Athlete Financial Management 101: Dealing With International Taxation

The top leagues of various countries often select division 1 athletes through scouting agents. Thanks to their top-tier skills and sports IQ while playing the game, they are the prime choices of such leagues. The field of athletics may be incredibly popular, but only very few are born with the abilities and talents to get them to the top. Very rarely will a LeBron James or a Lionel Messi appear, and with these athletes being among the best of their sporting fields, they are landing millions of dollars in revenue. 

While many of these athletes are raking in tons of revenue, there is one concept that often gets overlooked, causing plenty of trouble. A few years ago, the Argentinian government pursued soccer superstar Lionel Messi due to tax evasion, a pressing issue that continues to be monitored today. The truth is, not many international sports superstars know much about taxation, as even the average worker has to struggle to understand the concept straight out of school. 

Athlete financial planning is essential to stay out of trouble, and here are some pieces of knowledge according to accounting services:

Putting Tax Into Perspective

Moving abroad for an athletic career is similar to working abroad, although the job is a rather unorthodox one. While you’ll meet people, take on a new regimen of training, and make international fame and fortunes, you won’t be exempted from tax. Depending on the country you find yourself in, you will still need to pay the taxes of your home country. Your taxes will likely be based on the location of your home club.

An example of this is when soccer players go to European clubs to compete. They will likely have taxes imposed by authorities based on their residency and source of income. This taxation means that wherever their club is located, they will need to file tax and liabilities even if their passports are from the United States. This is primarily based on the country where the sports club is based, as these have different rules and regulations regarding the matter. 

Residency Information

It is standard to tax professional athletes by their home country since they are still citizens subject to government laws and regulations. However, when competing with a club in another country, their earnings may be taxed in the club’s country. While this sounds a bit complicated, note that athletes can actually take tax credits for tax paid when filing their home country’s taxes. 

Sponsorships & Endorsements

The topic of sponsorships by brands and other endorsements are taxed separately. Athletes who receive excellent opportunities to have their own line of sports gear often make tons of money out of it, which is subject to another type of tax process. Since they receive it through a corporate entity, athletes receive less tax burden thanks to the structuring. These sponsorships can be very high-paying, making authorities scrutinize them even more. All of these require a proper set of arrangements they can easily justify in any case of conflict with the laws of taxation. 

Four Taxation Facts To Note

Taxation is complicated as it is, and athlete financial management will always make it a point to find accounting solutions to comply with the laws. There are four taxation procedures that various countries might employ in terms of residency and citizenship, which work through:

1. Taxing citizens and residents worldwide regardless of what their income is or where they live. (ex. The United States)
2. Taxing residents based on worldwide income and revenue. (ex. The United Kingdom)
3. Taxing residents on local income sources but not foreign income sources. (This is used in terms of territorial taxation mechanisms)
4. Taxing citizens only on worldwide income, but not the foreign residents of the country. (This happens with a non-domiciled tax regime)

Some countries have specific regulations built due to the strong presence of the sporting industry, such as Spain’s “Beckham” taxation law. Athletes who move around may benefit from checking the local tax jurisdiction of their home club each time to avoid run-ins with the law. 

Conclusion

While taxation is difficult, athlete financial management is a must, as ignorance of the law is never an excuse. Once you become an international athlete, you are subject to a different set of rules and regulations that you must learn and follow altogether. Otherwise, you risk run-ins with the authorities that can land you harsh penalties and ultimately end your career. 

Aaron Parthemer is a financial advisor who offers athlete financial management and planning, among other accounting services. For athletes who wish to make a legacy that surpasses the game, contact me for more information. Sign up on the website and receive a free guide on financial tips for athletes.