Tax Laws For Non Residents Professional Athletes

INTRODUCTION

Top level athletes competing in various sports earn millions of dollars in wages. Just like a normal wage earner, they are entitled to pay their dues to the government. Earning extraordinary wages also leads to extraordinary tax payments. Cristiano Ronaldo –a top level athlete decided to join Juventus F.C., one of Italy’s leading football clubs. Ronaldo signed a four-year contract with Juventus, earning a net annual salary of roughly € 30 million ($ 35 million), which means, on the basis of current Italian marginal tax rates, a gross salary of € 55 million ($ 64 million). In this respect, Italy’s recent tax law changes have influenced many athlete’s relocation to Italy.

ITALY

The Italian Budget Law of 2017 introduced a significant tax incentive regime for high net worth individuals who wish to relocate to Italy. With the introduction of a new article in the Italian Income Tax Act, article 24-bis, certain “new-resident” taxpayers who relocate to Italy may opt for a yearly € 100,000 flat tax on their foreign-source income.

Italy’s new tax system is particularly attractive to professional athletes. Professional footballers who signed a sports performance contract with an Italian football club are regarded as employees of the football club, and therefore, the income derived from his/her services is regarded as subordinate employment income. If the service is performed in Italy, the income is taxed in Italy. Therefore, it is regarded as income derived from Italy and is taxed at the ordinary Italian tax rate, which is excluded from the € 100,000 flat tax. If an athlete’s image rights are not addressed as part of the employment contract, the income that is attributable to the exploitation of the image rights may be categorized as “other income” under domestic Italian tax rules. If such income is related to assets located abroad or activities carried out outside of Italy, such income will be considered foreign income. For example, a football player’s payment received from an American sportswear company for a sponsored event in China that has nothing to do with the football player’s performance on the football team can be considered income from a non-Italian source. Alternatively, if the athlete’s image rights have been allocated to a non-Italian image rights company, the dividends paid by the company (that is, the image rights company that manages the athlete’s image rights) can be regarded as non-Italian source income by the foreign entity, absent a finding of abuse. Some athletes who appear to be affected by tax cuts (such as 50% of non-taxable income) may qualify for 70% non-tax recognition. At other times, it is necessary to understand the true nature of the income that professional athletes receive or other specific elements of the case to confirm the applicability of the tax benefit in question.

ENGLAND

From a tax perspective, the UK also offers a preferential tax system for residents who are not domiciled in the UK: the resident homeless system (“British RND”). Under the UK RND system, taxpayers requiring a tax’ remittance base’ are only required to pay UK tax when remitting income and capital gains outside the UK. Foreign income and earnings not remitted to the UK are not taxable in the UK. If a taxpayer has at least 15 UK tax residents in the last 20 UK tax years, they will be deemed to have settled in the UK for all tax purposes as of the 16th tax year in which they lived in the UK. United Kingdom: means a tax on foreign income and gains based on production (not only when this foreign income and gains are remitted to the United Kingdom), and a 40% inheritance tax in the United Kingdom on global assets that exceed the £ 325,000 threshold (subject to Certain spousal exemptions or charitable disposition).

Perhaps the most significant difference between the British and Italian systems is the complexity of the tax remittance base. For taxpayers with offshore investment accounts or structures, the rules regarding remittances can be burdensome to administer. Unlike the UK, Italy does not require taxpayers to perform special accounting treatments or report foreign source income or income remitted to Italy.

SPAIN

Like England, the Spanish League also has a reputation for being a highly entertaining soccer league. From a tax perspective, Spain also offers preferential tax incentives for new taxpayers who transfer their tax residence to Spain. In fact, according to the so-called Beckham Law, new employees who have not been tax residents in Spain in the last 10 years can enjoy preferential taxation during the first six years if they move to Spain under a contract of I work with a Spanish employer. The treatment has lived in Spain for many years. More specifically, the maximum marginal tax rate for dividends, interest and capital gains is 23% (if it is greater than 50,000 euros), while the tax rate on earned income is 24%, up to a maximum of 600,000 euros, and the excess tax rate is 45%.

INDIA

Section 115BBA deals with income earned by non-resident athletes from participating in any game (except winning a game subject to 115BB tax), advertising or contribution items related to any game or sport in India. Income will be taxed at a rate of 20%.

As per section 194E of Income Tax Act, TDS on payment to non-resident sportsmen shall be deducted @ [20% + surcharge if applicable + health and education cess of 4%] at the time of credit or payment whichever is earlier. Non-resident athletes can avoid double taxation under a double taxation agreement. Non-resident athletes normally live outside India but earn income in India. In this case, income earned in India may be taxed in India and your country of residence. This means that they must pay taxes on the same income twice. To avoid this, the Double Taxation Avoidance Agreement (DTAA) was introduced.

As per Article 18 of the said treaty, income derived by a resident of USA as an athlete, may be taxed in India, if the amount of the net income derived by such entertainer or athlete from such activities (after deduction of all expenses incurred by him in connection with his visit and performance) exceeds $ 1,500 or its equivalent in Indian rupees for the taxable year concerned. If the income exceeds $ 1,500, then the full amount will be taxable in country of performance.

Author: Tarsh Khanna – a student of BBA.LLB (Hons) of Symbiosis Law School (Pune), currently an intern at Khurana & Khurana, Advocates and IP Attorneys.  In case of any queries please contact/write back to us at sudhanshu@khuranaandkhurana.com.

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