EU - Cyprus Payment Processing Agent for Online Gaming Companies

Cyprus Company as a Payment Processing Agent

In order to facilitate the acceptance of payments, the online gaming company can establish a subsidiary company that is used within the business structure as an intermediary between players / users and the online casino, acting as a payment processing agent by handling the payment processing of transactions made on the online gaming website of the non-EU online gaming company, and in return for this service, the subsidiary company receives a fee on a in order comply with applicable tax rules.

Payment processing agent companies are essential in the business operations of online casinos. Through the integrated payment service providers, they simplify the payment process by offering multiple transaction options to players to choose from, while ensuring that deposits and withdrawals are secure and effortless for players while mitigating risks of financial fraud.

An ideal jurisdiction for setting up a company to act as a payment processing agent for an online gaming company, is Cyprus, where its low corporate tax rate combined with an access to a multitude of credit card payment providers, makes it a perfect choice for online gaming companies that seek to have merchant accounts with acquiring banks or Electronic Money Institutions within Europe and European Union.

Group Structure of i-Gaming Companies and Operational Framework

The ideal business structure for online gaming non-EU companies that wish to accept payments on their i-gaming website, would be a structure that includes both the non-EU licensed online gaming company and a payment processing agent company—preferably a Cyprus-based entity within the European Union. This will achieve a robust and effective operational framework for the online gaming company.

The Cyprus payment processing agent company is endowed only with the responsibility to collect all funds from the online gaming website (but at all times it does not have an online gaming licence or operate a gaming website) and enters into an agreement with its parent online gaming company for a fee in exchange for the service provided.

In order to achieve this business structure, the online gaming company will need to become the shareholder of the Cyprus payment processing agent company. The Cyprus payment processing agent company will invoice an amount that corresponds to a percentage of the funds collected from the online gaming website as a management expense, with such amount being subsequently taxed at the low Cyprus corporate tax rate 12.5%.

The Cyprus company business’s profits are then distributed to its parent online gaming company, without the profits being subject to any Cyprus dividend taxation (either defence tax or General Health System tax).

Legal Framework in Cyprus in relation to Payment Processing Agent Companies

In the Republic of Cyprus, the provision of payment services is regulated by The Provision and Use of Payment Services and Access to Payment Systems Laws of 2018 to 2023 (the “Law”), which transposed into national law the provisions of Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market (also known as “PSD2”).

The Law has provisions regulating:

a) the transparency of conditions and requirements for payment services;

b) the respective rights and obligations of payment service users and payment service providers in relation to the provision of payment services as a regular occupation or business activity; and

c) the granting of authorisation, operation and supervision of payment institutions.

In accordance with the Law, “payment institution” means a legal person that has been granted authorisation in accordance with Article 11 of the Law to provide and execute payment services throughout the European Union.

In accordance with Section 3(3)(n) of the Law, the Law shall not apply for payment transactions and related services between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking, without any intermediary intervention by a payment service provider other than an undertaking belonging to the same group.

As a result, Cyprus companies who act as payment processing agents for their parent companies, are exempted from obtaining authorisation from the Central Bank of Cyprus when they provide such payment services.

Although payment processing agents in Cyprus do not need authorisation from Central Bank of Cyprus, they still must comply with applicable AML laws and other regulations to ensure secure and legal operations. The adherence to such AML laws and regulations is requested by the banks and Electronic Money Institutions with which the Cyprus company will have merchant accounts for the receipt of funds from users of the online gaming website.

The 5 steps in setting up the infrastructure for an Online Gaming Business

For any online gaming company and its group structure, there are five essential steps to be taken in order to be operational:

1. Company formation in a jurisdiction such as Curacao, St Lucia or Costa Rica– this company will be the holder of a license for online gaming (or sublicense if a Costa Rica license is the license of choice).
2. Company formation of the Payment Processing Agent company in Cyprus, that will be owned by the gaming company.
3. A bank account opened in the name of the Online Gaming Company with either a bank or an Electronic Money Institution (“EMI”) that cater for high-risk payment processing companies, for the operational funds of the online casino and the business.
4. A bank account opened in the name of the Payment Processing Agent company with either a bank or an EMI that cater for high-risk payment processing companies, for the receipt of payments made by players of the online gaming website facilitated via the Payment Service Provider (“PSP”) provider.
5. Agreement with a PSP to obtain a merchant account, the system of which will be integrated on the online casino website in order to facilitate and optimize the payment processing for the payments made by the online casino players.

 Our Legal Services

Paris Mavronichis & Co LLC can assist you in every step of the procedure:

• Provision of corporate legal advice and tax advice as to the most efficient group structure (in collaboration with our trusted associates);
• Assistance with the incorporation of an Online Gaming Company in Costa Rica, St Lucia and Costa Rica;
• Assistance with the company formation of a Payment Processing Agent Company in Cyprus, and corporate administration;
• Provision of substance services, corporate administration and directorship services to the Payment Processing Agent Company in Cyprus to ensure compliance with applicable tax laws;
• Assistance with opening and maintaining bank accounts with banks or EMIs for both the Online Gaming Company and the Payment Processing Agent Company and provision of bank signatory services;
• Establishing Cyprus International Trust to protect the assets of the online gaming business and provide anonymity to the business owners;
• Ongoing legal support throughout the operations of the online gaming business.

Please feel free to contact us for a free consultation if you have any question and to discuss how we can be of assistance to you.

 DISCLAIMER:

PARIS MAVRONICHIS & CO LLC accept no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

The material contained herein is provided for informational purposes only and does not constitute legal advice nor is it a substitute for obtaining legal advice from an advocate.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced advocate. PARIS MAVRONICHIS & CO LLC will be glad to assist you in this respect.