Taxation of income received from sports in international situations

This is an unofficial translation. The official instruction (VH/744/00.01.00/2019) is drafted in Finnish and Swedish.

This guidance explains the taxation of income received from sports in international situations. Sports activities are discussed from the perspective of the Income Tax Act. Sports and income received from sports are discussed on a general level in the Tax Administration’s guidance Taxation of income received from sports.

This guidance does not cover the tax treatment of payments made to other than athletes, such as competition judges, coaches or team leaders. This and tax questions related to sports clubs’ activities are addressed in Tax Administration guidance such as Prepayment questions for the volunteering of non-profit organisations and public sector organisations and Tax guide for non-profit organisations (both available only in Finnish and Swedish). 

1 Foreword

The concept of income is broad in the Income Tax Act (1535/1992). Taxable income refers to income received by the taxpayer in cash or as a monetary benefit within the limitations specified by law (Income Tax Act, Section 29), unless a certain income is specifically decreed as tax-exempt.

The Income Tax Act specifically stipulates that compensation received by an athlete for personal activities performed in Finland constitutes income received from Finland. The Tax at Source Act also has separate provisions on the compensation received by an athlete for personal activities. The special tax rules concerning the taxation of athletes in international situations are based on tax treaty provisions.

Finland’s tax treaties are primarily based on the OECD Model Tax Treaty. Article 17 of the tax treaties concerns the taxation of athletes. As a rule, Article 17 also assigns the right of taxation to the country in which the athlete performs personal activities. Such a country is referred to in this guidance as the source country.

If the athlete is insured in Finland under the Health Insurance Act (1224/2004), the healthcare contribution and earned-income contribution must also be imposed on the athlete’s income, in addition to taxes. Determining the health insurance contribution and related legislation concerning resident and nonresident taxpayers is explained in the Tax Administration’s guidance Health insurance contribution (available only in Finnish and Swedish).

The taxation of a resident athlete’s income under the Income Tax Act and the taxation of income from an athlete fund is explained in more detail in the Tax Administration’s guidance Taxation of income received from sports.

2 Resident and non-resident tax liability 

The Finnish income tax system has two individual categories of tax liability: resident tax liability and non-resident tax liability. A person or corporate entity resident in Finland during the tax year is considered a resident taxpayer. As a rule, a person is deemed to reside in Finland if the person has a primary residence in Finland or stays in Finland for more than six months (Section 11(1) of the Income Tax Act).

Finnish citizens who emigrate from Finland are considered to reside in Finland and to remain resident taxpayers for a period of three years following the year of emigration. A person can be deemed to be a non-resident before the end of the three-year period if she or he can demonstrate that she or he did not have substantial ties to Finland during the tax year.

A corporate entity is a resident taxpayer if it is registered in Finland or has been established under the laws of Finland. A resident athlete or corporate entity is liable to pay taxes in Finland from income received from Finland or another country (Section 9(1)1 of the Income Tax Act).

All those who are not resident taxpayers are non-resident taxpayers. A person who does not reside in Finland or stay consecutively in Finland for longer than six months is a non-resident taxpayer. Corporate entities registered abroad are non-resident taxpayers in Finland. A non-resident athlete or corporate entity is liable to pay tax in Finland only on income received from Finland (Section 9(1)2 of the Income Tax Act).

More detailed information on resident and non-resident tax liability can be found in the Tax Administration’s guidance on Resident and non-resident tax liability.

3 Provisions of the income tax act and act on the taxation of non-residents' income

Athletes with general tax liability pay taxes in Finland both for income received from Finland and other countries (Income Tax Act, Section 9). Taxable income refers to income received by the athlete in cash or as a monetary benefit within the limitations specified by law (Income Tax Act, Section 29). If an athlete earns income from another country that has taxed the same income, Finland as the country of residence will eliminate double taxation. The taxation of a resident athlete’s income in international situations is described in more detail in section 5 of this guidance.

Non-resident athletes are taxed according to the Act on the Taxation of Non-residents' income (627/1978). According to Section 3(1) of the Act on the Taxation of non-residents income, tax at source must be paid on compensation based on the athlete’s personal activity, regardless of whether it is paid to the athlete or to someone else. The taxpayer is the person to whom the payment is made (Act on the Taxation of Non-residents income, Section 3(6)). Non-resident athletes only pay taxes in Finland on income received from Finland. The taxation of a non-resident taxpayer’s income in Finland is explained in more detail in section 6 of this guidance.

According to Section 10(4 b) of the Income Tax Act, income earned in Finland refers to income earned from the personal activity of an athlete performed in Finland or on board a Finnish vessel. Section 10(4 b) of the Income Tax Act does not include a specific provision according to which the activity should be performed for an employer or representative in Finland. It has also been deemed in legal practice that the income earned by an athlete for activity performed in Finland is income earned in Finland for a non-resident taxpayer even if the income is paid from another country (Supreme Adminitrative Court 2005:31). In other words, the income is obtained from Finland regardless of where it is paid from, if the income is based on the athlete’s activity in Finland.

The Government Proposal (76/1995) does not define in more detail what “personal activity” covers. The wording is taken from tax treaties. Hence, the interpretation of the definition of an athlete and activity performed by an athlete can be supported by the OECD Model Tax Treaty and its commentary for income taxation in international situations. Income based on an athlete’s activity includes, for example, wage income based on the athlete’s personal performance, such as playing on a team.

Income from personal activity also includes rewards and bonuses based on the athlete’s position or performance. An athlete’s performance is usually closely linked to practice and preparation. Income earned from these is also considered income from the athlete’s personal activity. According to the OECD Model Tax Treaty commentary, advertising and sponsor income can also be regarded as income earned from the athlete’s personal activity when the income is closely linked to the athlete’s activities in the source country.

4 Effect of tax treaties

According to Finnish domestic legislation, Finland can tax both the income received by an athlete resident in Finland from abroad and the income earned by an athlete living abroad for activity performed in Finland. If Finland has a tax treaty with the taxpayer’s country of residence, the provisions of the tax treaty may limit Finland’s taxation right.

Most tax treaties have separate provisions on whether the primary taxing right on sports income belongs to the athlete’s country of residence or the country in which the athlete performs his or her activities. Tax treaties usually assign the taxing right with respect to income received from sports to the source country of the income, regardless of which country the actual payment is made from.

The provisions of Finland’s tax treaties mainly comply with the provisions of the Model Tax Treaty on income and assets (OECD Model Tax Treaty). The Model Tax Treaty and its commentary can be used to support the interpretation of tax treaties between different countries. Article 17 of the treaty concerns athletes. The provisions of this article are applied to income earned from the athlete’s personal activity, usually notwithstanding the provisions of the tax treaty’s other income type articles (such as business income, wage income or royalty income).

According to Article 17(1) of the OECD Model Tax Treaty, income from an athlete’s personal activity can be taxed in the country in which the activity is performed. The source country can tax the athlete on the income based on the athlete’s personal activity in the country in question.

According to Article 17(2) of the OECD Model Tax Treaty, income from an athlete’s personal activity can be taxed in the source country even if the income is paid to a party other than the athlete. The Article stipulates that the income can be taxed even if the payment is made to a sports club or company, for example.

According to the OECD Model Tax Treaty, the recipient of the payment can also be taxed on profit (such as the profit from an event) accumulated from the athlete’s personal activity. In Finland, however, the payment recipient is only taxed for the fee paid to the athlete (Supreme Administrative Court 29 January 2001, archival record 139). This requires the payment recipient to provide an account of which share of the payments involves the athlete's fees. If no account is provided, the recipient can be taxed on the entire payment.

Detailed provisions must always be checked from the applicable tax treaty. For example, the provisions of the tax treaty between Finland and the United States are different from the OECD Model Tax Treaty. According to Article 17(1) of the treaty in question, income from an athlete’s personal activity is only taxed in the athlete’s country of residence if the total income paid to the athlete during the calendar year, including reimbursement for expenses, does not exceed USD 20,000 or the equivalent value in euros. The provisions of the Article can be applied to athletes that are deemed to reside in the United States while they are performing sports activities in Finland.

Many of Finland’s tax treaties also include Article 17(3), which is not included in the OECD Model Tax Treaty. Article 17(3) of the tax treaties is applied notwithstanding the provisions paragraphs 1 and 2 of the same Article when the athlete engages in activities on the basis of a cultural agreement or cultural or sport exchange. The said Article is also applied if the visit to the source country is financed wholly or mainly from the public funds of the other agreement country or its local authorities.

In order to apply the provision of Article 17(3), the athlete must present an account either of an existing cultural agreement or programme or that the visit has been financed using public funds. If one of the preconditions referred to in the Article is fulfilled, the athlete’s income is only taxed in the country of residence, or the tax treaty’s business income or work income article will be applied to the income.

5 Taxation of an athlete living in finland

Finnish residents must pay tax to Finland on anything they earn both in Finland and abroad. The income received by an athlete from abroad is usually also taxed in the country in which the athlete has performed personal activity. Double taxation arises when the same income is taxed in both the source country of the income and the income earner’s country of residence. The double taxation is usually eliminated in the income earner’s country of residence in accordance with the provisions of the tax treaty.

The Act on Elimination of International Double Taxation (1995/1552) contains provisions on the elimination of the double taxation of persons living in Finland. In situations where no tax treaty exists, Finland will eliminate the double taxation as the country of residence in accordance with the provisions of the said Act. According to the Act on Elimination of International Double Taxation, taxation is primarily eliminated by means of the credit method. Tax treaties may include provisions both on the credit method and exemption with progression method. However, instead of the wage income article, the athlete article is applied to wage income received by an athlete for personal activity; in practice, the double taxation is then eliminated by means of the credit method.

In the credit method, tax paid abroad is credited from the tax imposed on the same income in Finland. In most cases, the tax that is requested to be credited must have been imposed on the same taxpayer who requests the tax to be credited. The only exception to this in taxation practice is when the taxpayer is a shareholder in a Finnish partnership, for example, which has been taxed as a separate taxpayer abroad. In such a case, the tax paid abroad by the partnership may have been credited in the shareholders’ taxation.

An athlete is deemed to receive wage income if the athlete is in an employment relationship with the payer of the compensation (Prepayment Act 1118/1996, Section 13). The most typical example of an athlete’s employment relationship is the case of athletes in team sports, who commit to practice and participate in games on the basis of their player contracts. There are also situations in individual sports where the athlete can be deemed to be in an employment relationship. The fee paid for driving a racing car, for example, is considered wages if it is paid by the racing team for which the driver works.

The wage income of an athlete resident in Finland received for activities performed abroad may be tax-exempt in Finland pursuant to Section 77 of the Income Tax Act. The so-called six-month rule provided for in the said Section can also be applied to the wage income received by an athlete. The tax exemption associated with the six-month rule may be applied to the athlete’s wage income if:

• the person's stay abroad is caused by said work, and
• the stay lasts for at least six months consecutively, and the employee does not stay in Finland for more than six days per one month of working on average, and
• the country of work has a taxation right to the income in question under a tax treaty, if there is an agreement on income taxation between Finland and the country of work.

The six-month rule only applies to wage income. The tax exemption of the provision cannot be applied to athletes’ fees, competition prizes or sponsor income.

The elimination of double taxation and the six-month rule is described in more detail in the Tax Administration's guidance Taxation of work abroad. An athlete's taxation in domestic situations is described in more detail in the Tax Administration's guidance Taxation of income received from sports.

6 Taxation of a non-resident athlete

6.1 Natural person

Income earned by a non-resident athlete from personal activity performed in Finland can be taxed in three different ways: through tax at source, progressive tax at source, or applying the progressive tax procedure.

1. Tax at source: applies to all income earners and taxpayers resident in all countries.
   
   Payments made on the basis of an athlete's personal activity are usually subject to a withholding of 15 percent as tax at source in accordance with Section 7(5) of the Act on the Taxation of Non-residents' Income. Tax at source is withheld regardless of whether the compensation is paid directly to the athlete or to a sports club, for example. No tax at source or other deductions are made.
   
   Finland's right to tax may be limited by the provisions of a tax treaty. If the taxation of income from an athlete’s personal activity is completely prevented or otherwise restricted, the athlete must acquire a tax at source card demonstrating this.
   
   
2. Progressive tax at source: applies to natural persons resident in a country within the European Economic Area (EEA).
   
   A 15-percent tax at source is usually withheld from payments made on the basis of the athlete’s personal activity, and no deductions are made before tax collection. According to Section 7a of the Act on the Taxation of Non-residents' Income, however, expenses with a direct financial link to the compensation can be deducted on the tax at source card of an athlete resident in a country within the EEA. The athlete must request the deduction of the expenses.
   
   When calculating tax at source, state tax is calculated according to the progressive income tax scale. When determining municipal tax, the average income tax rate of municipalities is applied.
   
   There is a tax at source calculator in tax.fi where you can check whether it is more beneficial to withhold a 15-percent tax at source from the gross income or to apply a progressive tax rate after deductions. If progressive taxation is more beneficial to the athlete, the athlete can submit a request that Section 7a of the Act on the Taxation of Non-residents' Income be applied, presenting an account of the direct expenses on the application for a tax at source card. The athlete can also provide an account of the direct expenses afterwards and apply for a refund of tax at source on this basis.
   
   If the athlete has applied for progressive tax at source, it will be applied to all compensations received by the athlete based on personal activities during the same calendar year. The amount of progressive tax at source is calculated on the basis of the total amount of income earned during the calendar year.
   
   
3. Progressive taxation under the Act on Assessment Procedure: applies to natural persons resident in a country in the EEA or in a country with which Finland has signed a tax treaty.
   
   Athletes resident in an EEA country or tax treaty country may request that their income be taxed progressively instead of imposing tax-at-source (Act on the Taxation of Non-residents' Income Section 13(1)6). In this case, taxation is performed as for a resident taxpayer. Income earned from countries other than Finland is also taken into account in determining the tax rate for the income (Act on the Taxation of Non-residents' Income, Sections 13 a and 14). More detailed information on the progressive taxation of a non-resident taxpayer can be found in Taxation of employees from other countries.

6.2 Corporate entity

Income earned by a non-resident athlete for personal activity performed in Finland can be taxed from a corporate entity in two different ways:

1. Tax at source: applies to all income earners and taxpayers resident in all countries.
   
   When a compensation based on an athlete's personal activity is paid to a corporate entity, a 15-percent tax at source is usually imposed in accordance with Section 7(5) of the Act on the Taxation of Non-residents' Income. According to section 9 of the Act on the Taxation of Non-residents' Income, tax at source is withheld when the payment is made. No deductions can be made before the collection of tax at source. Tax at source is withheld from income from an athlete’s activities even if the corporate entity is registered in the prepayment register.
   
   Finland's right to tax may be limited by the provisions of a tax treaty or national legislation. For example, taxation may be partially prevented when Article 17(2) of the tax treaty is applied. In this case, Finland has the taxing right, but only the portion of the compensation received by the corporate entity that is paid as fees to the athletes for their personal activities is deemed taxable. This is also the procedure if the recipient of the income is a non-profit organisation.
   
   If the taxation of a payment for an athlete’s personal activity paid to a corporate entitiy is completely prevented or otherwise restricted, the corporate entity must acquire a tax at source card demonstrating this. If the corporate entity does not present a tax at source card, the payer will withhold 15 percent as tax at source on the income in accordance with Section 7(5) of the Act on the Taxation of Non-residents' Income.
   
   
2. Tax at source from net income: applies to taxpayers resident in a country within the European Economic Area (EEA).
   
   According to Section 7a of the Act on the Taxation of Non-residents' Income, expenses with a direct financial link to the compensation received on the basis of an athlete’s personal activity can be deducted upon presentation of a tax at source card, if so requested by a non-resident taxpayer living in an EEA country. This provision only applies to corporate entities registered in the EEA. If the corporate entity requests the deduction of expenses, a 20-percent tax at source, equivalent to the corporate income tax for corporations, will be withheld from the compensation after the deduction of the expenses in accordance with Section 15(3) of the Act on the Taxation of Non-residents' Income.
   
   There is a tax-at-source calculator in tax.fi where you can check whether it is more beneficial to withhold a 15-percent tax at source from the gross income or a 20-percent tax at source after deductions. If tax at source from the gross income is more beneficial to the corporate entity, the corporate entity can submit a request that Section 7 a of the Act on the Taxation of Non-residents' Income be applied, presenting an account of the direct on its application for a tax at source card. If the corporate entity has applied for tax at source based on net income, it will be applied to all the compensations received by the corporate entity based on the athlete’s personal activities during the same calendar year.
   
   If a 15-percent tax at source has been withheld from a corporate entity, the corporate entity can also provide an account of direct expenses afterwards and apply for a refund of the tax withheld at source on this basis.

7 Athletes’ funds in international situations

7.1 General information on the funding of sports income

Athletes can also transfer income earned abroad to an athletes’ or training fund. The purpose of training funds is to ensure that even athletes involved in individual sports can prepare for the costs of training in advance. The purpose of an athletes’ fund is to allow sports income to be deferred to the period after the end of the sports career.

Funded income and its withdrawal in international situations is subject to the same provisions of the Income Tax Act as in domestic situations; see Taxation of income received from sports. The following sections discuss athletes’ funds in international situations.

7.2 Funding of foreign income in Finland

The foreign-sourced income earned by an athlete who lives in Finland (resident taxpayer) is also taxable income for the athlete in Finland (Income Tax Act, Section 9). However, income earned by the athlete from sports activities (sports income) that has been paid during the tax year into a national training or athlete fund linked to a foundation appointed by the Ministry of Finance is not considered taxable income (Income Tax Act, Section 116 a-c).

The athlete can also transfer sports income earned abroad into a training or athletes’ fund exempt from tax (Government Proposal 144/2006). The income earned abroad and transferred into a training fund must be income received from sports, such as sponsor income or prize and start-up payments. An athlete's wage income can also be transferred into an athlete fund, but not into a training fund. Income received from sports abroad do not exceptionally need to be paid directly into the fund. The athlete can transfer sports income into the fund in the year or receiving the income. In this case, the income transferred into the fund is tax-exempt in Finland.

Sports income that the athlete does not transfer from another country into a training or athlete fund is taxable in Finland. In most cases, the country in which the athlete has performed personal activities has taxed the same income. In such a case, Finland will eliminate the double taxation. Double taxation is usually eliminated by means of the credit method. However, the credit for foreign tax cannot be greater than the amount of taxes imposed in Finland on the same income (Act on Elimination of International Double Taxation, Section 4). This means that only foreign tax for income taxable in Finland is credited in Finland.

Example 1: Petri has played football in a football team abroad and has been paid EUR 150.000 as athlete’s wage income. He has paid a total of EUR 30.000 from the income in taxes abroad. A sum of EUR 50.000 has been paid from the wage income directly to a Finnish athletes’ fund. As the country of residence, Finland eliminates the double taxation by means of the credit method. Foreign tax can only be credited to the extent that the foreign income is taxable income for Petri in Finland. The foreign sports income that is taxable for Petri in Finland is EUR 100.000, of which EUR 20.000 is credited as tax paid abroad (= EUR 100.000 / EUR 150.000 x EUR 30.000).

Provided that the conditions are fulfilled, an athlete's wage income not transferred into an athlete fund may be tax-exempt under the six-month rule (Income Tax Act, Section 77). If the athlete’s income is fully tax-exempt in Finland due to being transferred into an athlete fund or under the six-month rule (Income Tax Act, Section 77), the foreign tax is not credited at all.

Income withdrawn from the athlete fund is taxable earned income. The tax paid on the income in another country at the time of earning, however, cannot be credited when the athlete withdraws income from the fund, as this is not a question of tax paid for the same income in the corresponding period (Act on Elimination of International Double Taxation, Section 3).

However, according to the decision of the Central Tax Board (28/2010), income transferred into an athlete fund retains its nature if the funds transferred include the wage income of an athlete involved in individual sports, for example. Due to the above-mentioned decision, the tax exemption provided for in Section 77 of the Income Tax Act may apply to income withdrawn from an athlete fund to the extent that the income is wage income invested in the fund to which the six-month tax exemption has been applied at the time of earning.

7.3 Athlete funds in another country

An athlete who is a resident taxpayer in Finland can also transfer income earned abroad into an athlete fund abroad. However, income can only be transferred tax-exempt to an athlete fund appointed by the Finnish Ministry of Finance (Income Tax Act, Section 116 a). This means that the income transferred into a foreign fund is taxable income for the athlete in Finland. If the income transferred into a fund by the athlete has been taxed at source in another country, Finland will eliminate the double taxation.

The income later withdrawn by the athlete from the athlete fund abroad is also taxable income for a resident taxpayer in Finland. If the income invested by the athlete in the fund was already taxed at the time of earning, the income withdrawn from the fund is only deemed taxable to the extent that it has not previously been taxed in Finland. Pursuant to the provisions of Article 17 of the tax treaty, the source country may regard the income withdrawn from the fund to be based on activity performed by the athlete in that country, and impose tax on the income withdrawn by the athlete from the athlete fund.

Athlete funds abroad may be similar to Finnish athlete funds and be based on the deferral of sports income after the athlete’s career has finished.  On the other hand, the fund arrangements may more closely resemble voluntary pension saving or long-term saving than an athlete fund. Resident taxpayers must provide an account on their tax return of income withdrawn from a athlete fund in another country and its taxation in the source country. The income earner must also provide an explanation of the nature of the fund.

7.4 Non-resident taxpayers and Finnish athlete  funds

A non-resident athlete is liable to pay taxes to Finland for income received from the athlete’s personal activity performed in Finland.  Section 116 a of the Income Tax Act issues provisions on when the income is not taxable income for the athlete. Income earned by the athlete from sports activities (sports income) that has been paid into a national training or athlete fund linked to a foundation appointed by the Ministry of Finance is not considered taxable income (Income Tax Act, Sections 116 and 116 c). The Income Tax Act does not contain specific provisions according to which an athlete using a training or athlete fund must be a resident taxpayer in Finland. However, the funds’ rules may have different provisions.

It is unlikely that a non-resident athlete staying in Finland for a short period would have their sports income paid or would transfer their foreign-sourced sports income into a Finnish training fund. Therefore, this guidance does not address income paid into training funds from a non-resident taxpayer's perspective in more detail.

Non-resident taxpayers can transfer their income from sports tax-exempt into a Finnish athlete fund under the same conditions as resident athletes. In this case, no tax at source is withheld from the income. The usual situation is likely that the athlete has been a resident taxpayer in Finland at some time in his/her career, and has transferred income into a Finnish athlete fund during that time. After the end of the contract or sports career, the athlete has become a non-resident taxpayer after having moved from Finland.

Payments withdrawn from a Finnish athlete fund by a non-resident taxpayer is taxable income in Finland under Section 10(4 b) of the Income Tax Act. If a tax treaty is in place, Article 17 will be applied to the income withdrawn from the fund. This typically assigns Finland the right to tax, as the income transferred to the fund in the past is based on the athlete’s personal activities in Finland.

Non-resident taxpayers are subject to taxation at source, which means that tax at source must be withheld from the athlete fund payment. According to Section 6(1)5 of the Act on the Taxation of Non-residents' Income, the tax at source rate for compensation based on an athlete’s activities is 15 percent. Athletes can also apply for progressive taxation; see section 6.1 Natural person above.

Example 2: Karel played on a Finnish ice hockey team from 2007 to 2013. During this time, he was a resident taxpayer in Finland. Over the years he played in Finland, he transferred part of his wage income into a Finnish athlete fund. After the end of his sports career, Karel returned to his home country and is now making withdrawals from the income invested in the Finnish athlete fund.

After moving away from Finland, Karel became a non-resident taxpayer in Finland. The income withdrawn from the fund is based on Karel’s personal activities as an athlete in Finland. This means that, according to the Income Tax Act, the income is income earned in Finland and Article 17 of the tax treaty does not prevent Finland from taxing the said income. Because he is a non-resident taxpayer, Karel is subject to taxation at source. He can also choose to apply for non-resident taxpayer progressive taxation.

8 Special situations

8.1 Signing bonus

Signing bonuses related to the contracts signed by athletes are deemed income earned from sports. A signing bonus can be paid to an athlete in connection with signing a letter of intent or player contract. Because the bonus is related to the athlete’s personal activity that the athlete will start performing on the basis of the contract, signing bonuses are deemed wage income for athletes.

Athletes resident in Finland may receive their singing bonus from another country. A resident athlete has tax liability to Finland for global income (Income Tax Act, Section 9). Signing bonuses are deemed as the athlete's wages. Hence, the signing bonus is taxable income for the athlete in Finland.

When a tax treaty is applied, Article 17 does not prevent the taxation of a signing bonus in another country. The bonus can be deemed to be related to the activities that the athlete will perform in this other country. If the signing bonus has also been taxed in the other country, double taxation is eliminated according to the provisions of either the tax treaty or the Act on Elimination of International Double Taxation. If the other conditions are met, the six-month tax exemption provision may also apply to the signing bonus (Income Tax Act, Section 77).

According to the Income Tax Act (Section 10(4 b)) a signing bonus paid in Finland to a non-resident athlete is income earned in Finland, as the income is related to the athlete’s future activity in Finland. Article 17 of the tax treaty does not usually prevent such a bonus from being taxed in Finland.

A signing bonus paid to a non-resident athlete is taxed in accordance with the provisions of the Act on the Taxation of Non-residents' Income, applying a 15-percent tax at source rate (Act on the Taxation of Non-residents' Income, Section 7(5). According to the Act on Assessment Procedure, athletes also have the option of requesting to be taxed progressively if the athlete is from an EEA country or a country that has signed a tax treaty with Finland. The taxation of income earned in Finland by a non-resident athlete is discussed in more detail in this guidance in Section 6 Taxation of Non-resident athlete.

An athlete becomes a resident taxpayer in Finland if the athlete moves to live in Finland or stays in Finland consecutively for more than six months. As a rule, a signing bonus paid to an athlete before moving to Finland is income subject to tax at source. However, if the signing bonus is large in relation to the wages later received by the athlete, or if no wages are paid at all, it can be deemed that the arrangement does not correspond to its actual intention. In this case, the signing bonus has been used as replacement for wage payment, and the signing bonus can be taxed under the provision on tax evasion (Act on Assessment Procedure, Section 28) as athlete's wages during the period of residency.

8.2 Key employees

The taxation of foreign key employees in Finland is provided for in the Act on the Tax at Source Payable by Foreign Wage-Earners (1551/1995; so-called Key Employee Act). The Act can be applied to natural persons if the requirements specified in the Act, including tax liability status, the amount of monetary wages and work duties, are fulfilled. For more information on the taxation of foreign key employees, see the Tax Administration’s guidance Taxation of employees from other countries.

The purpose of the key employee act is to promote the employment of persons with special expertise in Finland. The concept of special expertise is not defined by law. According to the preliminary work for the Act, special expertise refers to persons whose knowledge or skills are important for developing, among others, production, business and industry, or research in Finland (Finance Committee Report 45/1995). In taxation practice, athletes have not been considered persons with special expertise as referred to in the key employee act.