With the introduction of the Gaming Act (Federal Gaming Act; FGA) on 1 January 2019, the taxation of gaming winnings was also newly regulated. The amendments concern the Federal Act on Direct Federal Taxation (FTA), the Federal Act on the Harmonization of Direct Taxes of the Cantons and Municipalities (FTHA), and the Federal Act on Withholding Tax (WHTA). Unfortunately, the equal tax treatment of the various games was missed.
Furthermore, the terminology of the FGA was not adopted uniformly. The FGA covers gambling and other games prospecting monetary prize or another monetary advantage in return for a monetary stake or upon conclusion of a legal transaction and divides these into casino games, large games, lotteries, sports betting, skill games, and small games. In contrast, the tax regulations use the categories of casino games in casinos, large games, online casino games, small games, and sales promotion games. This unnecessarily complicates the correct determination of the respective tax consequences.
Classic casino visit
According to the FGA, so-called casino games take place in Swiss land-based casinos. These are, for example, roulette, blackjack, baccarat, poker, or the “one-armed bandit.” Winnings generated from casino games in a Swiss casino are exempt from both income tax and withholding tax, provided such winnings are not generated in the course of self-employment. As the winnings are fully tax-exempt, a deduction of wagers is not allowed.
Deviating from this, casino winnings earned in self-employment are subject to withholding tax and income tax. Business-related costs, such as gaming stakes, may be deducted from income tax. However, it remains unclear what qualifies as self-employment in this context and how a casino should recognize self-employment at all.
It should also be noted that the restriction regarding self-employment is only to be found in the legal provisions on casino gaming in casinos. Therefore, it can be assumed that the legislator explicitly intended to treat other gaming winnings differently.
New online casinos
Newly, online casino games may be offered by licensed Swiss casinos. For winnings from online casino games, a real tax allowance of CHF 1 million is provided for income tax purposes, so that tax is only due on the amount exceeding CHF 1 million. In addition, the stakes paid to the gaming account are deducted from the taxable winnings, up to a yearly maximum of CHF 25‘000. The cantons may set different maximum amounts. Finally, winnings above CHF 1 million are also subject to withholding tax.
Large games: Lotteries, sports betting, and slot machines
The definition of large games includes automated, inter-cantonal, or online lotteries such as “Swiss Lotto” and “Euro Millions,” sports betting such as “Jouez Sport” (Loterie Romande), and “Sporttip” (Swisslos) as well as slot machine skill games. Winnings from participation in large games are now only taxable for income tax purposes above CHF 1 million (real tax-free amount). Of the gambling winnings exceeding CHF 1 million, 5% of the excess amount can be deducted as stake, up to a maximum of CHF 5’000 per win. This is a lump-sum deduction, irrespective of the actual stake paid. The cantons may set different maximum amounts. Here, too, if the profit exceeds CHF 1 million, the excess amount is subject to withholding tax.
Small games: small poker tournaments, small lotteries, and local sports betting
Classic small lotteries are, for example, the tombola at the Christmas party organized by a club or the so-called “gold lotteries” popular in the countryside. Whereas previously only winnings from lottery-like events up to an amount of CHF 1’000 were tax-exempt, winnings from small lotteries are now subject neither to income tax nor to withholding tax. Since the winnings are completely tax-free, a deduction of stakes is not allowed.
Sales promotion games
Sales promotion games are lotteries and skill games conducted for a short period to promote sales (classic sales promotion games or media lotteries).
The winnings from participation in such games are exempt from income tax up to a prize of CH 1’000. According to the FTA, this is an exemption limit, so that if the winnings exceed CHF 1’000, the total winnings must be taxed. If winnings are subject to taxation, 5% of the winnings can be deducted, up to a maximum of CHF 5’000 per win, regardless of the actual stake paid. Winnings from sales promotion games over CHF 1’000 are also subject to withholding tax.
It should be noted that with exclusive free participation, the rules described for income tax do not apply to the winning, but the general income rule does. Hence, the winning is fully taxable, with the actual take being deductible. In contrast, there is no legal basis for the levying of withholding tax.
E-sports can be conducted in various forms and could qualify as gaming, gambling, or even as a sport, depending on the case. In addition, e-sports can be undertaken in events or online. Therefore, a general-abstract qualification of e-sports in terms of gambling law is not possible. If a monetary stake has to be made and money is won, a skill game (large game) could be present, and the tax exemption of CHF 1 million could be taken into account. The qualification of an e-sports event as a sports competition, on the other hand, would have the consequence for the e-sportsman that any winnings would be subject to full taxation. A close examination of the circumstances is therefore recommended.
Games abroad and unauthorized/non-licensed games
Playing abroad or unauthorized/non-licensed games is not punishable for the player, but any winnings do not enjoy any tax exemptions under the special provisions. Due to the general income rule, they are in principle subject to income tax minus the related expenses and other asset disposals. It is questionable to what extent such a deduction is limited to 5% of the profit, but not more than CHF 5’000 per profit. According to the wording of the provisions, they would also have to ﬁnd application to unauthorized games.
On the one hand, in the case of withholding tax, a distinction must be made between domestic and foreign gaming providers. This is because winnings from gaming providers abroad are not subject to withholding tax as such games are inherently not subject to the FGA and thus lack a legal basis in the WHTA. On the other hand, winnings from domestic providers’ non-licensed games are always subject to withholding tax.
Games in private circles
In the case of private games, such as tip games with colleagues at a football tournament or private poker games, the Gaming Act does not apply either. Accordingly, any winnings would have to be fully subject to taxation. In practice, however, such income is usually tax-exempt for smaller amounts due to the principle of proportionality.
In summary, it can be said that the tax changes have alleviated the unequal taxation of gambling winnings to a certain extent. However, there is still no question of equal treatment. While private casino visits and small games remain completely tax-free and large games or online casino games remain tax-free up to an exemption amount of CHF 1 million, sales promotion games only have an exemption limit of CHF 1’000. Finally, non-licensed games and foreign games, as well as professional casino players, are fully taxed.
However, the question may also be raised as to how it should be possible for the taxable layman always to make a correct quailﬁcation of the respective game and determine the corresponding tax consequences. Thus, even under the new Gaming Act, the taxation of gaming winnings can itself become a “game of chance,” which calls for appropriate caution.
This article is based, among others, on the articles by Thomas Linder and Dr. Mira Bazlen "Glück im Spiel, Pech bei den Steuern?" in Expert Focus, October 2021, pp. 467-470 and «Glücksspiele und ihre Steuerfolgen» in Private - Das Geld-Magazin, 4/2021, S. 4–5. Quotations and references have not been highlighted explicitly for the sake of readability.