While the Treaty on the Functioning of the European Union has emphasized the importance of promoting sports and its specificities, what about the tax treatment of income earned by athletes?
Athletes are indeed required to participate in competitions, races, or matches around the world, and therefore receive various forms of remuneration from multiple jurisdictions. They also tend to move frequently, driven by contract signings with sports clubs, and thus regularly change their place of residence, which has implications for the taxation of their income and also the earnings from their image rights(1).
Many athletes residing in the Principality of Monaco are required to train or compete abroad, which raises the question of the fiscal implications. In this article, we will examine the case of the neighboring countries of the Principality: France and Italy.
In order to determine in which countries athletes will be taxed, it is first necessary to establish their tax residence.
I. The Difficult Determination of the Tax Residence of Athletes
As we mentioned earlier, determining the tax residence of athletes can be complicated. The concept of residence depends on the regulations of each country. We will first consider France, Italy, and the Principality of Monaco.
Conditions for Tax Residence in France ?
In France, Article 4.B of the General Tax Code (CGI) lists the conditions for tax residence. According to this article, a person is considered a French tax resident, regardless of their nationality, if they meet one of the following three conditions:
- The person has their home in France, the usual place of residence for their family (spouse and children), or they have their main place of stay, meaning they spend more than 183 days per year in France.
- The person carries out their professional activity, whether salaried or not, in France, except for ancillary activities.
- The person has their economic interests centered in France, meaning the place where they have their business headquarters or make their main investments.
These criteria are alternative and not cumulative.
Thus, a person living in France with their family, whose children attend school there for more than 6 months, will be considered a French tax resident. If not, the country where the person carries out their profession will be considered. This last criterion can be difficult for an athlete who practices their sport in multiple countries.
In the absence of this, it must be determined whether the athlete has their center of economic interests in France, which is often the country where they earn their main income. This is particularly true for professional sports competitions that generate significant wealth creation. The location of the competition is then decisive in determining how the athlete's remuneration will be taxed, regardless of their place of residence.
The existence of one of the three criteria in Article 4B is sufficient to determine tax residence in France. The tax authorities have an in-depth control over the private and professional life of the person.
To analyze an individual’s tax situation, the French and foreign bank statements of the taxpayer may be examined. This can be supplemented by the right to request information from online businesses (e.g., delivery location of online orders)(2).
It can be difficult to define the concept of "home" when the person is, for example, single with no family. In such cases, the number of days spent in each country may be counted.
How to get the Italian Certificate of Residence ?
In Italy, the rules for obtaining residence were as follows:
- Residence in Italy for at least 183 days per year,
- Registration in the resident population register,
- Residence according to the Civil Code.
Since a reform in 2024, the criteria have been clarified:
- Residence in Italy for the majority of the year, including fractions of days,
- Residence according to the Civil Code,
- Domicile within the state where the person is physically present.
It is specified that domicile refers to the place where a person’s personal and family relationships are mainly developed.
- Registration in the resident population register (anagrafe) for the majority of the fiscal year.
These criteria are alternative; the existence of at least one is sufficient to determine Italian residence.
Establishing residence in Italy requires applying for a residence permit, certificato di residenza, which is issued at the local municipality. This certificate is valid for 5 years.
Before applying, it is also necessary to request a codice fiscale from the local Agenzia delle Entrate.
Non-EU citizens wishing to stay in Italy for more than 90 days must also obtain a long-term visa. After five years of continuous residence, it is possible to apply for a long-term residence permit.
And how to get the Resident Card in the Principality of Monaco ?
Many athletes, both active and retired, live in the Principality of Monaco, which is very attractive in terms of personal taxation.
To obtain the status of a Monegasque resident, an individual must apply for a resident card through the Public Security Department. The conditions for being a Monegasque resident are then examined.
Proof of financial solvency and good moral character is required. It must be demonstrated that the person has housing as a tenant or owner, sufficient financial resources (e.g., a bank account with 500,000 euros), and a clean criminal record.
Monegasque authorities conduct regular checks to verify the reality of the individual’s residency (e.g., checking electricity consumption).
The tax residency status of the athlete will depend on obtaining a fiscal residence certificate, which is issued by the Monegasque authorities after verifying the applicant’s actual residence in the Principality.
But what happens in the event of a conflict of residence?
It is possible that, under a bilateral tax treaty, an athlete meeting one of the residency criteria of a country may be considered a resident of another country.
To resolve these conflicts of residence, the following elements, related to the concept of residence as stated in Article 4 of the OECD Model Tax Convention, will be taken into account:
- Permanent home and center of vital interests: the country where the athlete has their permanent home will be considered the country of residence. In the event of a conflict between two countries, the center of vital interests will be considered, i.e., the place where the athlete’s life interests are primarily situated.
- Personal and Economic Links: The country of residence is determined by the place where the athlete’s family resides.
- Habitual Residence: In the absence of a permanent residence or when the center of vital interests cannot be determined, the place of habitual residence will be considered. This is assessed based on frequency, duration, and regularity, even if the period does not exceed six months annually.
- Nationality: If no other criteria apply, the athlete's nationality may be considered.
- Friendly Settlement: Finally, countries can resort to friendly settlement to determine the athlete's tax residence when it is impossible to apply the above criteria.
II. Fiscal Consequences of Residence and Income Source Location
Although Monaco does not levy income tax, whether the income is earned within the Principality or abroad, and does not tax capital gains or wealth, how is taxation distributed in neighboring countries like France or Italy?
The principle is taxation in the country of residence.
The general rule, as in France, is that income derived from activities carried out in France or abroad is taxed in France.
Under Article 164B of the General Tax Code, income from "sports services provided or used in France" is subject to tax in France.
The issue arises concerning the taxation of non-resident athletes on income sourced from France.
Under French domestic law, income from French sources for non-residents will be taxed as if they were residents, on a net basis and according to the progressive tax scale. Most of the time, non-resident athletes are subject to a 15% withholding tax on a gross basis. Withholdings at source are not final. They are credited against the income tax owed by the athlete. In practice, when a non-resident athlete competes in France, their club often bears the withholding tax.
In Italy, the rule is the same for income earned within Italy. Such income is taxed in Italy, where it is received. Additionally, there is an Italian rule stating that the fiscal year applies for the entire year, even if a relocation occurs mid-year. This can significantly affect athletes who frequently move. They may want to schedule their move towards the end of the year to minimize double taxation.
The Issue of Double Taxation
Non-residents being taxed in the country of income receipt may result in double taxation on the same income.
Double taxation can occur both in the country of residence and in the country where the income is earned, with withholding tax applied.
Tax Treaties’ Response
To avoid double taxation, bilateral tax treaties provide mechanisms such as tax credits or exemptions.
When the athlete is tax-domiciled in France, all their income will be taxed in France, except for the tax credits provided under international treaties.
However, tax treaties can sometimes override these rules, deeming an individual tax-domiciled in another country.
Furthermore, the OECD model tax treaty applies the same rules to athletes as it does to performers and resolves double taxation issues in Article 17(1).(3)
Thus, under the first paragraph of this article, income received by a resident for activities performed in another contracting state as an artist or athlete is taxable in that other state.
This article thus allows for taxing sports services in the country of residence, even if performed in another country.
In certain cases, and despite the existence of tax treaties, double taxation may not be eliminated. In such cases, a mutual agreement procedure between the competent foreign authorities is provided.
To limit their taxation in their country of residence, athletes have long used service companies.
What is the “Rent a Star Companies” system?
To minimize taxation, athletes, like artists, have used the "Rent a Star Companies" system.
This involves creating a service company based in a country with favorable tax laws, which collects the athlete's income from foreign countries and pays the athlete a symbolic salary that is taxed in France.
The Implementation of French Anti-Avoidance Legislation
To combat this system, France has a powerful legislative tool, Article 155 A of the General Tax Code.
Under this article, France can tax athletes resident in France on income they receive through a foreign company. This bypasses the "Rent a Star Companies" system.
However, the taxpayer can argue the following:
- The reality of the service company and its activities,
- The reality of the services provided and the actual work performed,
- The reality of the remuneration received by the athlete.
What is Italy’s response to this system?
Italy applies the general abuse of rights rule under Article 10-bis of Law 212/2000, which sanctions any transaction or arrangement that seeks only to obtain tax advantages. Abuse of rights is constituted when the following three conditions are met:
- The receipt of an undue tax advantage,
- The absence of economic substance in the transactions,
- The primary purpose of the transaction is tax-related.
In Italy, companies and other legal instruments, such as trusts, are also monitored.
The Response of Tax Treaties
A second paragraph was added to Article 17 of the OECD Model Tax Convention to allow countries to tax the "Rent a Star Companies" on the athlete's income.(5)
This paragraph allows countries to tax the income attributed to these companies, not the athlete directly, in the contracting state where the athlete or artist performed their activities.
Thus, income received by the company may be taxed at source. The athlete will then be taxed on the amounts received through the company for their sports activities in that country.
Treatment of Related Income from the Exploitation of the Athlete’s Image
In addition to the usual athlete income, primarily salaries paid by clubs and federations, athletes increasingly receive money from their image rights.
This has become the largest portion of an athlete’s income, as they have become true "influencers." The increasing use of athletes' images by brands has led to the rise of "sponsorship" contracts.
The question of how to classify these earnings has arisen: are they considered salaries or service fees?
An athlete’s image can be either collective or individual.
The French National Sports Collective Agreement (CCNS) of July 7, 2015, defines the concept of associated image as the "reproduction on any medium and/or by any means of the athlete's or coach's image, name, or voice..., associated with the image, name, emblems, and/or other distinctive signs of the employer..."
The minimum number of athletes and/or coaches whose image, reproduced on the same medium in an identical or similar way, constitutes a collective associated image, is set at 50% of the players on the field for the relevant sport. If this number is not an integer, it is rounded down to the nearest whole number.
If the number is less than the set limit, the image is considered individual.
The associated image can be either collective or individual.
It is collective when the image concerns 50% of the players on the field in the relevant sport (e.g., 7 players out of 15 in a rugby team). This image is automatically granted by the concerned players to their employer, which in this case is the club they play for.
The associated image is individual when it involves fewer than 50% of the players on the field. In this case, the player may exploit their image with the club’s agreement.
The image can be individual, meaning not tied to the employer. In this case, the employee is free to exploit their image, provided they inform their employer and do not harm its interests.
In practice, athletes sign:
- Sponsorship or endorsement contracts, where the athlete’s image is associated with a sponsor in exchange for financial support,
- Brand or influencer contracts, in which the athlete commits to various services or promoting a brand,
- Equipment contracts, requiring the athlete to wear certain gear during public appearances or sports events.
Taxation of Income from Exploiting a Sportsman's Image
Normally, income derived from the exploitation of an image associated with a club is taxed as wages and salaries.
However, for an image that is not associated with the club, it is necessary to distinguish whether it is a salary or a royalty, as this will have tax implications.
If the service is considered a royalty, it will be taxed as non-commercial income. Conversely, if it is considered a modeling contract, it will fall under the athlete's employment contract.
In practice, the determination depends on whether there is a subordinate relationship in the task performed by the athlete. If a subordinate relationship between the athlete and the club is demonstrated, it is considered a task related to the employment contract.
It has been reiterated that if a sponsorship contract imposes no additional positive obligations but only involves the assignment of rights for advertising purposes, it does not need to be reclassified as a modeling contract.
In contrast, a contract granting image rights to players that requires them to participate in events organized by the company would be treated differently.
This qualification has tax implications for the income derived from these activities.
Do Favorable Tax Regimes for Athletes Exist in Neighboring Countries?
III. Favourable Tax Regimes for Athletes
Although these provisions are not exclusive to athletes, both France and Italy have favorable tax regimes to attract sportspeople. These regimes include the "impatriation" regime and income smoothing.
In France
In France, Article 155 B of the General Tax Code allows for a favorable regime for foreign nationals recruited abroad by French companies.
Eligible individuals are temporarily exempt from income tax on foreign income from activities and foreign capital gains, up to December 31 of the eighth year following the start of their employment in France.
The "impatriation bonus," i.e., additional remuneration linked directly to professional activity in France, is also exempt from income tax.
This regime is available to individuals who have not been domiciled in France for the previous five years before assuming their role and who are domiciled in France from that point onward (except in cases of administrative tolerance).
However, this mechanism, which must be renewed annually, has limits. The taxpayer must choose between:
- Exemption of 50% of total remuneration (impatriation bonus and foreign-sourced income),
- Exemption of 20% of total taxable remuneration (excluding the impatriation bonus) for income earned abroad.
Under certain conditions, the following are also exempt: - 50% of foreign-sourced income from movable property,
- 50% of certain foreign-sourced intellectual or industrial property income,
- 50% of gains from the sale of securities and social rights abroad.
Furthermore, athletes who were not fiscally domiciled in France during the previous five years are subject only to the French Property Wealth Tax (IFI) on real estate located in France.
The impatriation bonus must be mentioned in the employment contract.
This bonus can be assessed using a flat-rate method, where the impatriation bonus is deemed to be a maximum of 30% of total remuneration.
This option for either the exemption of the impatriation bonus or the flat-rate 30% evaluation is irrevocable for the athlete, who must declare it when filing the first French tax return.
This favorable system applies only to the athletes themselves, not to their coaches or other staff.
In Italy
Italy has also introduced a system to attract professionals and researchers who have worked abroad.
This regime applies to individuals of Italian nationality or non-residents who decide to transfer their tax residence to Italy.
It is possible to benefit from a 50% tax reduction on employment income, capped at €600,000 per year, for those transferring their tax residence to Italy. To qualify, individuals must not have been tax residents in Italy for the three preceding tax periods.
Conditions for eligibility include:
- A commitment to reside in Italy for at least 4 years,
- The professional activity must take place in Italy for most of the taxable period,
- Workers must meet the qualifications or specialization criteria defined in Legislative Decrees 108/2012 and 206/2007.
This regime is not particularly suited to athletes.
However, Italy has introduced a "Res Non-Dom" program, which includes a flat tax scheme and an expedited visa process. This regime was modified by a decree on August 10, 2024, but remains attractive.
Thus, individuals with high incomes who transfer their tax residence to Italy can opt for a flat tax of €200,000 (doubled under recent reforms) on foreign-sourced income. This regime is valid for 15 years, unless revoked for non-payment of the flat fee.
As with the French impatriation regime, individuals must not have been residents in Italy during 9 of the 10 previous years before transferring their residence.
The flat tax only applies to foreign income and gains, whether or not they are repatriated to Italy. Income from shares in foreign companies and investments outside of Italy is considered foreign income.
However, Italian-sourced income must be declared and is taxed in Italy.
Additionally, if the flat tax is chosen, it is not possible to apply the tax credit that avoids double taxation between two countries.
This is particularly important for individuals moving from France, as France does not recognize the flat tax scheme.
To mitigate the consequences of this exclusion, the "opt-out" technique can be used. This allows the person opting for the flat tax regime to waive its application to a specific country.
Conclusion
Determining the tax residence of athletes can be very difficult, as they often move and participate in competitions worldwide. This leads to scattered income sources and multiple places of taxation.
We are available to assist you in navigating these various regulations and inform you of any potential tax consequences.
However, it is important to remember that while tax considerations play a significant role in choosing a place to live, this choice increasingly depends on the quality of life offered by a country, security, proximity to international airports and strategic geographic location, as Monaco offers.
(1) This question was the subject of a conference on March 8, 2024, titled "Taxation of Athletes in an International Context," the proceedings of which were published in the journal Fiscalité Internationale, 2-2024, May 2024, JFA Juristes & Fiscalistes editions.
(2) "Taxation of Athletes in an International Context," the proceedings of which were published in the journal Fiscalité Internationale, 2-2024, May 2024, JFA Juristes & Fiscalistes editions.
(3) Model Convention, Article 17(1), Artists and Athletes
Notwithstanding the provisions of Article 15, the income that a resident of one contracting State derives from personal activities carried out in the other contracting State as a performing artist, such as a theater artist, a film, radio, or television artist, or a musician, or as an athlete, is taxable in that other State.
(4) Article 155 A of the French General Tax Code (CGI): I. The amounts received by a person domiciled or established outside France in exchange for services or the commercial exploitation of rights attached to the image, name, or voice of one or more persons, the use of copyrights or related rights, or industrial or commercial property rights or similar rights, provided or granted by one or more persons domiciled or established in France, are taxable in the name of those persons: – either when they directly or indirectly control the person receiving these amounts; – or when they fail to establish that the person is predominantly engaged in an industrial or commercial activity other than that which gives rise to the payment of these amounts; – or, in any event, when the person receiving these amounts is domiciled or established in a foreign country or territory outside France where they are subject to a privileged tax regime as defined in Article 238 A.
II. The rules set out in I above also apply to persons domiciled outside France for services rendered in France or for rights that are exploited or used there.
III. The person receiving these amounts is jointly liable, to the extent of those amounts, for the taxes owed by the person rendering the services or granting the exploitation of the rights or the use of the rights mentioned in I.
IV. When the person domiciled or established outside France remits all or part of the amounts taxed according to the provisions of I to the person domiciled or established in France, the tax corresponding to that income is deemed to have already been paid.
(5) Model Convention, Article 17, Artists and Athletes
- When the income from activities that a performing artist or an athlete personally carries out in that capacity is attributed not to the artist or athlete but to another person, such income is taxable, notwithstanding the provisions of Article 15, in the contracting State where the activities of the artist or athlete are performed.