The licensing processi Application and renewal
In terms of general requirements that apply throughout all gambling sectors, gambling operators are usually required to demonstrate individual reliability and capability, as well as the transparency and security of their business. A peculiarity of licensing procedures in Germany is the requirement to submit 'concepts' (i.e., comprehensive descriptions of the gambling operation to be licensed that cover these aspects), such as a security concept (covering IT security and data protection), social concept (describing protection of minors and responsible gaming measures), business concept (detailing the viability of the operation and projected development over the licence term), sales or marketing concept (of particular relevance for franchising in land-based gambling operations) as well as a payment-processing and AML concept (which overlaps with the requirement for internal AML policies under the federal AML Act).
With regard to the individual reliability of managerial staff, German gambling law neither prescribes nor provides for obtaining personal licences, such as in the UK. Hence, the operator applying for a licence will have to provide evidence in the form of, for example, criminal records, CVs and qualifications of the relevant individual. The reliability of the applicant has to be proven by disclosing details on shareholders and, if applicable, on trustees. Capability involves being able to properly conduct gambling both from a financial and an operational perspective.
Although the Interstate Treaty provides an overarching framework for the regulation of gambling in Germany, additional laws may apply to the licensing process dependent on the gambling product:
- Operating licences are reserved for the state lottery companies, but privately owned lottery brokers may apply for a licence to distribute the state lottery products online and offline. Licensing requirements to retail outlets are included in the local Gambling Acts.
- Land-based casino gaming, including slots and table games such as poker, baccarat and blackjack, is licensed under the Casino Acts of the 16 states. Licences may either be issued by the respective state government or a city, but the number of available licences is usually limited by the law. As outlined above, some states will also grant licences for online casino games (i.e., virtual versions and live broadcasts of bank-holder games such as roulette or baccarat) to private operators.
- Slot-machine gaming in gaming halls, bars and restaurants is subject to a plethora of licensing conditions and product restrictions under the Interstate Treaty and the federal Trade Regulation Act; specifically, minimum distance requirements between gaming hall premises, limits to stakes, payouts and winnings.
- Horse-race betting may be licensed online and offline by the gambling regulators of the states to bookmakers and the horse-racing associations (totalisers), which may exclusively offer race-track betting. The number of licences for bookmakers is not limited under the federal Horse Race Betting and Lottery Act, although stringent licensing conditions have in fact reduced the interest of bookmakers in such licences. When applying for an online horse betting licence at the competent regulatory authority, the Regional Council of Darmstadt, a mandatory land-based licence according to the German Racing Lottery Act can be applied for as well.
Since the beginning of the licensing process for sports betting under the Third Amendment of the Interstate Treaty on 1 January 2020, a large number of operators submitted applications to the Regional Council of Darmstadt, and over 30 licences have been granted so far. All sports betting licences issued under the former regime (i.e., prior to 1 July 2021) will be valid until 31 December 2022. The application process for the new licences, which will then be valid for a period of five years, started in the first quarter of 2022. Already licensed operators benefit from a significantly reduced procedure.
The minimum application requirements for sports betting licences were published by the Regional Council of Darmstadt on its website. The requirements for virtual slot and online poker licences can be found on the website of the State Administration Office of Saxony-Anhalt. In the respective licensing proceedings, applicants are expected to demonstrate the capability to operate under a licence by submitting 'concept' documents (i.e., company policies and guidelines on a number of areas, including responsible gambling, know your customer, payments, IT security, marketing and sales, and the prevention of match fixing). Responsible gambling is the key area from the perspective of German regulators, and applicants are expected to demonstrate sophisticated player-protection and monitoring systems as well as transparent information of the player on all transactions. Exclusion of addicted players has to be ensured by interfacing with the public player-barring database called 'OASIS', which is operated by the state of Hesse.
In addition to the comprehensive concept documents, sufficient funds for the licensed operation are to be proven. Upon issuance of the licence, operators are expected to deposit a security in the form of a directly enforceable bank guarantee in the minimum amount of €5 million to secure payment obligations of players and of the state. However, the Administrative Court of Darmstadt in an injunction issued in March 2021 criticised the minimum €5 million bank guarantee as being 'likely unconstitutional and in violation of European law' as this minimum amount would exclude small operators without justification. A judgment of the Higher Administrative Court of Hesse that could influence the administrative practice and thus lead to a significantly reduced security deposit is still pending.
The former stake limit of €1,000 per month stipulated by the former Interstate Treaty has been replaced by the deposit limit, which is one of the essential changes that comes along with Interstate Treaty 2021. Hence, the monthly deposit limit of €1,000 that was first introduced by the transitional regime of 15 October 2020 for tolerated virtual slot games and online poker now also applies to sports betting if no deviation from the limit (i.e., up to €30,000) is granted in the respective sports betting licences. While exemptions from the €1,000 deposit limit can already be applied for within the framework of sports betting licensing procedures, such exemption requests will not be possible for virtual slot machine games and online poker until 1 January 2023. This also applies to exemptions from the €1 stake limit per spin for virtual slot games. Operators who offered virtual slot games and online poker in Germany prior to 1 July 2021 are still tolerated without being licensed, if they have applied for the respective licences and comply with the provisions of the transitional regime.ii Sanctions for non-compliance
Since regulators are subject to the principle of proportionality, breaching licence conditions in the first instance is unlikely to trigger penalty payments or revocation immediately, but an order will be given demanding the licensee to explain the breach and remedy it within a deadline of a few weeks. If the order is not adhered to, it will usually be followed by a penalty payment, which may range from a few thousand euros to tens of thousands of euros depending on the size of the gambling operation and the severity of the breach, and may be imposed in case of non-compliance within the given deadline. The regulator may also attempt to enforce compliance by suspending the licence, reducing its term or revoking it.7
Unauthorised gambling operations are subject to the general means of enforcement outlined in Section 9 Interstate Treaty, where the administrative enforcement cycle usually consists of: (1) a hearing letter; (2) delivery of an interdiction letter, failure of which would result in a fine; and (3) subsequent court proceedings involving a principal lawsuit on the lawfulness of the interdiction and its legal basis (the Interstate Treaty), as well as a claim for interim legal protection to suspend the interdiction. As a consequence, it may take years for interdiction letters to become legally executable.
Non-compliance with the transitional regime for virtual slots and online poker may result in operators being considered unreliable in the respective licencing processes, effectively excluding them from obtaining licences. While the legal basis and the severity of this sanction are questionable, operators are strongly advised to comply to the transitional regime.
The Interstate Treaty provides a legal basis for payment blocking. The competent regulator, the Lower Saxony Ministry of the Interior started discussions with banks and payment processors, as well as hearing proceedings and finally started to intervene in 2016. The responsible minister confirmed in a state parliament hearing that his authority will respect the transitional regime and not proceed against PSPs collaborating with operators compliant with the transitional regime.
The Interstate Treaty 2021 reintroduced IP blocking as a means of enforcement. Internet service providers can, therefore, be forced to implement IP blocking for websites that offer unauthorised gambling. Blocking orders will only be issued if measures against an operator prove to be impracticable or not promising. This may, for example, be assumed if supervisory measures against the operator were impracticable or unsuccessful in the past.
Non-compliance with licence conditions is likely to trigger a regulatory order demanding the licensee to explain the breach and remedy it within a deadline of a few days or weeks. If the order is not adhered to, it will usually be followed by a penalty payment, which may range from a few thousand euros to tens of thousands of euros depending on the size of the gambling operation and the severity of the breach. The penalty payment may be imposed for non-compliance within the given deadline. The regulator may also attempt to enforce compliance by suspending the licence, reducing its term or revoking it8 or, ultimately, by revoking the licence.
Finally, the Interstate Treaty 2021 also introduced a catalogue of administrative offences. Violations against certain provisions of the Interstate Treaty can, therefore, be sanctioned by the regulator with fines up to €500,000, or, alternatively, regulators can utilise the instrument of 'skimming of profits' obtained in response to the violation. However, this range is unlikely to be exploited fully. The actual fine always depends on the severity of the violation and the specifics of the individual case. So far, the authorities do not seem to make use of this possibility.
The type of taxes imposed on gambling operators heavily depends on the gambling product in question and to what extent state legislation will be of relevance. The land-based casino sector acts as a good example in this context. Land-based casino operations are subject to gross gaming revenue-based taxation, where tax rates range between 20 per cent and 80 per cent depending on the respective federal state. Additional levies may be imposed or progressive tax rates that depend on the economic capability of the casino operator will be applied. Similarly affected by state legislation, slot machine operators are subject to municipal amusement taxes (tax rates vary from 12 to 20 per cent and the tax will be based on the gross income generated from the slot machines) that they have to pay in addition to regular corporate tax.
Other gambling offerings are subject to federal taxes. On 1 July 2021, an amendment of the Race Betting and Lottery Act entered into force. Uniform taxes must be paid for virtual slot games, online poker and sports betting. A tax of 5.3 per cent is levied on player stakes. As the included tax is factored out of the tax base, the effective tax rate on the whole payment of the player is 5.03 per cent. The new tax rate is harshly criticised by the industry bodies, as it renders operating these games commercially challenging and contravenes the objective of the Interstate Treaty 2021 to channel players from the unregulated online gaming market into the licensing regime under the Interstate Treaty 2021. While sports betting, virtual slot games, online poker and lotteries are exempt from VAT so that a one-off taxation in Germany is ensured, online casino games will remain subject to VAT. In summary, any operator offering licensed or unlicensed online gambling products is subject to taxation.