Reduction for contributions to professional sportsmen's mutual insurance companies

Professional sports is a worldwide business that has a significant impact on the Spanish economy. The high income that professional sportsmen and women can earn is quite famous, although the high taxes they have to pay are perhaps not so well known. However, Spanish tax law also offers them some tax benefits, to which we dedicate these lines.

It is common knowledge that the professional careers of sportsmen and sportswomen come to an end earlier than the vast majority of professions. Therefore, it is very important that every professional sportsman or sportswoman carries out a good tax planning from the beginning.

In the following, we will deal with the tax on income received by professional sportsmen and women for their activity, the Personal Income Tax (hereinafter IRPF), and we will focus in particular on an important reduction that this tax provides for professional sportsmen and women.

Content overview

First of all, what is the IRPF and what is its scope?

The IRPF is a personal and direct tax that is levied on the income of individuals, in this case of professional or top-level athletes, according to their nature and personal and family circumstances. This income is defined as all their income, capital gains and losses, as well as the income imputations established by law, regardless of the place where they were produced.

If I am a professional or high-level sportsman or sportswoman, am I entitled to any income tax benefit?

Yes, duly accredited professional athletes and top-level athletes can opt, among other tax benefits common to all taxpayers, for a significant reduction in the taxable base of their personal income tax for contributions to mutual benefit funds for professional athletes.

How does the reduction for contributions to professional sportsmen and sportswomen's mutual benefit societies work?

Professional and high-level sportsmen and women can make contributions, at any time, to the Mutualidad de Deportistas Profesionales (MDP), Mutualidad de Previsión Social a Prima Fija, forming a Savings Plan. Their employers may also do so, as promoters, as earned income.

These contributions reduce the general IRPF taxable base of the athlete, who thus obtains a tax saving equivalent to applying his IRPF rate to the amounts contributed.

However, once they lose their status as professional and high-level sportsmen and women, or when their working life comes to an end, they will not be able to make contributions with the right to the aforementioned reduction.

Is there a maximum limit of contributions that entail IRPF reduction?

Yes, the lesser of the following amounts:

  • The sum of the net income from work and economic activities received individually by the taxpayer in the fiscal year.
  • The amount of 24,250 euros per year.

I have contributed more than allowed, what happens with that money with respect to my IRPF reduction?

The contributions made in the year that could not have been reduced from the taxable base, either due to insufficient base or due to the application of the maximum limit to which we have referred, can be reduced in the following five fiscal years.

At what time will I be able to dispose of the money contributed?

The contributions design a Savings Plan with specific characteristics. One of the main advantages is that the money contributed will be available both in the usual cases of pension plans and funds, such as long-term unemployment, serious illness or retirement, among others, and once a year has passed since the end of the professional athlete's working life or when he or she loses the status of top-level sportsman or sportswoman.

In addition, the sportsman or sportswoman will be able to choose how he or she wishes to receive the benefit, whether in one lump sum or a part now and the rest as a monthly payment... which is a real advantage. Since the athlete will be in a situation of total independence for the choice of how to plan the disposal of the money.

However, when receiving the benefit, the athlete will have to pay tax on it, so that the immediate tax savings obtained by making the contributions will be totally or partially reverted in the form of personal income tax paid when receiving the benefits, which means that the reduction operates strictly speaking as a system of (partial) tax deferral.

Finally, can a professional or top-level sportsman or sportswoman make other types of contributions?

Indeed, in addition to the contributions to the Special Savings Plan of the professional sportsmen and sportswomen's mutual insurance company, he/she can make contributions to social welfare systems. As an example, we could name the most common of them, the pension plan.

These contributions will also have tax benefits. They will reduce the general taxable base. However, there is a tax reduction limit, which is the lesser of the following amounts:

  • 30% of the sum of the net income from work and economic activities received in the year.
  • 2,000 euros per year.

Thanks to these reductions, which represent a very interesting tax advantage, and to the freedom to manage the way in which to dispose of the money contributed, the professional and high-level sportsman has a powerful tool for savings and tax planning, which, if well used, can be of great help when he reaches the stage of professional retirement.