Fråga: Business model - lottery or contest
Hi All, We are working on building a startup idea and we did have a question on how legal its. The idea is to offer products online where users buy tickets to win the item and one of them win randomly with the item. Users also will get a small gift a cup of coffee or chocolate, so everyone get something. Is this business model legal in sweden ? Thanks
Legalbuddy svarar
Julia Isaksson

Hello! Thank you for your question.


How exciting that you are working on a startup idea. The main question that arises is the distinction between lottery and competition. I hope my answer below help you on your way.


Gambling Act (2018:1138)

If the possibility to win the item is decided randomly, it will probably be considered a lottery. The Swedish legislation applicable in this case is the Gambling Act (2018:1138). Pursuant 2 Chapter 1 § Gambing Act, gambling includes lotteries, betting, combination gambling and pyramid schemes. A lottery requires a license (3 Chapter 3 §). To get a license there are som requirements which need to be fulfilled.

 

According to 3 Chapter 1 § the activities shall be ” be appropriate from a public perspective and conducted in a sound and secure manner under public control. This implies, among other things,

1. that the gambling shall have a high level of consumer protection, 

2. that the gambling is very secure,

3. that the negative impacts of gambling shall be limited, and

4. that gambling shall not be used to support criminal activities.”


Other aspects to consider regarding gambling in the form of lottery are for example that marketing of gambling to consumers shall employ a degree of moderation and shall not be aimed not be aimed specifically at people under 18 years (15 Chapter 1 §). Also, technical requirements, such as main rule that the license holder’s server system shall be located in Sweden (16 Chapter 2 §). If the business model is considered a lottery, you also need to pay gambling tax in accordance with Act (2018:1139) on gambling tax.


Lottery or contest

If the possibility to win instead is determined by the participants’ performance, it is seen as a contest. Thus you can avoid the above mentioned requirements. To determine whether the activity is a lottery or a contest, one must look at how the various degrees of chance and achievement relate to each other. The Swedish Gambling Authority, which is the authority to e.g. approve a gamling license, has good reading regarding the difference between lottery and contest (you find it in Swedish here), where they for example declare (NB, my translation):  


If the outcome of the event is determined by someone's performance, for example by assessing someone's proposal for a slogan or that the participant is able to answer more knowledge questions than others who participate, it is normally not a lottery. However, the performance step shall not be too simple because then it can still be considered a lottery. An overall assessment of the arrangement must always be made. If it is a matter of a performance step, it must be clearly stated to the participants in the event how the winner is selected.” 


If your business model is seen as a contest, it is exempted from tax liability if, the sum is 0.03 price base amount rounded to the nearest hundred SEK, which, according to The Swedish Gamling Authority corresponds to about SEK 1,300.


Pyramid scheme

I also want to give you a heads up to beware of pyramid scheme, which is illegal in Sweden (3 Chapter 6 § and 19 Chapter 1-3 §§). Pyramid scheme is gambling where the winning derive from the bets of future participants and where the likelihood of winning depends on the number of participants who subsequently join (2 Chapter 3 § 15). Pyramid scheme shall be distinguished from multi-level marketing. Multi-level marketing is a an allowed business method where goods or services are traded within a pyramid. However, if the items are of low or no value, the business may be seen as pyramid schemes. 


Summary

To sum this up, the ”easy way” to establish your business in Sweden is to let the possibility to win the item be based on performance and not randomly. As I briefly expressed above, there are also some considerations regarding tax which needs to be taken into account. For us to understand your business idea better and give you advice based on it, you are more than welcome to contact us for a coaching meeting free of charge

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Dags att bilda bolag? Det är mycket att tänka på, men vi har sammanfattat de viktigaste sakerna för dig. 

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