Winning in a foreign casino - do you have to pay PIT?

Service-Tax

Polish tax residents can earn income from many different sources. One of the many examples is casino winnings. The issue of taxation with income tax of this type of winnings raises doubts among taxpayers.Winning in a foreign casino causes even more problems. In this article, we will try to explain this issue.

Win in a foreign casino obtained by a Polish resident

If we are talking about income earned abroad, the first step to be taken is to determine which country's tax jurisdiction a given person is subject to.

In this regard, first of all, it is necessary to refer to Polish regulations, which stipulate that if a natural person resides in Poland, he or she has an unlimited tax obligation, which means that he is obliged to settle both domestic and domestic income in Poland. and abroad.

Secondly, if a given country is bound by an agreement on the avoidance of double taxation, it is necessary to refer to its provisions. A typical contract based on the OECD Model Convention does not contain any specific regulations when it comes to winnings at casinos. Therefore, it is assumed that the provisions relating to residual income apply, which in most international treaties have the following content:

income of a resident of a Contracting State, irrespective of where it comes from, which was not referred to in the preceding articles of this Agreement shall be taxable only in that State.”.

Such a provision means that the income of a Polish resident from winning a foreign casino is taxable only in the country of residence, i.e. in Poland. This, in turn, means that the methods of avoiding double taxation will not be applied here, because the income obtained in this way is subject only to Polish tax regulations.

In the light of international regulations, a win in a foreign casino obtained by a Polish tax resident is subject only to Polish tax regulations. Basically, no method of avoiding double taxation will apply, as there should be no such method at all.

Winning in the casino under Polish regulations

Since we already know that when it comes to establishing taxation rules, we should only follow Polish regulations, it's time to explain what specific regulations will apply here.

Winnings in casinos (whether Polish or foreign) have not been listed as a separate source of income in the catalog contained in art. 10 sec. 1 of the PIT Act. At the same time, this type of income has not been excluded from the scope of taxation with income tax, which leads to the conclusion that it should be included in the so-called other sources specified in art. 20 paragraph 1 of the PIT Act. This provision contains an exemplary calculation of what types of income are included in this source, however, it is an open catalog, so this group also includes income from winning in the casino.

According to Art. 30 sec. 1 point 2 of the PIT Act: "income from winnings in contests, games and mutual wagering or prizes related to bonus sales, obtained in a Member State of the European Union or another country belonging to the European Economic Area, a tax of 10% of the winnings or prizes is collected". In addition, the act indicates that in this case no tax costs are applied (Article 30 (3) of the Act), which means that the tax should be calculated on the entire earned income.

Income from winning in a foreign casino located in the EU or EEA is qualified as another source of income and is taxed at a rate of 10%.

Tax exemption

It must be mentioned, however, that the legislator provided for the possibility of applying the tax exemption to winnings in gambling. As we read in Art. 21 sec. 1 point 6a of the PIT Act: "income tax free are won in:

a. number games, cash lotteries, telebingo, mutual wagering, promotional lotteries, audio-text lotteries and raffle lotteries, if the one-off value of these prizes does not exceed PLN 2,280,

b. slot machine games, card games, dice games, cylinder games, cash bingo games and raffle bingo games

- arranged and operated by an authorized entity on the basis of the regulations on gambling in force in a Member State of the European Union or in another country belonging to the European Economic Area”.

In addition, we must also mention the reservation contained in Art. 21 sec. 23 of the PIT Act, where it was indicated that: "the exemptions referred to in para. 1 point 6a, with regard to winnings obtained in a Member State of the European Union other than the Republic of Poland or in another country belonging to the European Economic Area, shall apply provided that there is a legal basis resulting from the agreement on the avoidance of double taxation or other ratified international agreements to which is the Republic of Poland, until the tax authority obtains tax information from the tax authority of the state on whose territory lotteries, games or mutual wagering are organized and conducted”.

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Summing up the above, if a Polish tax resident obtains income from a win in a foreign casino in an EU or EEA country, which operates on the basis of the regulations on gambling in that country and at the same time there are relevant provisions in the international agreement, all income obtained in this way will be in Poland benefited from tax exemption.

The above is confirmed, for example, by the interpretation of the Director of KIS of December 12, 2018, No. under Art. 21 sec. 1 point 6a of the PIT Act.

Winnings in foreign casinos may be fully tax-free in Poland, provided that the statutory conditions specified in art. 21 sec. 1 point 6a and sec. 23 of the PIT Act.

Cases where an exemption does not apply

The analysis of the content of the aforementioned provision allows for the identification of those cases in which the exemption will not apply.

Firstly, it should be emphasized that the exemption covers winnings in gambling games taking place in the territory of the EU or EEA countries. Consequently, in the case of a win in another country, the exemption will not apply even if the casino operates under the laws regulating gambling in that country.

Example 1.

Polish tax resident obtained income from winning in a casino located in Ukraine. The casino is based on Ukrainian gambling laws. Due to the fact that Ukraine is neither a member of the EU nor the EEA, the exemption cannot be applied.

The second circumstance outside the scope of the exemption covers cases where a Polish tax resident obtains income from a win in a foreign casino in an EU or EEA country, but the casino does not operate under the official regulations of that country. The provision providing for the exemption clearly states that only winnings obtained in games of chance organized and run by an authorized entity are tax-free.

Example 2.

A Polish tax resident earned income from winning a card game in Italy. However, this game was organized by a group of friends and was not run by an authorized entity under Italian law. As a result, the tax exemption under Polish law will not apply.

Moving on to the summary, it should be pointed out that the issue of taxing winnings in a foreign casino may develop in different ways. Much depends on the location of the casino and the type of entity that organizes and runs gambling games. However, most importantly for Polish taxpayers, it is possible to take advantage of the total tax exemption in this regard.