Sports betting and taxes: With the start of the 2020 European Soccer Championships and the 2021 Olympics, the question of whether you have to pay taxes on your betting winnings is increasingly cropping up. Even among players who regularly try their luck and bet on Bundesliga & Co, there is uncertainty – after all, the five percent betting tax was introduced in Germany in July 2012. But does the sports betting provider or the player have to bear the tax? We explain when you have to pay the betting tax as a hobby tipster and how you can avoid it.
Do I have to pay tax on winnings?
Are betting winnings tax-free? In general, gambling, sports, betting and lottery winnings are not taxed in Germany. Only income that belongs to the so-called “seven types of income” (cf. Section 2 (3) EStG) is subject to taxation:
- Income from agriculture and forestry,
- Income from business operations,
- Income from self-employment,
- income from employment,
- income from capital assets,
- income from renting and leasing,
- other income within the meaning of Section 22
Income from participation in betting games (as well as lotteries, games of chance and betting) is therefore tax-free. In other words, you do not have to pay any taxes to the tax office. At least this is the case for hobby players – for professional players different rules apply (see below).
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Why are winnings not taxed?
If winnings from sports betting and other games of chance would by law fall under one of the above-mentioned types of income, losses could also be claimed for tax purposes – a clear losing proposition for the state.
What is the betting tax?
As part of the amendment to the State Gambling Treaty (RennwLottG), the German government decided that sports betting and gambling providers must pay a betting tax of five percent to the tax office from the stakes of their customers who are German residents. The taxpayer is therefore the betting provider and not the player. However, many providers pass on the tax to the customer. Where the provider or bookmaker is based is irrelevant – only the player’s place of residence is relevant. By the way, the legislator justifies the regulation of gambling with the protection against gambling addiction.
The betting tax is also due in other countries such as Switzerland, Austria and Spain.
Can I avoid the betting tax?
The betting tax has been due since July 1, 2012. Nevertheless, some providers advertise that they are “tax-free”. How exactly can they do that? In principle, it is up to the provider whether he transfers the tax burden to the player or pays the five percent himself. If providers advertise that they are tax-free, you should definitely keep an eye on the rate and compare it with other providers. Many players think the tax can be circumvented by choosing a provider from abroad. However, the betting tax depends on where your residence is. If it is in Germany, the five percent is due.
In fact, there are several ways in which providers deal with the betting tax:
- The provider pays: the provider pays the five percent out of his own pocket. This means that if you bet 100 euros, you may dispose of your entire stake and winnings. However, as already mentioned, you should pay attention to the odds here, because in some cases the provider includes the taxes in the odds.
- The player pays at stake: In this case, the provider deducts the five percent directly from the customer. That is, if you bet 100 euros, five percent of it will be deducted and thus placed only 95 euros.
- The player pays on win: The provider can either deduct the five percent from the bet or from the profit made. In fact, the final result is the same overall – not for the individual customer, of course. That is, if you bet 100 euros and win 500 euros, the entire 100 euros will be placed, but five percent will be deducted from the winnings. Thus, you will be paid 475 euros.
When do I count as a professional gambler?
If you earn your living with sports betting, you may have to declare the winnings in your income tax return, but when exactly one is considered a professional gambler is not defined by the legislator. Therefore, if you have other income, you do not necessarily have to declare the winnings. However, if you only have income from sports betting and gambling, you should play it safe to avoid being prosecuted for tax evasion.
What applies if I invest my winnings?
If you earn high winnings from sports betting and decide to invest them, you must declare the interest in your tax return. In the case of interest income, the tax office is not interested in how you came to the assets.
Conclusion: Profits are mostly not to be declared in the tax return
Although the submission of the five percent betting tax has been a must since the gambling law came into force on July 1, 2012, providers automatically withhold it or, in rare cases, take it over from them. This means that you do not have to declare the winnings from a sports bet in your tax return. However, the situation is different for professional gamblers, whose only source of income is winnings from sports betting. However, it is not regulated by the state when exactly you count as a professional bettor, which means that in most cases an individual consideration becomes necessary.
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