Expert Column

Miquel Terrasa, Partner, KPMG, Spain on \"Taxation of Professional Football Players in Spain\"
Taxation of Professional Football Players in Spain

With regard to personal income tax, under the provisions of the Workers’ Statute Law and Royal Decree 1006/1985, the relationship between a professional football player and the club that owns his federative rights is a special employment relationship in which professional athletes are defined as those who, by virtue of an ordinary relationship, voluntarily engage in sport for and within the organisational and managerial scope of another taxpayer, namely a club or public limited sports company (Sociedad Anónima Deportiva) in exchange for a specific remuneration.

Thus, all – regular or sporadic – remuneration that a football player receives from the club or sports company to which he renders services, as consideration for effective performance derived from the contractual relationship linking him to the club or company, shall be considered as employment income for personal income tax purposes and shall be subject to taxation in Spain at the appropriate marginal tax rate, which in certain Spanish regions amounts to 56 percent of said income.

For purposes of determining net employment income, the only expenses considered deductible under Spanish domestic legislation are Social Security contributions payable by the player and certain minor contributions. However, the lawmaker did foresee the possibility of raising the ceiling on pension plan contributions, setting a limit for professional, high-level athletes of Euros 24,250 per annum.

Simultaneously to the aforementioned employment income, footballers are entitled to receive the investment income regulated in article 25 of the Personal Income Tax Law (hereinafter, PITL) arising from the receipt of interest and dividends, income from capital transactions, etc.
This kind of income also includes that derived from the assignment of image rights to third parties for subsequent direct or indirect exploitation. Thus, in the world of football it is common practice for players to assign their image rights to a company whose corporate purpose consists of exploiting the aforementioned rights vis-à-vis third parties. This assignment, which must be genuine and remunerated at its fair market value, shall constitute a source of investment income for the player and shall be taxed as part of the general component of taxable income for personal income tax purposes at the appropriate marginal tax rate.

Until we hear to the contrary, this corporate structure has the approval of the Spanish lawmaker (article 92 of the PITL, 85/15 rule), which has regulated its functioning in situations where the assignee company sub-licenses the aforementioned image rights to the club or public limited sports company with which the player has an employment relationship. Thus, the lawmaker’s view is that if the remuneration paid by the club to the assignee company does not exceed 15 percent of all income received by the player (employment income plus consideration received for assignment of his own rights to the company), this amount should not be taxed as employment income for purposes of the football player’s personal income tax.

Without prejudice to the foregoing, income earned by the player from the management and exploitation of image rights may also be considered employment income or, failing that, income from economic activities. Therefore, employment income shall be deemed to exist when exploitation is linked exclusively to the start of an employment relationship, when the player assigns his image rights directly to the club or else when – as mentioned previously – having sub-licensed his rights to the club through a third-party company as a vehicle, the requirements set out in the aforementioned 85/15 rule are not met.

Conversely, it will be considered income from economic activities when the player manages and exploits image rights, whether his own and/or those of others, by personally organising productive and human resources, or one of these types of resources, for his own account for the purpose of intervening in the production or distribution of goods and services related, in this case, with the sale of the image rights.

These types of income also apply to football players who are not tax residents in Spain and who are therefore subject to taxation there under the limited taxation regime, paying tax at the standard rate of 24.75 percent.

Notwithstanding the above, the most interesting speciality foreseen by the lawmaker to attract high value added human capital – at least in football terms – is the implementation of the special regime applicable to workers seconded to Spanish territory, better known as the Tax Regime for Inpatriates or Beckham Law. Under this regime, workers seconded to Spanish territory are authorised, provided several requirements are met (to not have been resident in Spain in the ten preceding years, effective performance of work in Spain, express and certifiable notification of the choice of that regime, receipt of foreseeable income not exceeding Euros 600,000 per annum, etc.), to pay tax only on income obtained in Spain at the tax rate provided for by Non-Resident Personal Income Tax Law (hereinafter, NRIT) (24.75 percent) during the year in which tax residence in Spain is obtained and the following five years.

Therefore, this diversity of income and, particularly, the high geographical mobility of football players, make it advisable to seek legal and tax advice for tax and asset planning purposes in connection with the interests of these players in Spain, placing special emphasis on arrival and departure from the territory to minimise the potential tax impact thereof, and on the use of specific financial and savings products (i.e. hiring a life insurance with deferral capital) to allow deferral of the income to be earned in the course of the players’ professional activity, while also providing a degree of asset protection that is very useful, looking ahead at future retirement from their respective professional careers.