There is a time in the professional career of an athlete that he may have to move to a team in a different country. Naturally, a player moving abroad has to face a number of challenges when settling and adjusting to the new reality of things. A new culture, a different language and the change of employer and colleagues are just a few of the things that players have to face when signing playing contracts in foreign countries.
In addition, the Money Smart Athlete has to understand what kind of tax liability may arise from his playing contract, both in his country of domicile and the country where he is employed.
A common mistake that many athletes make, is believing that their tax obligations end by paying taxes in the country where they are currently employed. You should take note that you must always consider the tax laws of both your country of citizenship and your country of residence when employed and earning money abroad.
Your country of citizenship or domicile, is the country where you come from. Your country of residence is the country where you currently live in. In most countries, in order to be considered as a resident you have to live there for a period over 183 days within a calendar year.
There are four different ways through which countries apply taxation in terms of residency/citizenship and these are:
- Taxing both their Citizens and Residents on their Worldwide Income no matter where they live (for example the United States)
- Taxing their residents on their worldwide income (for example the United Kingdom)
- Taxing their citizen residents only on their worldwide income and not the foreign residents of their country (in the case of a non-dom tax regime)
- Taxing their residents on their local source income but not on their foreign source income (territorial tax system)
There are also a few countries which have specific regulations providing tax incentive packages to foreign sports players moving into the country. These incentive packages usually differ from the country’s standard tax regulations, like the ‘Beckham’ tax law of 2005 in Spain. The so called ‘Beckham law’, basically allowed foreign employees living in Spain to be taxed at the rate of 24,75% instead of a progressive tax scale ranging from 24% up to 43%.
So, it is quite important that you are aware of the tax treatment of your earnings in both your country of citizenship and country of residence. If for instance, you are a US Citizen, or a US green card holder, you have to consider that even if you are a resident of another country you still have to file a tax return in the U.S. and pay any applicable taxes.
It is also vital to make sure that you maintain records of the following:
- Official pay slips
- Official Earnings Statement and Tax Declaration/Tax Return
- Copy of your playing contract
- Proof of payment and invoices of any playing related expenses (such as agent fees)
By keeping a record of the above documents you make it easier for your accountant or tax consultant to prepare your tax return and take advantage of any deductions that will minimize your tax liability.
A common practice with team athletes, especially in Europe, is that social insurance contributions and income taxes arising from the playing contract are assumed by clubs and the athletes are paid on an agreed upon net amount. Therefore, an understanding of the tax treatment of their contracts and the allocation of the resulting tax burden is helpful to players during the course of contract negotiations with clubs.
Other income such as sponsorships, endorsement revenue, dividend income from companies etc, must also be taken into account when preparing and filing your tax return. Athletes are in the spotlight and they tend to have the attention of both the press and the Tax Authorities. Therefore, practices, such as having offshore companies and accounts which aim at hiding your income should be avoided, in order to steer clear of any penalties or criminal charges from the relevant tax authorities. In conclusion, it is vital that you get assistance from an experienced tax consultant who will advise you how to handle the different tax obligations which may arise when you sign a sports contract abroad.
If you are a sports professional, playing abroad and wish to receive more information on international taxation matters that may affect you, please get in touch via e-mail at [email protected].
