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The Federal Law on Gambling (Gambling Act) establishes the boundaries of what can be regulated under gambling in Switzerland. According to Art. 3 of the Gambling Act, games of chance are games in which a monetary prize or other pecuniary advantage is offered in return for a monetary stake in the game or upon the conclusion of a legal transaction. According to this definition, this includes not only games of chance but also games of skill. Distinctions are drawn between lotteries, sports betting, games of skill, large and small games and casino games. The tax laws make different distinctions, again. A distinction is made between games in casinos, online casino games, small games and games related to lotteries or games of skill. If you have any questions regarding the taxation of games of chance, our tax lawyers can advise your comprehensively.
The Gambling Act defines casino games prototypically, including games like roulette or poker, but also automated games such as ‘One Armed Bandit’ games. Licensed casinos can also place sports bets, but despite their facilitation through a casino, these are not qualified as casino games. Winnings from casino games are not subject to direct tax nor to cantonal tax, unless they arise from a self-employed activity. Deductions from winning stakes are not permitted due to the tax exemption. Profits from self-employment are subject to income tax and withholding tax. Here, a deduction of 5% applies for the running or initial cost, but not exceeding CHF 5,000.
Online casino games has only been allowed since the introduction of the Gambling Act in 2019. Before that, any winnings were fully subject to taxation. Now, a tax allowance of CHF 1 million is granted. Only profits exceeding this amount are taxed. In addition, operational costs up to CHF 25,000 can be deducted from the taxable profit every tax year. Cantons can adjust the limit of this maximum amount. Profit exceeding CHF 1 million is subject to income tax as well as withholding tax. The legislator has not provided for a deviating regulation for self-employed persons in this case.
For the purposes of the Gambling Act, the concept of large-scale games refers to lotteries, sports betting and games of skill that are open to at least 1,000 people and are automated, intercantonally or online. In Switzerland, lotteries and sports betting are reserved for Swisslos and Loterie Romande only. An exemption amount of CHF 1 million for winnings from large games is granted, as there is for online gaming. From the amount exceeding this, a deduction of 5% (but not exceeding CHF 5,000) is granted per win. Cantons can set a different maximum amount. For withholding tax, the same applies as for online casino games.
Small games are lotteries, sports betting and poker tournaments with a limited number of participants that are not automated, inter-cantonal or online. A classic example of this is the tombola. Winnings from small games are fully exempt from tax, and tax deductions are accordingly not possible.
Sales promotion games include lotteries and games of skill that serve to promote sales. These do not fall under the provisions of the Gambling Act and are found in a separate category of taxation. If participation is linked to the purchase of a product at market price, there is a tax allowance of CHF 1,000 and a subsequent deduction of 5%, but not exceeding CHF 5,000. The tax allowance also applies if there is a possibility of free participation. If the prize exceeds CHF 1,000, the excess is also subject to withholding tax. This also includes sweepstakes promoted in the media in which participation is given in return for either a monetary stake, a legal transaction or as a free participation with equally attractive entry and participation conditions. In the case of exclusively free participation, the provisions of the Gambling Act are not applicable from the outset. This means that the regulations for income tax on games of chance are not applicable to these games. The winnings are to be taxed according to the general income clause and a withholding tax is not applicable.
In addition, it should be noted that e-sports, depending on the game, can also fall into the area of skill games.
If you are unsure about the taxation of your gambling winnings, our tax lawyers will be happy to help you.