Victory bonuses –
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07.10.2024

An overview and tips on the taxation of victory bonuses for athletes

Top sporting performances are often rewarded with financial bonuses - be it through winning competitions, sponsorship or special payments from clubs. In terms of tax law, it doesn't matter which sport is involved. But what about the tax treatment of such bonuses? In this article, we take a look at the taxation of bonuses for athletes, what you need to bear in mind when filing your tax return and how best to prepare for this.

  • Table of contents:

Bonuses for athletes - how is this income taxed?

In Germany, bonuses that athletes receive for sporting successes or achievements are generally categorized as income and assigned to an income type. It does not matter whether the bonuses are paid by a club, association or private company. The bonuses are generally treated in the same way as other income from sporting activities.

Taxation differs depending on whether the athlete is an amateur or professional athlete:

Bonuses for professional athletes

For professional athletes, bonuses are considered part of regular income from self-employment or employment, depending on whether the athlete is employed or self-employed. No tax-free limit applies here and all bonuses must be fully taxed.

Whether you're competing or filing your tax return, it's important to know the rules of the game when it comes to bonuses. That way, you'll end up with more success!

Self-employed professional athletes

If the athlete practices their sport independently and with the intention of making a profit, this constitutes commercial income. An allocation to self-employed income can be considered for individual sports.

Professional athletes in employment

However, if the athlete is in an employment relationship with a club and earns income from employment, the bonuses are treated in the same way as fixed remuneration for income tax and social security purposes. The employer should be informed of the amount of the bonus received so that it can be taken into account in the payroll (unless the bonus is paid by your own club).

Premiums for amateur athletes

As long as the sport is primarily pursued as an end in itself, that is, more or less for leisure activities and/or to enhance general performance, and not for the sake of the remuneration, it does not regularly generate taxable income through the prize money – according to the Federal Fiscal Court (BFH, judgment of 23.10.1992, Az.VI R 59/91).

However, if the athletes repeatedly participate in competitions and, among other things, club bonus regulations play a role (goal, victory, or non-relegation bonuses), these are taxable income that must be considered in the tax return. This must be examined on a case-by-case basis.

Bonuses are relevant for tax purposes. Those who are prepared can enjoy the laurels with ease.

Special regulations for certain bonuses

Sponsoring and advertising: Bonuses related to advertising or sponsorship can be considered commercial income. These are subject not only to income tax but also to trade tax. Here, it is advisable to seek professional advice.

Deductibility of expenses

A major advantage for professional athletes is the ability to claim many work-related expenses for tax purposes. This includes, for example, training costs, travel expenses to competitions, equipment, and coaching fees. These expenses reduce the taxable income and thereby lower the tax burden.

Bonuses to foreign athletes

Foreign athletes who do not have a residence or their habitual abode in Germany are subject to tax in Germany on income that has a special domestic connection. It is a limited tax liability on the prize payments. If the athletes or artists are self-employed, they are subject to German taxation according to § 50a EstG if they earn income from sports or similar activities performed or utilized within the country.

What does that mean specifically?
The tax is collected and remitted through withholding at the “source.” The tax debtor is therefore the one who owes the remuneration. The club pays the athlete the amount minus the applicable withholding tax (15%) and directly transfers the tax to the German tax office.

Tips for Tax Optimization
& Conclusion

  • Inform early: Athletes should inform themselves early about their tax obligations and prepare their tax return in a timely manner. It is not uncommon for insufficient or no reserve to be set aside for any potential tax refunds.
  • Professional advice: Especially with higher premiums or complex sources of income (e.g., sponsorship contracts, foreign matters, etc.), it is advisable to consult a tax advisor. This person can not only help with the tax return but also with optimizing the tax burden.
  • Collect receipts: Athletes should collect all receipts for bonuses, sponsorship income, and expenses. These can serve as proof in the tax return and help maximize deductions.


Conclusion:
The taxation of bonuses for athletes heavily depends on the individual situation – whether it is amateur or professional sports, sponsorship, or residence abroad. Athletes should therefore address the issue early on and, if necessary, seek professional support. With forward planning, tax disadvantages can be avoided and the tax burden can be optimized.

This article aims to provide an overview of the taxation of prize winnings and does not replace tax advice for individual cases. No liability is assumed for the assessment of individual cases or for completeness. finsports cooperates with the tax firm Lena Backhaus from Munich.

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