20 January 2025

Taxation of Esports Players

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Esports revenue comes from diverse sources, often involving new technologies. Young players are often unaware of their tax obligations and rules.

  • Thomas Linder

    Tax Partner

The esports scene is still relatively new, and it therefore operates within legal frameworks that were not made to account for its specificities. Professional gaming revenue can come from many different sources, some of which use new technologies that couldn’t be foreseen when originally making the legislation. Moreover, a lot of players are relatively young, and therefore not necessarily aware of their tax obligations.

A confusing legal framework and young, unsure players of course does not mean esports winnings are tax free. Tax authorities have on the contrary already gotten their share of the huge sums circulating within the scene. Hence, with the potential of high revenues coming from multiple avenues in a confusing system, it is vital for those looking to enter the esports scene to understand how to file their taxes properly.

This article aims to provide such overview for Switzerland. Note that this article focuses on players that make high enough of an income to be considered as professionals, meaning that the activity qualifies as (salaried) employment or (independent) self-employment. It does not include amateur players for whom esports do not constitute a gainful activity and who make negligible income (or losses) of their private hobby.

The information that will be given here counts towards Swiss residents. Players from foreign countries who participate in tournaments in Switzerland but do not have their place of residency in the country might be subject Swiss withholding taxes and should also check for the rules given by their country of residence regarding the taxation of tournament winnings, notably whether there is an eventual convention for the avoidance of double taxation regarding certain types of income.

What can esports players be taxed on?

Professional players can get different types of winnings. Each will have a different taxation depending on various factors, such as the player’s employment situation or geographical elements.

The main winning types are:

  • Team salary: The monthly salary paid by the team to the player. A player’s salary will be determined by the player’s contract.
  • Team equity: It has very recently happened that players received team equity as part of their salary. While it will probably remain a very rare form of compensation, it is noteworthy that links between players and teams are starting to form in the world of esports in a similar way to those found in traditional start-up industry.
  • Tournament winnings: The prize money a player makes when winning in competitions and events he participates in.
  • Streaming earnings: The money gotten via streaming platforms, be it YouTube, Twitch, or other similar platforms. Streaming earnings can be one of the biggest possible sources of revenue for the players if they are popular enough. This revenue is made from advertisements embedded in the streams, as well as subscriptions, donations, and tips.
  • Sponsorships & endorsements: Organisational and personal sponsorships and endorsements through which players get money or goods. These types of deals can be affiliate sponsorships (e.g. receipt of commission for the sales made thanks to a link or discount code), product sponsorships (e.g. receipt of product in exchange for promotion) or paid sponsorships (e.g. receipt of money in exchange for promotion). For product sponsorships, the objects will generally be added to the income at their market value.

How would such income be taxed in Switzerland?

Professional players can be divided into two main categories, employees or independents (i.e., self-employment). Note that a team employee may also have other income that are going to get taxed as if he was an independent (see last paragraph of section 1 for more details).

1. Team Employee
A player that is employed by a team is going to get taxed the same way anyone else working a desk job would. His team is going to pay him a salary as defined in his contract. Money earned through sponsoring, tournaments winnings and potentially streaming will most probably go to the team directly, who will then share part of it with the players. The player may receive parts of these earnings as bonus, and they will therefore be added to his salary.

As an employee, the player must pay the following taxes:

  • Income tax: The player is going to have to pay income tax based on his level of total income. This includes not only his salary, but also any other income he may have received, whether one-off or periodic, paid in cash or in kind, be it in Switzerland or abroad, so any bonus, tournament winnings, equity-based compensation or similar are going to be included. On the other hand, the employed player will be able to deduct certain expenses caused by his professional activity that are not covered by his employer (such as transportation, meals and accommodation, travel, etc). For most salary-related expenses, respective lump sum deductions or limitations are defined. There are further variety of deductions possible, including insurance premiums, educational costs, pension contributions, costs due to illness, etc. Please note that there are two levels of taxation, the federal direct tax, and the cantonal (and possibly communal) taxes that will depend on his place of residency. Some cantons have higher taxation rates or deductions than others, so it is important to check for local specificities.
  • Wealth tax: Wealth tax is levied on all the player’s net assets, so the total assets once the debts have been subtracted. Wealth in this context refers to the market value of all movable and immovable assets, but also the assets of which the taxpayer is usufructuary. For a player, this will typically mean his savings, his house or apartment if he has one, as well as any movable goods that have a high enough value to warrant reporting (for example a car, expensive art, but also professional gaming gear). Household furnishings and personal objects of daily use are not included. Wealth taxed is collected by the canton, and it is therefore again important for players to find out about the specificities of their canton of residence, as each one has its own rules and more importantly tax rate.
  • Social Security: Social security costs will be deducted from the player's salary by the employer before it is transferred to him. These taxes are mandatory and go towards the financing of old age, disability, unemployment, and other similar relevant insurances.

Foreign nationals who are swiss residents are subject also to a wage withholding tax in many cantons. This tax is generally levied by the employer. While it depends mostly on the type of work permit held and the place from which the resident foreigner is being paid, some cantons also have defined specific salary ranges in which case it applies.

Some players stream in their free time, on personal channels, and therefore get some streaming revenue paid directly. In such cases they may avoid taxation if this income is negligible (the exact minimum amount for it to be taxed will depend on the canton of residency), but in principle this is considered taxable income from a secondary, independent activity. It will not change much regarding income tax, but it will allow for some additional deductions and changes for pension and insurance (please refer to section II for details).

2. Independent Player
A self-employed person’s income includes all income from self-employed professional activity and capital gains. The self-employed person can be a stand-alone player, or a member of a team organised in a partnership.

So far, there are no specific guidelines by the tax authorities about the qualification of income from esports events and tournaments. However, please note that the Swiss Lottery and Betting Board (“Comlot”) has stated on its website that esports events will likely qualify as skill-based gambling, which means that winnings from esports tournaments would be considered as gambling winnings within the meaning of the Federal Gambling Act. Hence, such qualification could also be relevant for tax purposes.

Specifically, the taxation for an independent player covers the following:

  • Income tax: Just like for the employee, income tax is going to be calculated on the player’s level of income, meaning all income he may have received, whether one-off or periodic, paid in cash or in kind, be it in Switzerland or abroad. For the independent player, it will mainly consist of revenues generated via streaming platforms such as YouTube and Twitch, tournament winnings and sponsoring contracts. If tournament winnings are qualified as gambling winnings, a tax exemption according to art. 24 i.bis DBG for winnings up to CHF 1 million could apply. However, the tax authorities might argue that such exemption is for non-professional players only. On the other hand, the self-employed person can deduct all expenses justified by commercial or professional use (depreciation, provisions, interest on commercial debts, personnel costs, maintenance expenses, etc.). For a player that makes most of his money from streaming, this means deductions for his equipment (gaming equipment such as computer, screen mouse, but also his filming gear if he has a good setup), software, costs linked to data storage, the percentage of his internet costs going towards his career as a player, even rent and household items if he has a special room dedicated to playing or transportation fees if he works from an office somewhere.
  • Withholding tax: Whether the organizer of a tournament will deduct withholding tax on the player’s tournament winnings will depend on the qualification given to such payments. There is withholding tax of 35% on certain gambling winnings, with a general tax exemption for winnings up to CHF 1 million. However, also here the tax authorities might argue that such exemption is for non-professional players only. If withholding tax is deducted, Swiss based players will get a refund once they declare the income in their tax return. Winnings from competitions in foreign countries might be subject to foreign duties, whereas a refund is only possible based on a potential treaty for the avoidance of double taxation.
  • Wealth tax: The wealth tax works the same as for an employee, so please refer to section I for the details.
  • Social Security: The independent player must file his insurance premiums and calculate his pensions by himself.
  • VAT: A self-employed person who generates an annual turnover of over 100’000 CHF may be required to register for VAT. However, so far it is not fully defined whether esports activities qualify as a supply of taxable services or as a supply of exempt sports, entertainment, or gambling services. This qualification depends mainly on how and to whom the respective services are provided. It is therefore recommended to clarify the situation with the Federal VAT Authorities.

As an independent, a player naturally has a lot more freedom in what he does and how he plans his work, but it does have some disadvantages, namely that he must take care of all his accounting by himself, unless he hires someone. He also must make contributions to his pension and must make sure his insurance premiums are up to date. It usually is strongly recommended that the self-employed person opens a separate bank account in which income and expenses resulting from his activity will be kept, to preserve the clear difference between what is professional and what is private.

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