If you want to test yourself against the best in the world, you have to compete all over the planet. But how can you make sure you don’t take your eye off the ball when it comes to tax?
For professional athletes, the playing field extends far beyond the stadium. Sports people routinely compete across borders as part of their progress to test themselves against the best. Some sports are constantly ‘on tour’ (think golf or tennis) while in others, sports people want to compete in different leagues (such as La Liga or the Bundesliga).
And that can create a complex web of tax implications.
The threat of double taxation: A key concern is the risk of double taxation which occurs when an athlete’s income is taxed by both the country where they play (source country) and their country of residence. For instance, a footballer playing in England (source) might also be a resident of Spain (residence). Income earned in England, from commercial deals for example, could be taxed there, while Spain might also tax the athlete’s worldwide income, including those earnings from England.
Residency rules and tax treaties: Determining tax residency is crucial. Most countries define residency based on factors like the number of days spent physically present within a year. A footballer playing a full season in England, for instance, might be considered resident for tax purposes, even if their family remains in Spain.
Tax treaties, signed between countries, can offer relief from double taxation. These treaties typically specify which country has the primary right to tax certain types of income. A treaty might state that an athlete’s salary is taxed only in the source country if their stay is less than a specific number of days.
Endorsements and image rights: Sports people often have income sources beyond their salaries. Endorsement deals and image rights can be significant earners. The tax treatment of these can vary depending on the location of the endorsement deal and the athlete’s residency. For instance, an endorsement deal negotiated in the US might be taxed there, even if the athlete resides elsewhere.
What to do: Strategies for minimising tax burdens
There’s a number of options an athlete, or their advisors, can take:
- Careful residency planning: Understanding residency rules and strategically managing time spent in different countries can be crucial.
- Tax treaty optimisation: Utilising tax treaties to ensure income is taxed only in the most favourable jurisdiction.
- Structuring income streams: Structuring endorsement deals and image rights to be taxed in more favourable locations.
- Tax credits and deductions: Taking full advantage of available tax credits and deductions in both residence and source countries.
It’s also a constantly evolving world – we can keep an eye on the international changes in tax regulation, both inside countries and cross-border agreements, and make sure that you’re optimising your earnings, while remaining tax compliant. If your sporting career takes you overseas, give us a call and our experienced team can give you the advice you need.
