination of concessions may occur due to breach, in the event of non-compliance with fundamental obligations that are legally or contractually binding on the casino operators.

Contractual sanctions include sequestration, redemption or termination (based on non-compliance or upon public interest).

Sequestration may be actioned by the government whenever an unjustified operational interruption occurs or is imminent, or disturbances or serious organisational deficiencies to the functioning of the concessionaires or in the general assets' condition occur.⁹

Redemption is a unilateral option right of the MSAR to resume the operation of the gaming reserved to the Region by an act of the government.¹⁰ Concessionaires have the right to be compensated.

Government may unilaterally terminate the concession if the concessionaire does not comply with fundamental obligations to which the concessionaire is legally or contractually bound, which may include abandoning or suspending the operation for unjustified reasons; transferring the operation in violation of the law, regulations or concession contract; and failing to pay taxes, premiums and other amounts.

Finally, the government may exercise the right of termination of the concession irrespective of the concessionaire's compliance of its legal and contractual obligations (termination upon public interest grounds).¹¹ In this case, fair compensation must be given to the concessionaire, considering the concessionaire's investments and the remaining time of the concession.¹²

Taxation

i Casino gaming

Casino gaming operators have to pay an annual premium, a special gaming tax and two special contributions.

Annual premium

As a consideration for the operation of casino games of chance, an annual premium comprising a fixed and a variable portion is due.

The fixed portion is determined by order of the Chief Executive. The variable portion takes into consideration the following criteria: number of casinos, number of tables (and of gaming machines according to the draft law proposal), games operated and location of the casinos.

Currently, the fixed portion is determined by the Order of the Chief Executive No. 215/2001 of 30 October 2001 (and the sub-concession contracts in relation to the sub-concessionaires) and is set at 30 million patacas. The variable portion is based on the number and type of gaming tables and gaming machines operated: 300,000 patacas per VIP gaming table; 150,000 patacas per non-VIP gaming table; and 1,000 patacas per gaming machine.

Special gaming tax

Casino games of chance are subject to a special gaming tax of 35 per cent levied on the gross gaming revenue, applicable to all games, including gaming machines.

No offset of uncollectable gaming debts is allowed.

Special contributions

Casino operators are required to propose, during the public tender, the percentage they would be bound to pay during the term of the concession for two different contributions, one of an annual amount not exceeding 2 per cent of gross gaming revenue to a public foundation for the promotion, development and study of cultural, social and economic, educational, scientific, academic and philanthropic activities, and another in an annual amount not exceeding 3 per cent of gross gaming revenue for urban development, tourism promotion and social security of the MSAR.

As per the casino gaming concession contracts, the casino operators are bound to pay 1.6 per cent of gross gaming revenue as a contribution to a public foundation and 2.4 per cent of gross gaming revenue as a contribution for urban development, tourism promotion and social security of the MSAR, with an exception made for SJM, which is only bound to 1.4 per cent due to the dredging obligation that it is, under the concession contract, jointly liable with the dredging provider company.

ii Pari-mutuelsHorse racing

The horse-racing operator is subject to pay an annual rent of 15 million patacas and a tax on the total annual amount of the bets registered in the totaliser, as follows:

1. on the difference between 2.5 billion and 3 billion patacas, 0.5 per cent;
2. on the difference between 3 billion and 3.5 billion patacas, 1 per cent;
3. on the difference between 3.5 billion and 4 billion patacas, 1.5 per cent;
4. on the difference between 4 billion and 4.5 billion patacas, 2 per cent; and
5. above 4.5 billion patacas, 2.5 per cent.

Moreover, in consideration for the (last) renewal of the concession (until 31 August 2042), the concessionaire agreed to be bound to gradually increase its share capital until 31 December 2023, up to a minimum of 1.5 billion patacas.

On 31 December 2018, new obligations and deadlines for completion were imposed on the horse racing concessionaire to comply with a 1.5 billion patacas investment plan. These commitments include the renovation of the equine swimming pool, stables, central building, stands, tote board and tracks (turf and sand). There are other ancillary obligations, which include the construction of hotels and tennis courts, shopping mall, offices and parking, theme park and riding school, as well as other surrounding public areas access. Non-compliance with the deadlines constitutes a violation of the concession and may cause the termination of the concession contract.¹³

iii Operations offered to the publicInstant lottery

The instant lotteries operator is subject to pay an annual rent of a minimum 1 million patacas, calculated in accordance with the following:

1. sales of 0 to 10 million patacas, rent of 1 million is due;
2. sales of 10,000,001 to 30 million patacas, rent of 12 per cent of the excess is due;
3. sales of 30,000,001 to 45 million patacas, rent of 13 per cent of the excess is due;
4. sales of 45,000,001 to 60 million patacas, rent of 14 per cent of the excess is due;
5. sales of 60,000,001 to 80 million patacas, rent of 16 per cent of the excess is due;
6. sales of 80,000,001 to 100 million patacas, rent of 18 per cent of the excess is due; and
7. sales of 100,000,001 patacas and above, rent of 20 per cent of the excess is due.

Sports lottery (football and basketball)

The sports lottery operator is subject to pay an annual rent, with a minimum of 6 million patacas, calculated in accordance with the following:

Gross revenue (patacas)	Rate (per cent)	Rent due (patacas)	Rent due, accumulated (patacas)	Average rate (per cent)
0 to 30 million	20	6 million	6 million	20
30,000,001 to 40 million	22	2.2 million	8.2 million	20.5
40,000,001 to 50 million	24	2.4 million	10.6 million	21.2
50,000,001 to 60 million	26	2.6 million	13.2 million	22
60,000,001 to 70 million	28	2.8 million	16 million	22.86
70,000,001 to 100 million	30	9 million	25 million	25
100,000,001 and above	25

Gross revenue is defined as the difference between the total amount of sales and the amount that, under the concession contract, shall not be retained by the operator.

Chinese lotteries

The Chinese lotteries operator is subject to pay an annual premium of 500,000 patacas, an annual rent of 23 per cent of the gross gaming revenue (defined as the difference between the ticket sales and the premiums paid), and an additional 5 per cent for the Macau Foundation and 1 per cent for the Montepio Oficial de Macau.

iv Gaming promoters

Gaming promoters are also subject to pay a special tax based on the gross revenue originated by the player. The tax rate on commissions or other remuneration paid to gaming promoters is 5 per cent and is discharging in nature.

v Gamblers

No taxes are levied on gamblers' winnings.