Italian tax breaks for football players and athletes

Recently Italy has changed the tax breaks in favour of the “brains return”, extending their duration and reducing to 10% the taxable income, also providing a special tax break for professional sportsmen (e.g. soccer players).

1. Tax breaks for the “brains return”: general conditions

Italy has modified the law regarding the tax breaks for the “brain return”, expanding the group of taxpayers who can take advantage of that tax benefit.

In general, a taxpayer that has work experience abroad can access this tax break if he:

• has not been resident in Italy for the two tax periods before returning to Italy;

• will remain resident in Italy for at least two tax periods;

• will carry out future work mainly in Italy.

It is no longer required that the work done abroad is characterized by a managerial position, high qualification or specialization.

The new tax break for the “brain return” no longer requires that the worker, once returned to Italy, must carry out his work in favour of a resident company or its subsidiary.

The working activities, carried out by the taxpayer once returned to Italy and covered by the “brain return” tax break, in addition to employee, also include positions assimilated to dependent work, self-employment, as well as business activities, starting from the period after 31 December 2019.

2. The Italian tax break for “brain return”: general duration and taxation

Tax benefits for the “brain return” last for five years, a period in which the taxable income is cut by 70% so that the taxes remain due on 30% of the income.

In some cases the tax benefit is extended for an additional period of five years, i.e. when:

• the returned worker becomes the owner of at least one residential property unit in Italy (which can be purchased directly by the worker or by the spouse, cohabiting partner or children, also jointly owned);

• for the worker who has at least one underage or dependent child (even in pre-adoptive custody).

In these cases, in the further five tax periods, the income produced contributes to the taxable income limited to 50% of its amount. Workers who have at least three underage or dependent child (even in pre-adoptive custody) in the further five tax periods tax the income only in the limit of 10%, so that they are 90% tax-free.

Moreover, workers who transfer their tax residence to the Regions of Southern Italy (such as Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sardinia, and Sicily) are taxable only on 10% of their income. 

3. Tax breaks for soccer players and professional athletes: special rules

Now Italian law provides special tax breaks for professional athletes (e.g. football players).

The special regime in question applies to professional athletes (e.g. football players) who fall within the scope of Law no. 91/1981 (athletes, coaches, technical sports directors and athletic trainers, who carry out the sports activity for consideration with a continuity character within the disciplines regulated by the CONI and who qualify by the national sports federations, according to the standards issued by the federations themselves, with the observance of the directives established by CONI for the distinction between amateur and professional activity).

Even in this case, the tax break applies if a professional athlete:

• has not been resident in Italy for the two tax periods before returning to Italy;

• will remain resident in Italy for at least two tax periods;

• will carry out future work mainly in Italy.

For these taxpayers, the tax relief consists in the non-taxability of 50% of income (being taxable the remaining 50% of income) classified as income from employee or self-employment (instead of the 70% tax exemption applicable according to the general scheme for returning workers).

Besides, the reduction of the taxable income to 10% of the total income does not apply to professional athletes.

Professional athletes opting for the tax breaks in question are also required to pay a contribution of 0.5% calculated on the income subject to taxation.

Although the Italian law denies professional athletes the broader benefits enjoyed by normal workers, the 50% taxable base reduction constitutes a highly attractive tax advantage, especially if we consider the millionaire fees earned by football players.

Each situation must be analyzed with caution to precisely define the applicability of the tax break and its measure in the specific case under consideration.

Some athletes who could be apparently affected by the reduced tax benefit (such as 50% non-taxable income) may have the requirements for the recognition of the 70% non-taxation. Other times it is necessary to understand the real nature of the income received by the professional athlete or other particular elements of the case to confirm the applicability of the tax benefit in question.

Failure to consider these aspects can lead to underestimating more significant applicable benefits or benefit from a non-applicable advantage.

4. Pay attention to the details of the concrete case

Although the tax regime mentioned above may appear easy to understand, things are not always so clear in practice.

Each situation could have particularities that interact with the legislation involved to produce different effects.

The information provided has a purely general nature, given that the discipline of special tax regimes in practice proves to be full of exceptions and derogations that cannot be underestimated.

As already mentioned, there are numerous exceptions, limitsderogations and cases of non-applicability of the tax incentives which, in summary, have not been discussed above and which, in the specific case, could push the Tax Authority to deny the tax advantage.

Therefore, the assessment of the applicability of the tax regime cannot disregard the examination of each concrete case.

In fact, as in all international tax analyses, it is essential to frame all the crucial details of the case examined to understand the applicability of special tax regimes.

This assessment is fundamental, on the one hand, to allow the application of the special tax regime to hypotheses that look like they don’t fall into and, on the other hand, do not apply the special tax regime to cases that only apparently fall into them.

This approach is essential to not jeopardizing the special tax regime and avoid the Tax Authority would recover the evaded taxes and applying sanctions.

Any assessment by the Tax Authority of the non-applicability of the special tax regime involves not only the recovery of the taxes not paid because of the tax regime for each previous year of use of the special tax regime but also the application of tax sanctions in the way to erode a large part of the income produced by the taxpayer, with severe economic damage for the latter.

5. International tax advice for the specific case

For taxpayers that would like to apply to the special tax regime, it is fundamental a verification conducted by a Professional specialized in international tax law.

This Professional can deeply assess if the special tax regime is applicable in the specific case to avoid Tax Authority legitimately denying the special tax after several years, recovering the tax evaded as well as penalties and interests.

Again, in daily practice, it happens that the special tax regime results in applying to hypotheses that only apparently (in the eyes of the contributor) did not seem to be included or, on the contrary, can not apply to cases that only apparently (in the eyes of the contribution) seemed to fit into it.

For this reason, it is not advisable to apply special tax regimes without a successful in-depth analysis.

The ITAXA Law Firm has gained a long experience in the analysis of special tax regimes and understanding of the approach of the Tax Authority concerning the related cases, also based on unpublished Tax Authority responses.

If you wish to request international tax advice from the ITAXA Law Firm regarding the verification in your specific case of the conditions for the applicability of the special tax regimewrite to us at info@itaxa.it or fill out the Contact Form.

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Antonio Merola, LL.M.

Tax Lawyer specialized in International Taxation at the International Tax Center of the University of Leiden (The Netherlands) by attending the LL.M. (Master of Laws) in International Tax Law (after a University Master in International Tax Planning and a University Master in Tax Law in Italy), for several years he has been dealing with Tax Consulting and Tax Litigation in favour of Individuals and Companies.