It’s been six months since its remote gambling tax was lowered, but in that time, Estonia has still not been able to demonstrate whether or not the tax reduction was a good move or not.
Back in December, the Riigikogu (Parliament) voted to amend the country’s gambling act and introduce a multi-year remote gambling tax cut in a move intended to make Estonia the next major European iGaming hub.
The phased reduction was officially rolled out at the start of this year, lowering the tax from 6% to 5.5% of gross gaming revenue (GGR). This will continue over the next three years, with the tax falling by a half percentage point until it reaches the final target of 4% on 1 January, 2029.
When implemented, the 4% rate will become one of the lowest in Europe, even rivalling that of Malta’s 5% cap – one of the main reasons why the island country turned into a major destination for international gambling HQs.
But, as it is, Estonia seems to be looking at a long timeline before it can claim that badge for itself, given the somewhat lackluster outcome of the first tax cut phase so far.
Evelyn Liivamägi, Deputy Secretary General for Financial and Tax Policy at the Ministry of Finance, said that “two licence applications have been submitted, but they’re still being processed, and likely won’t begin operating until the end of this year or early next year,” adding that one other licence application has been fully withdrawn.
Obviously, not the desired start. But, a six-month timeframe is still too early to draw any definitive conclusions, especially when the tax is expected to fall even further over the next three years.
Could Finland outshine Estonia?
Doubts still remain over whether the reform will pick up speed thanks to a few market nuances across the region.
The first potential hurdle comes from the statutory minimum share capital that online licence applicants are required to cover. In Estonia, this is currently set at €1m (£867k). The application fee also carries an additional, non-refundable price tag of roughly €48k.
This would be easily covered by the likes of Kindred, Betsson and other global PLCs, but it represents an obvious barrier for small online gambling operators – unless Estonia wants to attract only the big players.
There’s also the elephant in the room – Finland. Positioned right across the border, the country currently has a few market advantages over Estonia. For one, it has a much larger population of around 5.6 million people against Estonia’s 1.4 million.
Secondly, it is undergoing significant regulatory reform, officially dismantling its full state monopoly and opening its doors to international players in July 2027.
And lastly, it currently offers far more accommodating market entry conditions than its Nordic neighbours.
In Finland, applications are being assessed on a case-by-case basis in terms of an operator’s financial stability. There is no minimum share capital requirement. The application fee is also almost half of that in Estonia, currently sitting at €29k. The only challenge – which perhaps outweighs the positives – is the domestic 22% tax rate on GGR.
This is something that Estonia can certainly play into given that its 4% target will be among the most competitive across Europe.
And lastly, Estonian politicians did, at one point, appear to be lacking the necessary expertise to adequately steer a sustainable gambling market.
A blunder with the new gambling legislation saw online casinos entirely excluded from tax duties for January and February of this year. While promptly amended, it did not play in favour of the government.
All in all, it remains to be seen whether Estonia’s all-in gamble on a competitive tax regime will eventually pay out. If it doesn’t, the first and biggest loser will be the state coffers.