iGaming Daily

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The Brazilian sports betting industry has received another law ordinance this week. Published on the 21st of May, the law ordinance 827 sets the rules and conditions for obtaining a license to operate sports betting in the country. Therefore, we are here to discuss the details of this new law ordinance and everything operators, especially the international ones listening to this episode, should know before applying for a license in Brazil.

Joining me, your host, Isadora Marcanti. Today on iGaming Daily to talk about the most wanted law ordinance so far is Adriana Ferreira, Senior Associate at the law firm Tosini Freire Advogados and Supervisor of the Mentoring Committee of the Association of Women in the Gaming Industry and Jum Macuta, Partner also at the law firm Tosini Freire Advogados. How are you doing today, Adriana and Jum? We're good. Thank you so much for having us, Isadora. Thank you, Isadora.

Thank you, iGaming Daily, for having us. It will be a pleasure talking about Brazil. Thank you for joining us today. But first things first, we can't start this episode without telling you about our sponsor OptiMove, the number one CRM marketing solution for the iGaming market. 56 % of the EGR power 50 personalized player experiences with OptiMove. And as a special offer for our iGaming Daily listeners, OptiMove is offering new clients a free first month when they buy OptiMove.

For more information and to claim the free month, go to optimoved .com slash SBC. But don't worry, links will also be left in the podcast episode description. So Adriana and João, my first question is, what is the first step operators should take to start the process of obtaining a sports betting license in Brazil? What does the general Brazilian law says about setting up companies in the country? Good question, Zedora. I think that...

international operators will have to start taking new steps towards Brazil in order to get authorization. I would say that the very first step is to incorporate legal entity in Brazil. It could be in the form of what we call here limitada, which would resemble a limited liability company, or it may also be in the form of a corporation, which in Brazil is called Sociedade Anônima.

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There are also other types of legal entities that could be cooperating in Brazil, but the latest ordinance on the matter with regards to the authorization process itself, it says that only in Limitada or corporations would be accepted as authorized entities to operate sports betting in Brazil.

The requirements would be more or less the same. The difference is that in the case of a limitada, it will be possible to incorporate 100 % subsidiary, meaning that there will be the need for only one shareholder to incorporate a Brazilian entity in the form of a limitada. In the case of Sociedades Anonymous, however, if it is

100 % controlled by a foreign entity, we would have to have at least two shareholders. The second shareholder could be a minority one holding just one share just to meet the legal requirement of having at least two shareholders. So paperwork will be necessary. It will be necessary registries before Brazilian authorities, for example, tax authorities.

labor authorities and so forth. It would be also necessary to register the foreign investment in the capital of the company at the Brazil's central bank. The majority of the process is quite straightforward and quick to maybe done online. The point here is that as a general rule, all the websites, all the services,

All the interactions with the federal government, federal authorities should be done in Portuguese. So the international investor must be aware that from the very outset, there will be this important barrier that should be outcome, which is the language. Of course, there are a number of people, firms in Brazil that can help those investors. And so choosing perhaps before,

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opening up a shop in Brazil would be to select a good advisor for, to navigate in this complex legal system here in Brazil. I would like to add something in your comments is that it's important to keep in mind for the foreign investors that entering into the Brazilian market is something that might sound tricky, but actually is not. It's more a matter of understanding the culture, understanding the procedure and

how the mechanics work inside the government lines mostly and inside in what we have as the requirements of the law. The law and especially considering the betting law we had approved in December last year that kind of opening up all the paths for the export betting Brazil is something really new for the government as well. So the government is also learning as on the go how to, you know,

receive all these foreign companies here, how to facilitate the path for them to be able to invest in the country, to be able to regularly operate in Brazil. So if there is a valid advice that we can give to the foreign companies, to the foreign investors that are looking for this investment in Brazil, in Brazil environment, right, is to be sure that

you can navigate with very, you can navigate and you can have all the, all the, all the requirements in your hand really, you know, very well explained and understood and be able to understand the difference between each and all the requirements and how to incorporate the companies and how to abide by the rules, abide by the requirements concerning the technical capacity and all this kind of thing that we might, you know, explore further in this podcast, but.

I think the main message here is that don't be afraid of Brazil. It seems bureaucratic, but in the end, it's a matter of learning how to navigate it, to tackle all these key issues that you might see in the regulator, from the regulator in these ordinances that just came up. I agree with you. Don't be afraid of Brazil. I think it's a great message we should deliver.

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to our listeners and to all the community, the sports betting community. But these are the rules for Brazilian companies, right? If I am an international operator and I want to set up a company in Brazil, the rules change a bit. I will need a Brazilian partner holding at least 20 % of the share capital of the business. At least that's what the law ordinances says. Why is that? Why is this rule set?

And what are the advantages and if any, disadvantages for Brazil and the industry in general? Well, this 20 % minority, I would say that it's a little bit controversial from the legal perspective. To begin with, the Brazilian constitution doesn't have any kind of differentiation between companies controlled by Brazilians, Brazilian nationals.

or companies controlled by non -Brazilian nationals. It means that if we were to interpret what the ordinance is saying, my conclusion, my advice would be to say that actually if a foreign entity wants to have an authorized operation in Brazil,

It doesn't need to look for a Brazilian minority to hold a 20 % share. This is because this particular foreign investor may create two entities. One would be the company that would hold the authorization, right? And the second entity would be a holding company, which could be a hundred percent controlled by this foreign entity.

but it would be incorporated in Brazil. And to the extent that it is incorporated in Brazil, it should be treated under the legal perspective as a Brazilian. So that's all to say that it would be possible to create a structure whereby the foreign investor could have 100 % either directly or indirectly through this holding Brazilian company have 100 %

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of control of the Brazilian betting company. But the ruler has it that this was not the actual intention of the regulator. The actual intention of the regulator was to have some Brazilian individual involved in the operation holding 20 % of this betting company.

So if this interpretation prevails, then we would have to have either a legal entity that's controlled, ultimately controlled by a Brazilian individual or a Brazilian individual holding 20 % of this betting company. Okay. So I would say that from the Brazilian national's perspective, the advantage would be that

there will be this opportunity for partnering up with international companies and explore and operate sports betting in Brazil. For foreigners, on the other hand, they may have to consider the possibility of partnering up with some, for example, some big media conglomerate, right, which doesn't have expertise on sports betting but has a super expertise in

doing marketing, for example. So at the end of the day, it may be a win -win situation. I think investors will be wise enough to find ways to have the most of it. So apart from that, operators should also provide proof, actually, and provide documents that prove that they have legal qualifications, tax and labor regularities.

They are a suitable company, they have economic financial qualifications, they have technical qualifications. How will operators do that? Yeah, this is something that is really, really similar to regular public bidding that we have here in Brazil. I should first of all just add a quick comment on that because back in the day, back in 2020,

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We had some discussions in the Supreme Court considering lotteries and all this kind of stuff, all this matter. And for those ones that are not familiar with these discussions here in Brazil from two, three years ago, it's important to say that back in that day, lottery and when we say lottery as a big definition, we also have sports betting as a modality of lottery.

And the Supreme Court said, you know, lottery is something that is considered a public service. And because of that, now we are having the obvious big list of, you know, requirements and proof that we need to, you know, attest for purpose of the qualification and applying for the authorization, right? And it's really, really similar to, as I was saying, to international public bidding where...

the international company must not only provide the technical qualification, the legal qualification, the economic qualification, but also supply this with similar or equivalent documents when there is no one like this one in their country, right? So for instance, we have accounting,

proofs, legal proofs. So bylaws is something that the company needs to provide. Qualification on the legal feasibility. And legal feasibility, I mentioned like economic qualification, like proof that there is a sort of rule or you have conditions to execute this.

future service, you know, and this is why they request, for instance, in the ordinance, proofs of like the balance sheet and all kind of documents that are related to that. So it's a big list. We can stay here for many hours detailing all the items and all the articles detailing of that. But in a nutshell, we have four main items.

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legal qualification, technical qualification, economic feasibility, and also the technical capability. And the technical capability goes, it's really important because if you are talking about a foreign investor, the foreign investor or the foreign company or the foreign operator, it might also be aware that they have to prove and to attest that they have background information.

from many years ago, not many, but I mean, depends on the item here, we have some details, but in a way that we can show and give some comfort to the government that, hey, I'm a foreign company, I'm here, she operates part -betting in Brazil, and I do know what I'm doing, right? So I do have background experience on that, I have the know -how on this matter. So it's pretty much the...

requirements that we see here in this new ordinance. So we just talked about something very important that is proving and sending the required documents to show they were qualified enough to operate in Brazil and you have a suitability company. But there's another important thing here that is about money. We know that operators will have to

put a lot of money on the table in order to operate in Brazil. So license price 30 million BRL, GGR is 15%. What other payments operator must make to get a license and operate legally in Brazil? Well, good point, Isadora. I think that actually is the question related with the financials of the operations, the type of question that we are receiving a lot.

nowadays? Well, apart from usual corporate taxes that the company would have to pay in Brazil, there are other regulatory costs that the company must take into consideration when investing in Brazil, right? So starting with the minimum capital of the Brazilian entity, which should be equivalent to 30 million Brazilian reais.

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which would be used to pay the license fees, right, 30 million. But although the latest ordinance requires a minimum capital of 30 million, international investors must also take into consideration that on top of that, we have to consider the need for having a financial reserve equivalent to five million reais.

which would be used to purchase federal bonds, would be kept in custody at the Brazilian bank authorized by the Central Bank of Brazil. So those are the most, let's say, immediate costs. In addition to that, the operator must take into the concept, must also consider that it will have to hire a call center, which should work 24 -7 in Brazil.

with people speaking Portuguese. So this is a really big cause that should also be taken into account. In addition to that, we also have to think about personnel, right? Employees, perhaps officers. I'm saying perhaps because the latest ordinance, the authorization ordinance brings a concept that actually doesn't exist in Brazil.

which is the concept of having the administration of the company in Brazil. What does it mean? It's unclear actually, right? Because in accordance with the corporation law here in Brazil, officers are not required to live in Brazil provided that they appoint someone as an attorney in fact, who has powers to receive summons.

for related to claims associated with the administration of the company. So there's no need for an officer. There's also no need for directors, meaning members of board of directors to live in Brazil. So what's administration in Brazil means? Our

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Our understanding is that the regulation...

The regulator's intention was to require those guys that will take decisions within the company to be in Brazil. But it's not clear, actually, because as I mentioned, there is no such a concept in the Brazilian legal system. So one could say that, well, there's no such a requirement under the Brazilian law. So why should they be required to keep an officer?

a board member in Brazil, right? Would it suffice to have just the, let's say the CEO, the most important guy in the country to meet this requirement? Perhaps. Or should the majority of the individuals live in Brazil? Perhaps. So those are the kind of questions that we don't have a clear answer yet. As a matter of fact, today,

the regulator announced that they are opening a communication channel for anyone who wants to clarify doubts with respect to the norms that are being released. So this might be one question that could be raised to the authority. Yeah, if I can add something on this process of preparing and getting ready to setting up the company.

And going back a little bit on the requirements as well that I mentioned before, especially considering if we are talking about foreign coming to the country, to Brazil, that's really important to keep in mind is that the timeframe of that. So sometimes we have...

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We have all the documentation being prepared internally by the company, you know, all the technical qualifications and the economic qualifications and the legal ones. But one thing that the audience says and kind of repeats what our procurement welfare is about the legalization and the translation of the document, right? So.

All in this applies to what Jones mentioned, all the documents concerning corporate documents. If they are approving their constitution and their corporations from the foreign, from other countries, all of this package of documents must be translated. This must be translated, this must be, it's more translated actually. And although we don't have any specification of legalization on a post tile,

which is something that, I mean, we could, for instance, get some clarification on that. It's something that might be, you know, in the list of to do of the prospective investors because it's something that might take some time, right? Might take some time in organization internally. For instance, when you talk about technical capability, for instance, we have some requirements for

proving that the company has a certificate or an attestation of a laboratory that is already approved by the government. So we had some audiences before that approved a list of laboratories that, you know, were like considered the official laboratories for the government. And so these prospective investors, these prospective companies that are trying to enter in Brazil,

They also have to prove to a test certification of the laboratories. We also have to prove, as I mentioned before, the knowledge of pirate spills in banking lotteries. They also have to prove registration in the official website of the government called Consumidor Pontogavi. And we also must comply and provide evidence of integrity and compliance matters. Minimum of three years.

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of experiencing the field. And these are talking only about technical capability, right? And it's something that, you know, it's kind of tricky because it's a bunch of documents. It's a bunch of, you know, items in our checklist. But so long the company, for instance, is very well known operator, you know, has the know -how, has experience, has been operating in other countries.

is something that might not be very difficult to gather all these documents. It's just a matter of putting together all the pieces of the puzzle and putting together and preparing these to submit for the government. So just to tackle that because we've been asked about all these details and we think it's important to highlight it for the prospective operator as well.

Well, that's everything for today's podcast. Adriane and Jun, thank you very much for joining us. And to the listeners out there, links to the topics discussed will be put in the description below. Also, make sure to like the iGaming Daily and SBC Notícias Brasil LinkedIn pages to keep up to date. See you next time.