Leverage your professional sports experience in the world of business – part 2

05 May 2020

Are you a current or ex-professional athlete ready to make your move into the world of business?

Setting up your own business, whether that’s coaching, starting a consultancy or joining the international conference circuit, is an excellent way to leverage your professional sports experience.

In the second of our 2-part series, we consider the tax implications of working abroad, for example if you join the conference circuit. We also look at the application of the OECD Model Tax Convention, which provides guidance in the field of international double taxation, and important to understand if you are considering the international route.

Read on for advice from tax experts and sports superfans Chris Danes and Sunil Tailor on how to make your pull away from the world of sports as advantageous as possible.  

The global sports industry is worth over $73bn dollars, with 2020 predicted as being the year where women’s sports, esports and 5G/sports in the cloud, will be some of the trends dominating the market. This will provide many opportunities for current and ex-professional athletes to leverage their sporting experiences in the world of business, not only locally but globally too.

If you are considering a global route to business, it is important to understand international tax rules and how that may impact your business.

Generally, when sportspeople perform abroad, they pay income tax in two countries - in their country of residence on their worldwide income, and in the country of performance. To avoid double taxation, most countries divide the taxing rights of each jurisdiction.

The OECD Model Tax Convention provides guidance in the field of international double taxation, and below we break down the general principles:

  • Article 7 - companies and self-employed individuals should only pay income tax in their country of residence, unless they have a permanent establishment in the source country
  • Article 15 - employees should pay income tax in the country where the duties are performed unless they remain employed in their country of residence, receive their salary from that employer and work less than 183 days in the other country
  • Article 17 - outlines an exceptional rule for performing sportspeople. These individuals will need to pay income tax in the country of performance, regardless of the general rules for companies, self-employed persons and employees. Many countries have included an exemption to Art. 17 for performances in the other country which are wholly or mainly supported from public funds (Art. 17 (3)).
  • To eliminate double taxation, individuals can rely on Art. 23 of the OECD Model which allows the sportspersons to take a credit in their country of residence for the foreign tax suffered. Most countries will follow this method, although some countries such as Belgium use the exemption with progression method.

If you do decide to work internationally, consider the common situations outlined below, where international tax laws apply:

Country of residence

Residence refers to a person who, under the laws of a specific country, is subject to tax because of their domicile, residence, or citizenship. If you are abroad for relatively short periods of time it is unlikely that you will break UK residence - you would normally have to be out of the UK for an entire tax year to break UK tax residence. However, if you spend more than 6 months in an overseas country, you may establish tax residence in the overseas location as well as the UK. This could result in an income tax withholding obligation arising in the overseas location, in addition to in the UK.

Social Security

Across the EU

The fundamental principle under EU rules is that a person should not be subject to contributions in more than one member- state. In straightforward cases, you pay social security contributions in the country where you work. The UK left the EU on 31 January 2020 and is now in a transition phase until 31 December 2020. Depending on the deal that is negotiated, the current social security coordination in place between the UK and the EU may cease. In this situation, you should contact your home country liaison office for more information on where you should be paying social security.

Bilateral agreement countries 

Bilateral agreements serve to prevent a double liability to social security contributions for any given source of income. The terms of each agreement differ so it is important to check the specific rules.

If you temporarily work in a bilateral agreement country, in many cases you will remain liable to UK National Insurance Contributions (NIC) and will be exempt from paying contributions in the host location. This outcome is dependent on the length of the assignment. In order to substantiate the position, you must submit an application form to HMRC.

Rest of the world

There may be an on-going liability to UK NIC for the first 52 weeks. The 52-week liability will apply if you meet all the following conditions:

  • you were living in the UK immediately before starting work abroad
  • you have a place of business in the UK
  • you are ordinarily resident in the UK.

Payroll reporting obligations

If there is a withholding requirement in the overseas location, you may need to establish a shadow payroll in the overseas jurisdiction to calculate and withhold the income tax payable to the overseas tax authority. The shadow payroll will run in conjunction with the UK payroll and the employee can still be paid from the UK entity as usual.

Unilateral relief

If you are working in a country with which the UK does not have a double tax treaty, you may be able to claim unilateral relief on the doubly taxed income, which is similar in principle to foreign tax credit relief.

Tax returns

If you are working abroad, there may be a tax return filing obligation arising in the overseas location and in the UK depending on your specific circumstances. Professional advice should be sought.

Find out more

To understand more about how international tax laws could apply to you or your business, contact Chris DanesSunil Tailor or Anthony Bastiani

Read Part One of this series, where we look at the common pitfalls and mistakes to avoid when becoming self-employed and starting your own business.