Spain’s New Stance on Poker Tax

Today marks the first day of the EPT Barcelona poker series. Although the tournament is poised to see record numbers, there are still a number of players concerned over the new tax guidelines announced by the Spanish Ministry of Finance. Poker players are now recognized as professional sportsmen (akin to billiards and chess players) and owe tax on any winnings in Spain. Residents are subject to a 19% tax and nonresidents are subject to a 24% tax. This tax applies to both professional and recreational players.

This is a clear drawback for players who are residents of countries that do not tax gambling winnings. But, if you are a U.S. citizen or resident, this doesn’t impact your net tax position too drastically. It should be noted, that there is a tax treaty between the U.S. and Spain. This should exempt U.S. citizens from Spanish taxation, but it is unclear if this will be honored by Spain. If the treaty doesn’t apply for some reason, how would it work?

U.S. residents are subject to U.S. tax on their worldwide earnings. This includes gambling winnings in foreign countries (even if there is no tax assessed on winnings in that country). To prevent double taxation, U.S. residents receive a credit for any tax paid to another country.

Let’s say I travel to the United Kingdom to play in a tournament series and win $15,000. Since gambling winnings are not taxable in the United Kingdom, I am not required to file a tax return nor pay any tax in the U.K. When it comes time to file my U.S. tax return, I will include $15,000 of winnings and pay tax at my marginal U.S. tax rate. I will not receive a Foreign Tax Credit, as no tax was paid to the U.K.

Now let’s say I travel to Spain and win $15,000. As a nonresident, I could owe $3,600 (24%) in tax to Spain. When it comes time to file my U.S. tax return, I will include $15,000 of winnings and report that I already paid $3,600 in tax to Spain on these winnings. To prevent double taxation, I will receive a Foreign Tax Credit as a result of the tax paid.

It is still unclear how Spain plans to assess this tax. Will players need to file a Spanish tax return? Will they simply honor tax treaties? Will the tax be remitted using a simplified system? Will the tax be assessed on gross or net winnings? Casinos have confirmed they will not withhold any tax from winnings, but Spain has made it clear the tax rates apply to all poker players.

One thing we know for certain, Spain is known for strict tax compliance, so it is important to monitor the situation to see if the Ministry of Finance provides further clarity on filing obligations.