Taxing the Virtual Arena: The Swiss Approach to Esports Athletes

Esports Athletes Residing in Switzerland

The gaming community in Switzerland is thriving and continues to grow. However, merely playing video games doesn’t qualify one as an esports athlete. The defining factor is participation in specialized competitions, either individually or as a team.

Self-Employed Activity

Income Tax

If an esports athlete isn’t employed by an eSports organization and earns income from gaming (prizes, bonuses, other compensations), it’s essential to determine if they are liable for income tax due to self-employed activity. This is typically the case if the player has a profit motive, operates professionally and systematically, organizes their activities independently, and intends to pursue esports long-term. If gaming provides a significant portion of their livelihood, it’s likely considered a profession rather than a hobby. As a result, the income from gaming is subject to income tax and social contributions. However, if the player only incurs losses from gaming, it’s generally considered a hobby, exempting them from additional tax or social contribution obligations. One advantage of being recognized as self-employed is the ability to deduct expenses such as equipment, travel, accommodation, and entry fees from taxable income. Furthermore, losses from previous years can be claimed for tax purposes for up to seven ea

Value Added Tax (VAT)

If gaming transitions from a hobby to a profession, it might trigger VAT obligations. If an eSports athlete consistently earns income under a specific name (e.g., a nickname), they might be considered a business entity for VAT purposes. If their annual revenue exceeds CHF 100,000 from taxable services, they must register for VAT. Determining the location of the service provided by the eSports athlete can be challenging, especially for VAT purposes.

Employed Activity

Employment by a Swiss esports Organization

If an eSports athlete is employed by a Swiss organization (e.g., FC Basel), the organization, as the employer, is responsible for social insurance contributions. Esports athletes residing in Switzerland and employed by such organizations are taxed on their global income.

Employment by a Foreign Esports Organization

Given the nascent stage of esports in Switzerland, it’s plausible for a Swiss-residing esports athlete to be employed by a foreign eSports organization. In such cases, the athlete is subject to the Swiss social contribution system and is categorized as ANOBAG (employee without a contributory employer). ANOBAGs are unique concerning Swiss social contributions. If the foreign employer doesn’t handle these contributions, the ANOBAG is responsible for paying them in full. They must also register with the AHV compensation fund in their Swiss place of residence.

Participation in Foreign Esports Events

If esports athletes participate in foreign events (virtually or physically) and earn starting or prize money, they are generally taxable in Switzerland based on the global income principle. However, there’s some ambiguity regarding the taxation of such income from an international perspective.

Esports Event Organizers

Withholding Tax

For event organizers, determining whether esports athletes qualify as “athletes” for withholding tax purposes is crucial. If they do, organizers must deduct withholding tax for payments to participants residing abroad.

VAT

It’s essential to determine whether eSports events are considered sports events or cultural services for VAT purposes. Currently, the Federal Tax Administration doesn’t officially recognize esports as either sport or cultural performance. Therefore, ticket prices and entry fees might be subject to VAT if the event organizer is VAT-liable.

Conclusion

In essence, the general principles of Swiss tax law apply to the taxation of Swiss esports athletes and event organizers. However, due to the ambiguous classification of esports and its interpretation from a national and international tax perspective, several questions remain unanswered, especially concerning VAT, withholding tax, and international tax law. These issues will need resolution in the future.