Brazil Gambling Regulation

Brazil is known for being the largest country in Latin America, as well as the most populated one, with more than 207 million individuals living there. Brazil consists of 26 states, a single Federal District, and 5,570 municipalities.

In 2011, Brazil was the sixth-largest economy in the world but its GDP has dropped significantly in the following years, with Brazil currently ranking as the ninth-largest economy in the world. Some of the reasons for that include the depreciation of the real against the US dollar, as well as the economic recession that started in 2015.

In 1941, all games of chance were banned in Brazil and the only legal gambling activities in the country were the state-owned lottery and horse racing betting. Since poker is considered a game of skill rather than one depending on chance, it is legal to play.

The government predicts potential economic growth if the gambling industry is regulated and properly taxed. This is why, currently, Congress is in talks for two bills that will introduce new regulations on casinos, bingo halls, online gambling, and lotteries. Earlier this year, Deputy Eduardo Bismarck presented a new bill that was aiming to introduce several changes to the current General Tourism Law , including casino hotels in the list of tourism providers of services in Brazil.

These are not the first steps towards gambling regulation taken by the government of Brazil. In 2018, Law No. 13,756 was introduced, bringing some significant changes to the gambling scene in the country. Prior to that law, sports betting was also illegal in Brazil but since it came into effect, fixed-odds sports betting was legalized in the country. That led to several sportsbook operators welcoming punters from Brazil.

Gambling Regulation in Brazil

Ever since all games of chance were banned in Brazil in 1941, the gambling market in the country has been pretty much unregulated for more than 70 years. While bingo and slot machines were legalised in 1993, they got banned yet again in the mid-2000s. This is why the regulation of the gambling sector in Brazil is still in its early stages and most of that industry is still not regulated.

Although the word ‘game’ is present in the Civil Code of Brazil, there is no specific definition for it. Despite that scholars have provided several definitions of ‘game’ and ‘bet’ throughout the years. It can be concluded that while the result of a game depends on the actions taken by participants, the outcome of a bet is not related to the actions of the parties that are involved. Even though this difference between games and bets has not been expressed in any law, it is accepted and applied by many.

Games of Chance

Games of Skill

Lotteries

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Games of Chance

In Section 3, Article 50 of the Decree-Law 3,688/1941, games “in which the gain and loss depend exclusively or mainly on luck” are defined as games of luck. Horse racing bets with unauthorized operators and bets on other sports competitions also belong to the category of games of chance, deemed illegal by the law. Games of chance are considered misdemeanours, which according to Article 61 of Law 9,099 are punishable with a penalty of not more than 2 years. Compared to other crimes, participating in games of chance is less offensive, which is why the law imposes minor penalties.

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Games of Skill

While games of chance are defined as illegal, games of skill are legal as their result is, for the most part, dependent on the actions of the player. Under the Misdemeanour Law, lotteries are defined as awarding financial prizes that resulted from the draw of tickets, vouchers, lists, or similar lottery games. The law prohibits the distribution and marketing of unauthorized lottery games and Jogo do Bicho, which is a Brazilian numbers game, is also illegal. Horse racing betting, which is one of the few forms of gambling that is legal in Brazil, is regulated by Law 7,291, which came into effect in 1984.

One of the reasons why gambling has not been regulated for so many years is that there are many negative connotations attached to the term gambling. There is a general belief among the Brazilian population that this sector is often used for money laundering and only criminal organisations are involved in criminal activities. Unfortunately, this perception of gambling is often supported by the numerous bingo halls, slots and Jogo do Bicho games that can be still found in Brazil despite being deemed illegal by law.

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Lotteries

Currently, Brazil offers legally 10 different lotteries, which are managed by the largest bank in the country, Caixa Economica Federal (Caixa). In order to put an end to this monopoly system, however, ever since 2017, there have been plans for the privatisation of Loteria Exclusiva Instantanea (LOTEX).

However, due to the lack of bidders, the privatisation has been postponed several times. At the end of 2019, International Game Technology (IGT) and Scientific Games won the bid and agreed to pay up to BRL817.9 million (£113.1 million). Although they have reached an agreement with CAIXA, the Brazilian bank was not able to authorise its execution by the final date of 21 September. This resulted in IGT and Scientific Games withdrawing from the process.

Caixa was assigned the full control over lotteries in Brazil by Decree 50,954, which came into effect in 1961. The decree annulled all of the lottery licenses that were issued to private sector operators. In addition to Caixa, however, several states in Brazil that had their own lotteries before Decree 204 was enacted in 1967, are allowed to control them.

The lotteries that can be run by their own states include Lotep in Paraiba, Lotoro in Rondônia, Lotece in Ceará, Loterpa in Para, Loterj in Rio de Janeiro, Lotergs in Rio Grande do Sul, Loteria de São Paulo, Loteria Social de Alagoas, Servico de Loteria do Estado do Paraná (Serlopar), Loteria Mineira in Minas Gerais, Loteria do Estado do Distrito Federal, Loteria do Estado do MAto Grosso do Sul, Loteria do Estado do Pernambuco, Loteria do Estado Piauí, Loteria do Estado de Goiás, and Loteria do Estado do Mato Grosso (Lemat).

Online Gambling

Since currently almost all forms of gambling are deemed illegal in Brazil, playing online is also not among the legal activities that Brazilians can enjoy. There is a loophole in the law, however, that allows offshore operators to welcome players from Brazil.

One of the laws that are related to contracts states that a contract is considered to have been concluded in the place where it was proposed. This is mentioned in Article 9, paragraph 2 of Decree-Law 4,657, as well as in Article 435 of the Civil Code of Brazil .

According to the aforementioned law, an offshore gaming operator who has been licensed in their respective jurisdiction can welcome Brazilian players. This way the contracts between the foreign operator and Brazilian users will be subjected to the laws of the jurisdiction where the operator is based and licensed.

Even though technically, offshore websites can welcome Brazilian customers, there might be some legal consequences for the residents of Brazil who initiate payments to these foreign operators. This being said, the Brazilian government still has not taken any actions to prevent Brazilians from gambling at offshore websites.

Gambling Regulator

As already mentioned, all forms of gambling except for lotteries and horse racing are illegal in Brazil. Under Decree Law 50,954, Caixa is having a monopoly on lotteries in the country. Meanwhile, under Law 7,291 and Decree-Law 96,993, the Ministry of Agriculture, Livestock and Food Supply regulates horse racing betting.

The Ministry of Sport has defined poker as a sport and it is not regulated in Brazil. Social games or any other variation of games of skills are also not regulated. Meanwhile, the Ministry of Economy is regulating the prize distributions that are authorised either by the Secretariat or by Caixa.

Currently, Caixa has issued licenses to more than 13,000 lottery vendors. Meanwhile, there are around 200 agencies and agents that are authorised to accept bets placed on local and international horse races. As poker has also increased in popularity in Brazil, there are plenty of poker clubs to be found in the biggest cities in the country.

With the introduction of Law 13,756 in 2018, the fixed-odds betting lottery system in Brazil was created. The law defines fixed-odds betting as a system of bets on sporting events, with the prize for a winning wager being announced at the time the bet is placed. Fixed-odds betting is supposed to be regulated by the Ministry of Economics.

Currently Discussed Reforms in the Legislation

Applying for Licenses

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Currently Discussed Reforms in the Legislation

As there are some attempts to legalise and regulate the gambling industry in Brazil, there are a few pieces of legislation that have key roles in the future amendments in the legislation. The Senate Bill 186 of 2014, House Bill 442 of 1991, House Bill 530 of 2019, and Senate Bill 2,648 of 2019.

The Senate Bill 186 and House Bill 442 are taking a more general approach on gambling by providing definitions of common principles, categorizing games, assigning powers to different authorities, stating users rights, listing criteria to obtain licenses, stating penalties and sanctions that may be imposed. House Bill 530 and Senate Bill 2,648 were proposed in 2019, specifically covering gambling and betting inside resort casinos.In August 2020, President Jair Bolsonaro signed into law the decree that was proposed by the Ministry of Economy. This means that sports betting will be added to Brazil’s Investment Partnership Program (PPI).

The privatization of sports betting was a part of the government’s plan for economic recovery after the devastating coronavirus pandemic. According to official economic data, Brazil’s economy experienced a 1.5% decline during the first quarter of 2020. This led to the introduction of different stimulus measures that will help businesses recover.

After the president signed the decree, it became clear that sports betting will be introduced as a lottery service known as “fixed-odds betting”. Adding this sector to the PPI portfolio will be useful in attracting investors from the private sector. The privatization of the sports betting sector will be controlled by the Ministry of Economy and the National Bank for Economic and Social Development (BNDES).</>

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Applying for Licenses

As a large portion of gambling activities is not regulated in Brazil, there is no licensing process that operators have to go through. Even though fixed-odds betting was introduced in 2018, the government still has not come up with a licensing system.

Currently, there have been several consultations held by the Ministry of Economy to discuss any possibility for a licensing regime for fixed-odds betting. After the first consultation, it became clear that Brazil was leaning towards an unlimited license system that utilizes the authorisations. The next couple of consultations, however, seemed to have changed the licensing pattern to limited licenses issued to operators who will offer fixed-odds betting. This being said, there still has not been a final decree that will regulate and provide the conditions that have to be met to obtain a fixed-odds betting license.

Taxation on Legal Gambling Activities

Under Brazilian law, prizes obtained from lotteries, horse racing bets, or prize draws are subjected to taxation. Residents of Brazil who have won monetary prizes should pay a tax of 30% the amount of the prize. Meanwhile, if the prize is paid to residents abroad, the tax should be 15% the prize amount. For residents of low-tax jurisdictions, the tax on prizes is 25%.

When Brazilian residents win prizes that are granted in the form of goods or services, they will have to pay a tax of 20%. Meanwhile, the tax for residents abroad and residents of low-tax jurisdiction is respectively 15% and 25%.

If the owner of a horse receives a prize in a turf competition, there is a tax of 15% that will be applied. If the horse is owned by a legal entity, the tax deducted from the prize amount is considered a corporate income tax. When the prize is received by Brazilian legal entities, they should also pay social contribution taxes on gross revenue and net profits.

Under Law 7,291, operators who offer horse racing betting are required to pay a monthly fee to the CCCCN. The fee is calculated on the bets taken in the previous month and it should be less than the winnings paid during the same period.

The fee rate depends on the reference value published by the CCCCN. If the revenue of bets ranges between 1 and 2,500 multiplied by RV, the operator will be exempted from paying a fee. Meanwhile, if the revenue ranges between 2,501 and 3,500 multiplied by RV, a 0.5% fee will be applied. A fee of 1% is paid by operators with revenue on bets between 3,501 and 4,000 multiplied by RV. Lastly, if the revenue on bets is over 4,001 multiplied by RV, a fee of 1.5% will be applied.