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Tax on Winning: Experience of Implementation in Latvia and the USA

Author: Yana Kryvosheina
19 November 2019, 11:39
Votes: 1

As a rule, these are gambling companies that pay taxes. However, there is an exception – tax on winnings. The difference between the Latvian and American systems is outlined in the material by Login Casino.

Tax on Winning: Experience of Implementation in Latvia and the USA

Gambling tax is usually operators’ prerogative. Nevertheless, in some cases it can also be applied to gamblers. Tax on winning concerns the money which the punter won by playing lottery, casino games and even betting. The size of the tax may vary depending on whether the person is a local resident or a foreigner. Certainly, there are countries with a zero tax on winnings, which undoubtedly attracts tourists.

Taxes on winning have a negative effect on both customers and operators. The point is that countries with such types of taxes are less attractive to foreign visitors. A classic example is Latvia. Therefore, we have decided to compare the winning tax problem of this country with the USA – a state with a huge and long-term experience in this issue.

Read more: States with Zero Gambling Tax on Winnings (Part 2)

Tax on winning: definition

A tax on winning is a part of the money prize which the lucky winner is obliged to give to the state budget. Such countries as Austria, the Czech Republic, Finland, Denmark, Canada, Belgium, Bulgaria and Australia do not have such taxes. Besides, there are certain jurisdictions where operators are responsible for this.

Tax on winning in Latvia

Latvian land-based gambling operators have recently been complaining that too big taxes do give the industry a chance for sustainable development. The reason for this was the decreasing number of tourists, especially high-rollers.

Last year taxation rules in Latvia were reviewed with the addition of levies on winnings. Representatives of major Latvian gambling establishments say that this decision had the worst impact on the VIP segment. Besides, it’s not only the gambling sector that suffers losses. Neighboring industries like tourism and hospitality business are also at a loss.

Tax on winning in Latvia

Interesting fact

Gambling winning implies receiving money prizes while playing at a casino, lottery or making sports bets. Therefore, when the tax is calculated, all the prizes of various gambling segments are summed up.

The state government was planning to increase income due to additional taxes but eventually faced the opposite result because of the outflow of tourists.

According to the Latvian system, winnings that do not exceed €3,000 in a calendar year are not taxable. If it is from €3,000 to €55,000 – the levy is 23%. The tax on bigger prizes is 31,4%.

Read more: Top 6 Countries Where Land-Based Casino Activity is Officially Allowed

Tax on winning in the USA

The United States is famous not only for its extremely high lottery jackpots but also a tough taxation system.

The size of the tax on winning vary depending on the fact whether the winner is a US resident or not. If yes, the levy may be up to 35%. The system itself implies that a part of the tax will be charged in case the winning amount is bigger than $5,000. In general, the size of the tax can be from 25% to 28% and depends on the amount of information the taxpayer has provided about themselves.

In this situation, Americans are luckier than foreigners. The point is that when filling out the tax declaration they can set their gambling profits against gambling losses and the difference they get (in case it is not negative) is taxable.

Besides, residents of the country are obliged to pay taxes on the level of the state they live in. However, Nevada does not have additional taxation and local citizens have to pay only federal fees.

The USA has a detailed system in order to help people avoid double taxation – in the United States and in the country of their residence. The mechanism implies a bilateral agreement with other states.

Tax on winning in the USA

In order not to pay taxes twice, gamblers have to inform the casino administration that they are residents of other countries and identify which state that is. If the tax has already been withdrawn, funds may be returned, however, it can take a while.

Read more: USA: Gambling Market Review after PASPA Overturning

Conclusion

Tax on gambling winnings is a sort of side effect of punter’s fortune. One can avoid losing money in case of gambling only in those jurisdictions where such a taxation system is not required by law. On the other hand, states should also be careful when introducing these levies since it can pull foreign visitors away and therefore reduce the level of tax income.

As mentioned earlier, the government of Great Britain announced the introduction of a new gambling regulation starting from October 31.

Read more: Responsible Gambling: Tips for Players

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