Sports Betting and Taxes: With the start of the 2020 European Football Championship and the 2021 Olympic Games, the question of whether betting winnings should be taxed is becoming increasingly common. Even among players who regularly try their luck and bet on the 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 a hobby tipster has to pay the betting tax and how to avoid it.
Do I have to pay taxes on my profits?
Are betting winnings tax-free? Winnings from gambling, sports, betting and lotteries are generally 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,
● self-employment income,
● income from employment,
● Capital income,
● Rental and leasing income,
● other income under Section 22
Income from participation in betting games (such as lotteries, gambling and betting) is therefore tax-free. This means that you do not have to pay any taxes to the tax office. At least this is the case for amateur players – for professional players different rules apply (see below).
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Why aren’t profits taxed?
If winnings from sports betting and other gambling were legally included in one of the above incomes, the losses could also be claimed for tax purposes – a clear loss for the state.
What is the betting tax?
As part of the amendment to the Gambling Act (RennwLottG), the federal government has decided that sports betting and gambling providers must pay a betting tax of five percent to the tax office on the stakes of their customers based in Germany. The taxpayer is therefore the bookmaker and not the player. However, many providers pass the tax on to the customer. The location of the provider or bookmaker is irrelevant – only the place of residence of the player is relevant. Incidentally, the legislator justifies the regulation of gambling with the protection against gambling addiction.
Betting tax is also due in other countries such as Switzerland, Austria and Spain.
Can I avoid the betting tax?
Betting tax is due from 1 July 2012. However, some providers advertise that they are “tax-free”. How exactly can they do this? In principle, it is up to the provider whether to pass the tax burden on to the player or pay the five percent themselves. 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 that you can avoid the tax by choosing a provider from abroad. However, the amount of betting tax depends on where you live. If it is in Germany, five percent is due.
In fact, there are several ways providers handle the betting tax:
● Pay the provider: The provider pays five percent from its own pocket. This means that with a stake of 100 euros you can dispose of your entire stake and winnings. However, as already mentioned, you should pay attention to the odds, as in some cases the provider includes taxes in the odds.
● The player pays in stake: In this case, the provider deducts five percent directly from the customer. This means that if you bet 100 euros, five percent will be deducted and only 95 euros will be wagered.
● The player pays if he wins: the provider can deduct five percent from the stake or profit made. In fact, the final result is the same overall, obviously not for the individual customer. This means that if you bet 100 euros and win 500 euros, the entire 100 euros will be wagered but five percent of the winnings will be deducted. This means that you will be paid 475 euros.
When do I consider a player professional?
If you make a living from sports betting, you may have to declare your winnings on your tax return. However, the legislator does not specify when exactly someone is considered a professional gambler. So if you have other income, you do not necessarily have to declare profits. However, if your only income comes from sports betting and gambling, you should play it safe to avoid prosecution for tax evasion.
What if I invest my profits?
If you make a large profit from sports betting and decide to invest it, you must declare the interest on your tax return. In the case of interest income, the tax office is not interested in how you acquired the assets.
Conclusion: Profits usually do not have to be declared on your tax return.
Although the submission of the five percent betting tax has been mandatory since the Gambling Act came into force on July 1, 2012, providers automatically retain it or, in rare cases, take it from them. This means that you do not have to declare winnings from a sports bet in your tax return. The situation is different for professional gamblers, whose only source of income is winnings from sports betting. However, there are no state regulations on when exactly someone is considered a professional bettor, so in most cases an individual assessment is required.
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