The Law on Sports of the Republic of Serbia (hereinafter: the “Law”) defines sport as an activity of special importance for the Republic of Serbia. Also, according to the Law, sport is a part of physical culture, which includes every form of organized and unorganized performance of sports activities by individuals and legal entities in the sports system, with the aim of satisfying human needs for creativity, affirmation, physical exercise and competition with others.

There are several types of athletes defined by the Law, and for the purpose of topic “taxation of the income of athletes” we will focus on amateur and professional athletes.

An amateur is an athlete for whom earning is not the goal of engaging in sports activities and does not engage in those activities as a profession. A professional, on the other hand, is an athlete who is engaged in sports activity as the only or primary occupation, but also any other athlete who has the professional status in accordance with the sports rules of the competent international sports federation.

Modalities of work engagement tax treatment of income

Tax treatment of the income of athletes and sports experts depends on the nature of their engagement, i.e. whether they are employed by the payer of income or not.

Sports club has no legal obligation to conclude an employment contract with an athlete. The club can do this if there is a will of both, the club and the athlete, but it can also hire the athlete in another way.

Therefore, in accordance with the Law, athletes can be engaged in a sports association or club without employment. In this case, the remuneration for engagement is provided on a basis of a sports contract or eventually a contract on a scholarship for a juvenile athlete for their improvement. This means that an amateur athlete may conclude a sports contract with the sports association for which he will compete at competitions, in which case such engagement has the status of non-employment.

Also, when an athlete already concludes a sports contract, he cannot simultaneously conclude an employment contract with a sports organization and vice versa.

If the athlete and the club opt to conclude an employment contract, the professional athlete establishes an employment relationship with the club for a definite period, and up to five years at the most. At the end of that period, professional athlete can re-sign the contract with the same or another sports organization.

A professional athlete has all rights, obligations and responsibilities from the employment in accordance with the Serbian Labor Law. Therefore, the salary of a professional athlete is taxed according to the same principle as the salary of any other employed persons. However, in the employment contract of a professional athlete more detailed provisions can be found regarding other remunerations that do not have the character of salary, bonuses/awards, working time, vacations and leaves, as well as other rights and obligations towards the sports organization, because of adapting to strict regime of physical preparations and competitions.

On the other hand, income of amateur athletes who are not employed by the payer is not considered as salary and is taxed in accordance with the special rules of the Serbian Law on Personal Income Tax (hereinafter: the “PIT Law”). Such incomes are:  

  • fees for the conclusion of the contract (transfer, etc.);
  • fees for the use of the athlete’s images;
  • financial aid for top athletes with special merits;
  • scholarships to top athletes for their improvement;
  • monetary and other prizes;
  • national recognitions and awards for special contribution to sport development and affirmation;
  • fees and prizes for engagement of sports experts, i.e. experts in sports (coaches, judges, delegates, etc.);
  • other types of income beside the income from the previous items.

In this case, the payer of the income is obliged to calculate, suspend and pay withholding tax on the athlete’s income at the rate of 20%. The tax base is made up of gross income less standardized expenses, which are recognized in the amount of 50%. In addition to income tax, there is also an obligation to pay contributions for mandatory social insurance. It should be borne in mind that there is no obligation to pay contributions for health insurance for an athlete who is health insured on some other basis.

Concerning the sports experts, the tax regime of their income is the same as the tax regime of athletes’ income, since experts can also establish an employment relationship with an organization in the field of sports or be engaged in another way. In this regard, a sports expert can establish an employment relationship by concluding an employment contract or be engaged without employment based on a professional engagement contract.

Tax treatment of fee paid to a foreign athlete – a participant in a competition in Serbia

The tax treatment in this case depends both on the type of fee and on the method of payment, i.e. whether it is paid directly to the athlete or through an intermediary.

It is often case in practice that the payment of monetary prize for the result achieved in the competition, as well as the special appearance fee, is done through an intermediary – a certain non-resident legal entity. That entity can be an agency that represents an athlete or an international sports organization, which collects funds and then pays the prize fund to athletes based on the results achieved.

In this regard, for e.g. when a sports association from Serbia – the organizer of an international competition, pays a fee to a non-resident legal entity – a foreign sports agency that represents an athlete, based on the issued invoice for the athlete’s appearance in the competition, such fee is subject to withholding tax. If such fee belongs entirely to the agency, it will be taxed only in accordance with the provisions of the Law on Corporate Income Tax (hereinafter: the “CIT Law”). Therefore, the sports association from Serbia is obliged to, submit a tax return within three (3) days from the day of the payment upon the invoice, and to calculate, suspend and pay corporate income tax by withholding at the rate of 20%. However, if part of the invoiced amount is separately stated as the athlete’s income, which is subject to personal income tax, in that case only the remaining part of the invoiced amount (which belongs exclusively to the agency) is subject to withholding tax in accordance with the CIT Law. On the part of the invoiced fee that belongs exclusively to the athlete, the sports association from Serbia will be obliged to calculate, suspend and pay personal income tax by withholding in accordance with the rules of the PIT Law.

The same liability and principle of calculation and payment of withholding tax also exists in the case when a resident legal entity transfers money, i.e. a prize fund, to an international sports organization which pays out monetary prizes to athletes (competition participants) based on the achieved results.

On the other hand, if a sports association from Serbia pays an appearance fee and/or a monetary prize for achieved result in a competition directly to a foreign athlete, tax treatment of such and similar payments differs from case to case. It depends on application of provisions of possibly existing international treaty on avoidance of double taxation (hereinafter: “DTT”), as well as the provisions of the PIT Law.

From the aspect of DTT, the provisions relating to athletes among most often provide that the income earned by a resident of a contracting state as a performer from the personal activities as an athlete in another contracting state (in Serbia) can be taxed in that state (in Serbia).

An exception exists on the condition that athlete’s activities are performed in Serbia within a cultural or sports exchange program approved by authorized bodies in both contracting states, in which case the income earned by a foreign athlete in Serbia is taxed only in the country of his residence.

Also, it should be borne in mind that DTT generally does not contain a precise definition of the term “athlete”. However, the Commentary on the OECD Model clears up doubts and points out that it does not only apply to participants in traditional sports events (runners, jumpers, swimmers) but also to golfers, jockeys, footballers, cricketers, tennis players or racing car drivers.

Therefore, concerning the tax treatment of fee received exclusively by the agency for organizing the athlete’s appearance in competition, such fee is outside the scope of application of DTT. However, any fee received by the agency on behalf of the athlete falls within the scope of DTT, which provisions then refer to the tax legislation of a particular contracting state.

In this regard, according to the PIT Law, tax treatment of appearance fee and monetary prize for the achieved result is different. Although the same tax rate of 20% is applied, in the first case 20% of standard expenses are recognized, while in the second case 50% of standard expenses are recognized.

Conclusion

Taxation of the income of athletes and sports experts depends on the modality of their engagement and at the same time the type of fee, as well as the method of payment thereof. Therefore, before any application of legal rules and possibly DTT rules, for the purpose of correct tax treatment of a certain transaction, a detailed analysis of relationship and interests of contracting parties, organizers and participants of a certain sports event/competition is necessary.

Author: Goran M. Ćiraković, attorney-at-law

Photo: Pexels