Personal income tax and military levy’s taxation of income in the form of winnings (prize) received by the taxpayer (player) from participation in gambling game, including through the Internet

Press service of the State Tax Service of Ukraine, published 03 August 2023 at 17:18 Chapter: News

Legal basis for state regulation of economic activity in the organization and conduction of gambling games in Ukraine is defined by the Law of Ukraine № 768-IX as of 14.07.2020 "On the state regulation of activities regarding the organization and conduction of gambling games" (hereinafter – Law № 768).

Part 1 of Article 1 of Law № 768 defines concepts used in the Law № 768, namely:

winnings (prize) are funds, property, property rights that are subject to payment (issuance) to player in case of winning in gambling game according to the published rules for conducting such gambling game.

Part 1 of Article 12 of the Law № 768 stipulates that in order to control activities of gambling organizers, monitoring operation of gaming equipment and ensure players’ rights, the State online monitoring system has being created.

Herewith, Part 2 of Article 23 of the Law № 768 stipulates that online system of the gambling organizer must ensure recording of every operation of accepting a bet, paying (issuing) winning (prize), making payment and other operations related to the organization and conduction of gambling games, data protection against loss, distortion, forgery, destruction, copying, unauthorized access and any other third-party (unauthorized) interference to online system of the gambling organizer.

Payment of bets, refunding of funds deposited by players for participation in gambling games via the Internet, payment of winnings to players are carried out in the non-cash form through the online system of organizer of gambling games on the Internet, taking into account provisions of the Law № 768 and the Law of Ukraine "On prevention and counteraction of legalization (money laundering) proceeds of crime, financing terrorism and financing proliferation of weapons of mass destruction" (Part 9 of Article 24 of the Law № 768).

Individuals’ income taxation is regulated by Section IV of the Tax Code of Ukraine (hereinafter – Code), according to Sub-paragraph 163.1.1 Paragraph 163.1 Article 163, of which the resident’s taxation object is the total monthly (annual) taxable income.

Sub-paragraph 164.2.8 Paragraph 164.2 Article 164 of the Code stipulates that income in the form of winnings, prizes are included in the total monthly (annual) taxable income of the taxpayer.

Taxation procedure of winnings and prizes is determined by Paragraph 170.6 Article 170 of the Code, according to Sub-paragraph 170.6.3, income of which taxation in the form of winnings and prizes, other than lottery winnings (prizes), is carried out in the general procedure established by the Code for incomes that are finally taxed at the time of their accrual, at the 18% rate, specified in Clause 1 Paragraph 167.1 Article 167 of the Code.

Income, specified in Paragraph 170.6 Article 170 of the Code, is finally taxed at the time of their payment at their expense (Sub-paragraph 170.6.5 Paragraph 170.6 Article 170 of the Code).

In addition, the specified income is subject to the military levy taxation (Sub-paragraph 1.2 Paragraph 161 Sub-section 10 Section XX "Transitional provisions" of the Code).

Military levy tax rate is 1.5 percent of taxation object, defined in Sub-paragraph 1.2 Paragraph 161 Sub-section 10 Section XX "Transitional provisions" of the Code (Sub-paragraph 1.3 Paragraph 161 Sub-section 10 Section XX "Transitional provisions" of the Code).

Accrual, withholding and payment (transfer) of the personal income tax and military levy to the budget is carried out according to the procedure established by Article 168 of the Code.

Taking into account above specified and also taking into account the fact that winnings (prize) are funds that are subject to payment (issuance) to the player in case of winnings in gambling game the entire amount of funds paid out is subject to the personal income tax and military levy (is recalculated) to individual.

At the same time, withholding and payment (transfer) of the personal income tax and military levy to the budget by the business entity – organizer of such games is carried out during payment of the specified funds at the expense of individual, regardless of the form and method of payment of such funds.