Where Do Tennis Players Pay Taxes?

Tennis players who are both good and lucky enough to be at the top of the sport can earn themselves well over $5 million per year off the back of a successful season.

Novak Djokovic, who won three of the four Grand Slams in 2021, banked himself over $8 million in prize money, but was that his take-home pay that landed in his bank account?

Not quite; just like your standard nine to five office worker, tennis players have to pay taxes on their earnings.

Do they still have enough leftover at the end of the month to buy that Ferrari or second home on Lake Como? Possibly but it does depend on where they win the most prize money and the place they call home.

Let's take a look.

How Does Taxation Work For Tennis Players?

Tennis players pay taxes on their prize money based on the location they earned it.

So, for example, if a player has played Wimbledon, they will pay taxes based on UK taxation laws, which can be as high as 45% if they were to earn over £150,000 ($200,000) during the Wimbledon fortnight.

If that player then heads over to play some European clay-court tournaments in Austria, they will pay Austrian income tax on their prize money.

After the players pay taxes to the local government where they earned the prize money, they generally don't have to pay income tax when they return home.

This is due to many countries having a Double Tax Treaty, which allows the player to reduce local taxes by the amount of overseas tax paid.

For example, if Roger Federer pays 45% in the UK on his UK derived income, but his Swiss Canton only charges him 15%, he can set off 15% off his Swiss tax bill relating to UK income earned.

However, if there is no Double Tax Treaty, for example, between the UK and their home country, the athlete may then incur double taxation on the income.

Although most players can apply for unilateral relief, which is essentially a foreign tax credit, so they're not paying tax twice.

That is the simple answer, but taxation can get more complicated, especially with the USA and UK, which we'll look at in more detail below.

Where Do Players Pay Income Taxes?

If you have ever perused player profiles on the ATP website or seen the pop-up profiles on TV showing players statistics when they're warming up, you'll no doubt have seen several players are residents in countries they weren't born. 

It is only when you reach a certain income level that proper tax planning makes sense, and only three of the current top 10 haven't relocated to tax havens, with Nadal perhaps the most famous of them.

Nadal can pay up to 56% in tax in his home country of Spain, but he chose to stay there, perhaps due to what he believes is his moral responsibility, or maybe the PR benefits of doing so. Or maybe both 🙂

Once you get lower down the rankings, the benefits of relocating decrease, so you'll see most players still holding residency in their country of birth. 

You will also notice all the American players are still US tax residents, with most opting for the zero-income tax state of Florida. This is because the USA still taxes its citizens even if they reside out of the USA. To avoid that, you'd need to renounce citizenship. 

French athletes also have to choose Switzerland because the French tax their citizens who live in Monaco.

You can see the current Top 100's residencies below. Switzerland, Dubai, and the Bahamas are ubiquitous, but Monte Carlo tops the list with 14 players using the microstate as their tax residency.

Do note, however, that the rates quoted are not the tax rates players necessarily pay.

The 0% ones are undoubtedly correct. However, there is no way Federer is paying the top rate of 30%.

Switzerland's system is complex with Federal tax and then the Canton tax, so he could pay the max if he wanted, but somewhere between 10-20% is more realistic.

Tax on Endorsements and Sponsorships

Alongside prize money, the top players can earn big bucks from endorsements.

Roger Federer, for example, earned over $100 million in 2020, but only a tiny percentage of that figure came from his on-court exploits.

Generally speaking, this type of income is classified as self-employment income. Because tennis players are not tethered to bodies as employees, they often set up pass-through limited companies or LLCs to optimise their income from all their sponsorships and other endorsements.

They then pay a combination of corporation tax and income tax on these figures. This is why many of them move to zero tax locations such as Monte Carlo, effectively reducing their tax burden on worldwide income to zero.

However, several countries, notably the UK and USA, will tax players based on their worldwide income and how many days they spend performing in their territory, so it's not all sunshine and rainbows. More on that below.

A Real-World Tax Example

The truth is, in the UK you have a big regime for tax. This is very difficult. I am playing in the UK and losing money. Rafael Nadal on the UK's tax regime

A few years ago, you may have seen reports that Rafael Nadal refused to play Queen's Club in London due to HMRC's taxation laws, which would effectively make the event a financial loss for him.

This was due to the UK's punitive tax laws that also tax players on their worldwide endorsement deals.

Let's look at some examples of how much tax a player can expect to pay if they play some tournaments in the UK.

I am using an example of Nadal playing two tournaments per year in the United Kingdom – the Queens Club Championship and Wimbledon.

If he'd won both tournaments, based on the 2021 prize money at Queen's and Wimbledon, he'd have won £98,000 and £1,700,000, respectively, so to make it easier, we'll call it £1,800,000 in total.

On that amount, Nadal would pay an overall tax rate of 44.2%. Paying a combination of 20%, 40% and 45% which are the UK's tax brackets, meaning a total of £794,960 in taxes.

Had Nadal instead chosen to play on the grass courts of Halle in Germany (instead of Queens), he would only have paid a 20% withholding tax on prize money and no further tax filing obligations or tax due.

However, it doesn't end there; the United Kingdom also taxes players on any payment received from endorsement contracts and the like, attributed to their UK performances.

You can read more about paying tax in the UK as a foreign entertainer or sportsperson on the UK government website.

Because Nadal performs partly in the UK and partly overseas, an apportionment is required to determine how much of his earnings are in respect of the tournaments he plays in the UK.

HMRC tends to adopt an approach whereby it apportions it by reference to the number of appearances in the UK.

For example, to keep it simple, we'll say Nadal has a global endorsement income of £10 million per annum.

Nadal plays 20 tournaments per year, 2 of which are in the UK. That means 10% of his global endorsement earnings are now brought into account for UK tax purposes.

That means his total tax burden is based on the gross income of £2,800,00 million and results in a tax bill of £1,244,960.00 (44.5% effective rate).

Now he can, of course, make some deductions for that as he will have self-employed accounts prepared where he can deduct allowable expenses such as agent fees, travel, subsistence, accountancy fees etc.

However, it's still a hefty bill, and you can see why he wasn't too keen to play at Queen's back in 2012.

That did, however, result in some change.

In response to disgruntled athletes like Nadal and event organisers/promoters also calling for relief to ensure they get the best players, the government introduced a power in the Finance Act 2014 to enable HMRC to provide tax exemptions for significant sporting events.

The power allows HMRC to grant exemptions from income and corporation tax through statutory instruments, which is probably fair considering the previous application of the legislation resulted in some sportspersons paying more in UK income tax than they earn here.

Is this what most players do?

Not every player captures the same sort of income that Nadal, Federer and Djokovic enjoy.

So most non-UK resident sportspersons will pay a certain amount of income tax via the form of ‘withholding tax' – a tax deducted at source from income paid at the basic rate of taxation (currently 20% in the UK) in the territory where the events are held. This is to stop them from fleeing the country without paying any tax.

Any withholding tax payments correspond to the ultimate UK tax liability, which could, in theory, be greater or less than the amount of tax withheld, resulting in an overpayment or underpayment of tax. Depending on which way it falls, this will either need to be paid or rebated.

Can a player use a company to mitigate tax?

As I mentioned above, many players choose to trade via their own company. While they can certainly use to this reduce taxation on worldwide income, they can't use it to reduce their tax burden in the UK for endorsement deals or prize money.

In the UK, HMRC refers to this setup as a personal service company, and even though endorsement fees are paid outside the UK by a non-UK brand to a non-UK personal service company controlled by the non-resident, that does not mean they can escape taxation.

Interestingly it has previously been argued that the income paid in endorsement deals was outside the scope of the income tax rules, and Andre Agassi brought the case on this in 2006.

Unfortunately for Agassi, the House of Lords disagreed (4-1) with him and found no territorial limitations on the legislation.

Therefore, it does not matter whether payments went through a non-UK personal service company or to the athlete directly if it pertained to the sportsperson's activities in the UK.

Final Thoughts

As you can see, for tennis pros, the location and source of income make a significant difference on how much tax money they owe and where they owe it.

Just like anything tax-related, once a player reaches a certain income level, it's wise to employ the services of a well-versed accountant or tax expert who can optimise their tax burden to ensure they're not making any mistakes.

Got any questions about taxation in tennis? Let me know in the comments.

If anyone familiar with the USA system wants to post some real-world examples from there, drop me a comment or an email, and I can include it in the post.