More and more people are discovering gambling in online casinos, and the number of players is increasing year on year. At the latest when a large cash prize is won, the question arises as to whether casino winnings are subject to tax. Are they always tax-free, or is it regular income on which tax is payable? Does it make a difference whether you only cash in once or regularly at the casino? The following article answers these and other questions about the tax treatment of gambling winnings.
The legal basis
Let's first take a look at the legal basis: The Income Tax Act regulates which income the legislator considers taxable. In connection with gambling in general and online casinos in particular, the existence of a valid gambling licence also plays a significant role. You can find more information on important topics relating to casino licences and reputable online casinos with lucrative bonuses at https://www.richardcasino3.com/promotions.
Income Tax Act (EStG)
The Income Tax Act is relevant for private individuals. Gambling, sports, betting, and lottery winnings cannot be subsumed under one of the seven types of taxable income defined in Section 2 No. 1 EStG. It can generally be stated that winnings made by players in online casinos are not taxed as income. As with the lottery, the amount of the winnings is irrelevant.
Value Added Tax Act (UStG) / Racing Betting and Lottery Act (RennwLottG)
Section 4 no. 9. b) (UStG) stipulates that providers of games of chance are exempt from tax if their turnover falls under the Racing Betting and Lottery Act. This applies to online casinos. In this respect, there are basically no taxes that could be passed on to the winners. Sports betting is an exception. Nevertheless, the organizers of games of chance must pay lottery tax. This is currently 20% in accordance with Section 17 No. 1 RennwLottG.
Licensed providers
Anyone wishing to operate games of chance requires a state license. In order for an online casino to legally offer its services to players, it must have a valid license. Accordingly, only winnings made with a licensed provider are considered legal.
EU licenses
The EU freedom to provide services is one of the four cornerstones of the European single market. It means that companies may offer their services not only in their home country but throughout the EU. Accordingly, the most important EU gambling licenses from Malta or Gibraltar also apply to the market. Any winnings that customers make in a properly licensed online casino are therefore to be considered legal. It does not matter whether the money was earned with bonus funds or regular deposits.
Winnings from games of chance outside the EU
Winnings generated at a casino outside the EU must be declared as soon as they exceed 10,000 euros. In principle, no taxes are payable here either. However, providers who do not have an EU gambling license run the risk of having their winnings confiscated. It is therefore strongly recommended that you only try your luck with providers that have a valid license.
Payout of winnings
Anyone who wins money in an online casino is entitled to the immediate and complete payout of the winnings. Please note the following points:
No transfer or exchange fees: If the winnings were made in euros, the provider may not charge any transfer or exchange fees.
No obligation to declare winnings in the tax return: Due to the tax exemption, private individuals are not obliged to declare winnings that they have made in the online casino to the tax office in their tax return.
Tip: Keep proof! There is no obligation to document your winnings from games of chance or the lottery. In practice, however, it has proven to be a good idea to keep all proof of payment of gambling winnings. This ensures that the origin of the income can be proven beyond doubt to the tax authorities upon request.
Differentiation between games of chance and games of skill
For the tax treatment of winnings in online casinos, the question of whether the winnings result from a pure game of chance or from a game that also has a skill component also plays a role.
Overview of gambling
In pure gambling, all winnings are based solely on luck. Your skill and ability have no influence on the chances of winning. Examples of gambling include most casino games such as roulette, blackjack, poker, and slot machines. Anyone who wins here does not have to pay income tax.
Overview of games of skill
In games of skill, the luck of the game lies mainly or entirely in the hands of the player. The player can directly influence the game and make independent decisions which, in the best case, have a favorable effect on the outcome. Examples of games of skill include chess. Anyone who wins a cash prize in a chess tournament can hardly claim to have won it mainly due to luck. The same applies to winnings from TV game shows, which are regularly taxable as other income in accordance with Section 22 No. 3 EStG.
Exception: Professional players
The previous explanations related to private individuals who have made a one-off win or have been lucky in the casino at longer intervals. It was also assumed that other regular income, e.g. from employment within the meaning of Section 2 No. 1 1 EStG, is available. In such cases, the tax exemption of gambling winnings can be affirmed without any problems. The situation is different for players who derive all or most of their income from winnings in a casino. The question then arises as to whether they are exercising a regular trade and whether their winnings are therefore to be regarded as normal taxable income.
Differentiation between recreational players and professional players
In practice, the courts apply the following criteria to differentiate between recreational and professional players:
Regularity of income: If a player makes very regular and sustained profits over a longer period of time, the courts often consider this circumstance to be an indication of the existence of commercial income. In this context, the question of the intention to make a profit also plays a significant role.
Other sources of income: The courts also check whether the person has other sources of income. If this is the case, there are initially some indications that the person is not to be considered a professional gambler. However, if the gambling winnings exceed the other income many times over, the categorization as a professional gambler can hardly be refuted.
Winnings and losses: Another criterion is whether regular winnings are accompanied by regular losses. If this is the case, there is a lot to be said in favor of classifying the person as a professional gambler. After all, they bear an economic risk that is comparable to other conventional commercial activities.
Income tax on winnings for professional gamblers
Anyone who pursues a commercial activity with gambling according to the criteria listed above and is therefore categorised as a professional gambler must of course pay income tax on the winnings made. The following points should be borne in mind:
Earlier winnings: This also applies to winnings made further back in time. For the tax office, the time at which the commercial nature of the gaming activity first prevailed is decisive.
Tax-free amount: The tax is due as soon as the total income exceeds the basic tax-free amount of 9,168 euros.
Offsetting losses: In return, a professional gambler, like any other trader, can offset any losses against tax.
Special case of betting tax
Sports betting is a special case with regard to the taxation of gambling winnings. In accordance with Section 17 No. 2 RennwLottG, a flat tax rate of 5% of the respective stake applies here. Most sports betting providers charge this tax directly to their customers. As with winnings from online casinos, no further taxes are levied on any winnings. However, there are always individual providers who advertise that they do not pass on these costs. It's worth comparing here!
Interest on gambling winnings
For private individuals who do not participate commercially in games of chance in online casinos, the winnings themselves are tax-free. This applies without restriction for the tax year in which the winnings are made. The situation is different with the proceeds and interest profits that result from the winnings in the casino in subsequent years. These can be, for example, interest on invested winnings or dividends that are paid on shares purchased with winnings. The regular interest income and withholding taxes are due on these.
Current figures on online gambling
According to the latest figures compiled by the Federal Centre for Health Education (BZgA), almost four million people took part in online casino games in 2017. That is around 5% of the total population. Another renowned study from 2017 puts the gross gaming revenue on the gambling market for 2015 at just under 13 billion euros. Around 1.2 billion euros of this was attributable to online casinos. Finally, the 2016 annual report published by the state gambling supervisory authorities in 2018 states that gross revenues rose to 13.4 billion euros. The share of online casinos is estimated at just under 1.3 billion euros.
Legal situation in Austria and Switzerland
In Switzerland, casino winnings are not taxed uniformly; the legal situation varies from canton to canton. However, there is a standardized exemption limit of 1,000 Swiss francs. Winnings that exceed the exemption limit are generally considered evidence of professional gambling. In this case, the normal income tax rules apply. Interest from gambling winnings is subject to normal income tax in both countries.
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