With last year's global financial downturn, those countries that have legalized online gambling came to heavily rely, unsurprisingly so, upon the revenues generated from legal online casinos and the taxes they generate.

Most countries that allow legal online gambling impose some sort of gambling tax on either the gambling companies or the players making the winnings. How the tax is levied differs from country to country. Some countries choose to levy the tax on individuals bets (winnings, actually) while others (such as the United Kingdom) calculate it based on the gross profits or revenues of the casino operator.

Countries such as Malta, Gibraltar, Antigua and Costa Rica have traditionally offered competitive tax regimes to attract online betting operators to set up business in their jurisdiction and stimulate the economy.

Following the success of many European Union countries, the United Kingdom is set to overhaul its tax regime for online gambling. A number of British-based betting operators such as William Hill had voiced their frustration with the UK tax policy and threatened to relocate to offshore tax havens.

The UK represents the largest online gambling industry in Europe but many other European countries are leading the way in finding new and innovative approaches to regulation and tax. Italy, for example, pressured online poker rooms and sportsbooks to take up regulatory licenses and pay tax which significantly boosted the country's revenues.

On the other side of the Atlantic, in stark contrast to the United States, gambling winnings in Canada are completely income tax free. Thus, the bottom line is that whether you need to pay tax on your gambling prizes or not depends on where you are playing.