The status of professional sportspeople is determined by the relevant sports federation in accordance with the Physical Education and Sport Act (ZFVS) and the Rules on the Status of Amateur and Professional Athletes and on the Acquisition, Termination and Withdrawal of Competition Rights. Under Section 1(9) of the PFSA, ‘professional athletes’ are persons who engage in systematic training and competition, for whom this is their main occupation, and who receive remuneration for this activity.
Pursuant to Article 77(1) of the Physical Education and Sport Act, a professional athlete shall carry out training and competitive activities by entering into a written contract for consideration with a sports club, which shall contain at least:
- date of conclusion of the contract and commencement of its performance:
- term of the contract;
- the amount of remuneration and the frequency of its payment, as well as compensation in the event of delayed or unpaid remuneration;
- the rights and obligations of the parties;
- the terms and conditions governing health and social security for professional sportspeople, as well as compulsory insurance and medical cover;
- terms and conditions for a transfer or loan;
- terms and conditions for terminating the contract;
- compensation payable by the party in breach of the contract;
- arbitration clause.
The contract is usually concluded for sporting seasons, which do not coincide with the calendar year. Competition years are determined by the calendar of the relevant competitions in the various sports and may, for example, run from 1 September to 30 April of the following year.
According to a statement by the Ministry of Labour and Social Policy (MLSP), the Sports Act and the relevant implementing regulations should apply to the legal relationship between a professional sportsman and a sports club. A contract with a professional sportsman is not an employment contract within the meaning of the Labour Code (LC), and the LC should apply on a subsidiary basis only to matters not covered by the Sports Act and the relevant implementing regulations.
Insofar as a professional sportsman’s contract with a sports club is not an employment contract within the meaning of the Labour Code, the work performed should be treated as work carried out without an employment relationship. Pursuant to § 1, item 26, letter ‘l’ of the Supplementary Provisions to the Personal Income Tax Act, the legal relationships between a sports club and professional sportsmen and women under Article 77(1) of the Sports and Physical Education Act are defined as employment relationships for the purposes of the Personal Income Tax Act (PIT Act). Taxable income and the annual tax base are determined in accordance with Articles 24 and 25 of the PIT Act, as provided for income from employment relationships, and not in accordance with Articles 29 and 30 of the same Act, which apply to income from non-employment relationships. In view of this, for income derived from employment relationships within the meaning of § 1, item 26, letter ‘l’ of the Supplementary Provisions to the Income Tax Act, the Act does not provide for the deduction of business expenses. In this case, with regard to the liability for compulsory social security contributions on remuneration for work without an employment relationship, no business expenses are deductible.
When a professional sportsman or sportswoman enters into a contract with a sports club abroad, in addition to Bulgarian legislation, the legislation of the country in which the activity takes place and the existence of a double taxation agreement (DTA) between the two countries is also relevant.
The Income Tax Act defines the term ‘resident’. Classifying a natural person as a resident or a non-resident is of paramount importance for their taxation under the Income Tax Act. This is because resident natural persons are liable for tax on income derived from sources in the Republic of Bulgaria and abroad, whilst non-resident natural persons are liable only for income derived from sources within the Republic of Bulgaria (Articles 6 and 7 of the Personal Income Tax Act).
Under Article 4 of the Income Tax Act, a resident natural person, irrespective of nationality, is a person who:
- who has a permanent address in Bulgaria, or
- who stays in Bulgaria for more than 183 days in any 12-month period (the person is deemed to be resident for the year in which their stay exceeds 183 days, with the day of departure and the day of entry into the country each counting separately as days of residence in the country) or
- which has been sent abroad by the Bulgarian State, its authorities and/or organisations, or by Bulgarian enterprises, and the members of his or her family, or
- whose centre of vital interests is in Bulgaria.
Where one of the above scenarios applies, a natural person is deemed to be resident within the meaning of Bulgarian law, with the exception of the cases set out in Article 4(5) of the Income Tax Act, namely: a natural person is not considered resident if they have a permanent address in Bulgaria but the centre of their vital interests is not located in the country.
Where individuals are classified as resident for the purposes of the Income Tax Act, they are accordingly liable for tax on income derived from sources both in Bulgaria and abroad.
Double Taxation Agreements vary, but they usually stipulate that income from employment in one country is taxed in that country. Sometimes there is a clause stating that tax paid in the country where the work is carried out may be recognised as a tax credit in the other country.
Contracts between professional sportspeople and foreign clubs usually specify net remuneration amounts and include a clause stating that any taxes due are to be paid by the club. There may also be clauses providing for accommodation, meals, airfares, a car, a driver and other benefits. In this respect, a professional sportsman or woman may not be aware of the gross amount of their remuneration and the taxes paid, nor of the value of the remuneration received in kind.
What should a professional sportsman or sportswoman do regarding income received from abroad?
1. It must be determined whether the person is a resident. On the basis of the criteria set out above, it may be determined that the centre of their vital interests is in Bulgaria and that they are a resident of Bulgaria.
2. To obtain a certificate confirming that tax has been paid in the country or countries in which he worked during the calendar year.
3. To obtain a document stating the amount of income in kind received in the country or countries in which he worked during the calendar year.
4. To declare the income received in Bulgaria in a tax return under Article 50 of the Income Tax Act as follows:
in Annex 9 – Application of the methods for avoiding double taxation in respect of income declared in Annexes 1, 2, 3, 4, 5 and 6 and the relevant Part I, II or III, in accordance with the method specified in the double taxation agreement or in the absence of such an agreement, stating the gross amount of the income and the tax paid.
in Annex No. 13 – Non-taxable income, income subject to final tax under Article 38 of the Income Tax Act, with the exception of that listed in Annex No. 8, and property received by way of inheritance, bequest, gift or through the restoration of ownership rights in accordance with a statutory instrument, Part I – Non-taxable income from employment relationships, acquired during the year: the amount of income received in kind.
Of course, the case described is an idealised example. It might apply to a young professional sportsman on a contract abroad who has a permanent address in Bulgaria at his parents’ home, has no spouse or children, no property, returns to his parents’ home during holidays and public holidays, and participates in public life in Bulgaria.
But life is full of variety. Over the course of a calendar year, the young professional sportsman has contracts with sports clubs in Italy and Serbia, each for half a season; his wife is a professional sportswoman with a contract in Germany; he owns property in France; he has a permanent address in Bulgaria; he has one child who lives in Bulgaria with his parents and a second child who lives in the Czech Republic with his wife’s parents. In the summer, they all go on holiday together to Spain. Where is the centre of his vital interests?
