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How licensing affects taxation and profitability
For an iGaming operator, the choice of a license determines not only the legal risk, but also the economy: on what basis taxes are paid (GGR/NGR/rate), how bonuses are taxed, whether there is VAT/GST, how much the payments cost, what reporting and audit requirements, and how much money the compliance itself eats up. Below is a system map of the impact of licensing on P&L and ROI.
1) What does the "tax license check" consist of?
1. Gaming tax/levy - tax on gambling activity: on GGR, NGR, handle or fixed bets/ranges.
2. License fees - one-time (entrance ticket), annual, by vertical/income ranges.
3. Corporate tax - corporate income tax (CIT).
4. VAT/GST/Digital Service Taxes - Applicable to Commission/Services; a number of modes do not charge gaming GGR, but do affect payments/providers.
5. Payroll taxes/contributions - direct impact on OPEX.
6. Regulatory oversight fees - audit, RNG/studio certification, SupTech subscriptions.
7. Opportunistic costs - restrictions on advertising/bonuses → higher than CAC, lower conversion, but access to "white" channels.
The key conclusion: the final profitability is the effective tax rate on the game + CIT + indirect taxes + compliance-OPEX, and not one figure "gaming tax."
2) Tax base: GGR, NGR or rate/handle
GGR (Gross Gaming Revenue) Tax: The basic global standard for online casino/betting. Transparent but bonus sensitive - whether bonuses reduce the tax base matters.
NGR tax: less common; it is more profitable if the jurisdiction recognizes bonuses, payments and royalties as deductions before tax.
Tax on handle/bet: more often for sports bets (fix x% of turnover). Lowers volatility for the country's budget, but can "eat up" margins with low line margins.
Fixed/Differentiated Bets: GGR band progression, separate live-casino/slot/poker rates.
Thumb rule: at the same nominal rate, GGR tax is usually more profitable than turnover tax, and NGR tax is even more profitable if it allows deductions.
3) How a license changes real margins: Formula
Let:- GGR - gross gaming revenue, BC - actual cost of bonuses, PR - royalties to providers (content/studios), PC - payment commissions/FX, JT - jackpot contributions, GT - gaming tax, OPEX - marketing, salaries, hosting, etc., LF - license fees (annual depreciation + one-time, distributed by period), CIT - corporate tax.
[
\text{GT} = \text{rate}_{GGR}\times \text{GGR}
][
\text{GT} = \text{rate}_{NGR}\times (\text{GGR} - \text{BC} - \text{PR} - \text{PC} - \text{JT})
][
\text{EBITDA} = (\text{GGR} - \text{BC} - \text{PR} - \text{PC} - \text{JT}) - \text{GT} - \text{OPEX} - \text{LF}
][
\text{Net} = \text{EBITDA} - \text{CIT}
][
\text{ETR}_{gaming} = \frac{\text{GT}}{\text{GGR}}
](taking into account the admission/non-admission of bonuses, etc.)
4) Two quick scenarios (online casinos)
Example parameters (month):- GGR = $2.0 million; BC = 15% GGR; PR = 12% GGR; PC = 1,5% GGR; JT = 2% GGR; OPEX = $0.5 million; LF = $80k; CIT = 20% on earnings.
Scenario A - 20% GGR tax, no rebates deductible
GT = 0,20 × 2,0 = $400k
NGR" = 2.0 − (0.30 + 0.24 + 0.03 + 0.04) mln = $1.39 mln (for control)
EBITDA = 1.39 − 0.40 − 0.50 − 0.08 = $0.41 million
Net ≈ 0.41 × (1 − 0.20) = $0.328 million
Net margin / GGR ≈ 16,4%
Scenario B - NGR Tax 20% (deductions allowed)
Taxable base = 2.0 − (0.30 + 0.24 + 0.03 + 0.04) = $1.39 million
GT = 0,20 × 1,39 = $278k
EBITDA = 1.39 − 0.278 − 0.50 − 0.08 = $0.532 million
Net ≈ 0.532 × (1 − 0.20) = $0.426 million
Net margin / GGR ≈ 21,3%
Conclusion: with the same 20% on different bases, the difference in net margin is ≈ 4.9 percentage points to GGR in favor of the NGR mode.
5) Licensing and Bonuses: Thin Seats
Are bonuses taken into account when calculating the tax base? If not - BC% GGR becomes a double problem: reduces NGR and at the same time does not reduce tax.
Bonus/advertising restrictions. Strict markets cut conversion, but open access to "white" channels, where CAC is lower and more stable.
Bonus abuse and liabilities. Licenses require correct accounting of deferred obligations - affects reporting and covenants.
6) Impact on payments and conversion
Licensed onshore modes usually give:- More local methods and higher Approval Rate, less chargeback/fraud → more Handle with the same marketing.
- Below, PSP margin on white MCC → savings on Payment Cost.
- Fast payments → retention and LTV are growing, the need to "overheat" with bonuses is decreasing.
Rough: + 5 pp Approval Rate often adds + 3-8% to GGR without CAC growth.
7) Compliance-OPEX: P&L hidden article
Audits RNG/ISO, SupTech telemetry, AML/KYC providers, legal support, reporting - a fix package that reduces operational leverage at an early stage, but increases the multiplier at maturity (below the risk discount).
In practice, "expensive" licenses pay off through:1. above Approval/below Payment Cost, 2. access to media/partners, 3. lower risk of closure/penalties → cost of capital.
8) Licensing and VAT/GST/digital taxes
In a number of modes, VAT/GST does not apply to gaming GGR, but applies to provider/PSP commissions and services (e.g. SaaS/marketing).
In the cross-border model, a digital services tax (DST) may appear by customer country. This affects CAC and Payment Cost indirectly.
9) Model "onshore vs offshore": when "gray" ≠ "cheap"
Offshore (low rates, weak supervision):- low gaming tax/fees, minimum compliance-OPEX;
- − below Approval Rate, above Payment Cost, risk of blocking/fines, closed "white" advertising channels, unstable CAC, high risk discount to the assessment.
- access to banks/payments/media, predictable CAC, above LTV, less risk discount;
- − gaming tax/fees are higher, compliance is expensive, bonus/advertising restrictions.
Often, the total EBITDA/Net margin is higher for onshor, despite the larger nominal tax - due to payments, channels and rental.
10) KPIs and "thresholds" for selecting jurisdiction
ETR_gaming (GT/GGR) - target corridor, compare "apples with apples" taking into account bonuses/jackpots.
Payment Cost% Handle and Approval Rate (dep/withd) by method.
CAC/LTV by channel (white vs gray), Time-to-Payout p95, Chargeback Rate.
Bonus Cost% GGR including tax base.
Compliance OPEX/NGR and licenz. fees/NGR.
Risk metrics: frequency of incidents/fines, probability of blocking/non-access to the media.
11) Scenario analysis (pocket template)
1. Make a basic P&L: GGR → (BC, PR, PC, JT) → NGR → (GT, OPEX, LF) → EBITDA → Net.
2. Run 3 modes:- GGR-tax% (without deduction of bonuses), NGR-tax y% (with deductions), Handle-tax z% (for bets).
- 3. Change Approval Rate to ± 5 p.p., Bonus Cost to ± 3 p.p., Payment Cost to ± 0.5 p.p.
- 4. Compare Net/GGR and Cash Conversion (Net/Operating Cash In).
- 5. Add risk factor: probability of penalty/blocking × expected damage/12 - as "risk depreciation" in OPEX.
12) CFO/COO checklist for license selection/migration
- Tax base (GGR/NGR/handle) and accounting for bonuses/jackpots.
- Evaluation of VAT/GST/DST by channel/provider scenarios.
- Licenz. fees (entry/year) and capital/guarantee requirements.
- Payment rails: available methods, tariffs, SLA, chargeback policy.
- Marketing/bonus restrictions and access to white channels.
- SupTech/reporting: frequency, format, penalties, preparation time.
- RG/privacy requirements and their impact on conversion.
- Contracts with content/studio providers: royalties and tax accounting.
- Migration plan for data/accounts and user notifications.
- P&L stress test − 20% GGR and + 2 pp tax rate.
13) Frequent errors
Compare only nominal tax rates, ignoring the base, bonuses and payments.
Underestimate the Payment Cost/Approval Rate - they are the ones who "make the box office."
Do not lay compliance-OPEX and SupTech - then "crawls out" into the margin.
Opaque bonuses in strict jurisdictions → complaints, fines, advertising block.
Ignore RG/privacy - closed channels and reduced trust (Retention).
Licensing changes the economy not only through the tax rate, but through the entire profitability system: the tax base, the possibility of deductions, access to payments and media, the cost of traffic, requirements for bonuses and reporting. The correct jurisdiction is where the sum of the factors gives a higher Net/GGR and a stable LTV/CAC, rather than a minimum nominal rate. Build a solution on the P&L scenario model, measure ETR_gaming, Approval Rate, Payment Cost and Compliance OPEX - and the license will become not a "cost for the right to work," but a lever of growth and capitalization.