Income Taxation of Athletes and Tax Residency

When looking for ways to lower taxation, athletes often toy with the idea of changing their tax domicile. However, such a change is not possible for everyone and will only bring real savings to some. Find out under what conditions an athlete can benefit from a change in tax residency without unnecessary risk.

How to determine the tax residency of athletes?

Always look for specific rules for determining tax residency in double taxation treaties with the country in question. They are typically based on five model criteria. It is not necessary to look at all of them when making an assessment - once residency has been established on the basis of one, the other criteria are not considered.

The criteria for determining tax residence are most commonly:

Want to know more? Check out our article on how tax residency is determined. It contains more details on the criteria as well as practical examples.

Types of activities for which athletes earn income

In practice, a significant number of athletes receive remuneration for activities that are not necessarily just sporting performance. If such income is also from abroad, the tax treatment must always be assessed on an individual basis, taking into account the specific type of income, the countries involved and their specific double taxation treaties, etc.

Athletes commonly invoice some of the following activities:

• Sports performance: this income is most often realised in the form of "price money" for tournament competitions in individual sports, or in the form of a long-term contract with a club or organisation.
• Advertising: A typical example is an athlete who wears a brand's clothing, promotes its beverages, or cuts the ribbon at the opening of a new gym.
• Promotion of sport: If an athlete attends conferences or lectures at schools or sports clubs to talk about their experiences, history, victories, etc.
• Honorary Visits: Famous people sometimes act as honorary visitors, for example on the anniversary of their hometown, perhaps even moderating part of the event.
• Lecturing: Experienced athletes share their know-how in the form of courses and private lectures, showing participants how to train, how to eat, etc.

Benefits and risks of changing residency for athletes

Many athletes shift their tax residency to countries with lower tax burdens, so-called tax havens. Common reasons include:

• Lower to zero taxation of income;
• lower to zero social security and health insurance contributions;
• simpler tax systems;
• more favourable flat-rate taxes;
• more interesting social bonuses or tax rebates, which are not available in the Czech Republic.

On the other hand, there is also a risk. If the tax residency is challenged by the state authorities, the tax may be levied in the country from which the taxpayer left.

In the past, famous world sports personalities such as footballer Lionel Messi or tennis player Boris Becker have been hit in this way. This is why you should always carefully consider whether you actually pass the tax residency test according to the above criteria as you have stated in your tax return.

Case study: taxation of athlete's income

A Czech citizen works as a professional athlete in Italy, where he also rents an apartment. He does not have a permanent flat in the Czech Republic, he lives with his parents. He is therefore tax resident in Italy. However, he will travel to the Czech Republic in July and August for two events.

1/ Match played in the Czech Republic

In July, a match will be played in the Czech Republic with public participation. It is paid by SPORT s.r.o., to which the athlete will issue an invoice for CZK 100,000 for the match. The taxation of this activity should properly be as follows:

• the athlete notifies the Czech company that he is a tax resident of Italy;
• the match fee is taxed in the Czech Republic with a withholding tax of 15% (according to § 36 of the ITA);
• SPORT s.r.o. will therefore reimburse him CZK 85,000 and send CZK 15,000 to the tax office.

If the athlete requests a withholding certificate from the tax office and the Italian law allows him to do so, he can offset the tax of CZK 15,000 against his tax liability in Italy. This is only allowed to residents of the European Union and only for certain activities, which include sporting performances. Alternatively, he can file a tax return in the Czech Republic (under Article 36(7) of the ITA).

2/ Lecture in the Czech Republic

In August, the athlete attends a lecture in the Czech Republic where he advises the participants on how to exercise to stay in shape. The athlete again issues an invoice to SPORT s.r.o. for CZK 100,000. This time, however, the company pays him the full amount and he is taxed in Italy on the entire amount because it is income from lecturing activities, which falls under the category of supply of services (according to Article 22(1)(c) of the ITA).

Taxes? We'll sort it out for you!

Are you wondering what benefits a change of tax residency could bring you? Or do you have doubts whether you are taxing your income correctly? Contact us and together we will find the answers to your questions.

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