Taxation and tax benefits for foreign athletes in Israel

In Israel, tax laws impose a tax on all income produced and/or accrued in Israel, regardless of the identity of the income recipient. This is effectively a comprehensive provision that extends to various regulations in the general law and in the regulations enacted under its authority. That is, a non-resident who generates income within the territorial jurisdiction of the State of Israel will be liable for tax in Israel on that income. Specifically, a foreign resident athlete who operates and generates income in Israel will be taxed on that income in Israel.

Moreover, to encourage the entry of foreign players and promote Israeli teams, tax benefits have been established for foreign athletes working in Israel. Thus, under the Income Tax Ordinance regulations, “Income Tax Regulations (Foreign Athlete) 1998,” enacted under Section 75A of the Income Tax Ordinance, special tax benefits have been specified for foreign athletes.”

Unique Tax Benefits for Foreign Athletes:

• Foreign athletes are entitled to deduct certain expenses incurred for the purpose of generating income in Israel, including accommodation expenses, rental of apartments in Israel, and breakfast expenses (up to a certain amount).
• A uniform tax rate of 25% is applied to the athlete’s salary after all allowable expenses are deducted as mentioned above.
• This benefit is limited to a period of four years.

In addition to these benefits, there are other advantages such as a benefit in the rate of national insurance fees – reduced insurance fees of 2% compared to the 19% imposed on resident athletes in Israel.

In addition to the general law mentioned above, there are provisions of treaties that the State of Israel has signed with over 50 different countries around the world. The role of these treaties is to regulate the taxation rights of the countries that are parties to the treaty and establish rules determining which country and in which situations has the primary right to tax certain incomes, and which has the secondary right.

The provisions of the treaty are an agreement that supersedes the internal law applicable in the treaty-signing countries and therefore, given that the treaty provisions are more lenient than the internal tax laws of the countries, the treaty provisions prevail. Tax treaties address the taxation and tax benefits for athletes on one of two levels: a fixed tax rate which is usually a reduced rate from the normal rate practiced in those countries; and the deduction of certain expenses from the salary paid to the athlete.

Below are the tax benefits provided in other countries around the world:

* Note: Tax benefits are subject to additional conditions and are sometimes limited by further restrictions besides those detailed below.

Last year, a discussion took place in the Knesset Finance Committee, focusing on the tax benefits granted in Israel to foreign athletes, as opposed to the taxation of Israeli athletes in Israel.

It should be noted that tax benefits for foreign athletes are a common practice in many countries worldwide to foster internal competition in the sports sector of that country through the entry of outstanding foreign talent from other countries.

Examples of tax reliefs in other countries:

• Spain: Tax rate of 24%. Income cap of 600,000 Euros. The benefit is granted for up to 5 years.
• Denmark: Tax rate of 26%. Income cap of 600,000 Euros. The benefit is granted for up to 5 years.
• France: Up to 50% of salary is exempt from tax. The benefit is granted for up to 8 years.
• Netherlands: Up to 30% of salary is exempt from tax. The benefit is granted for up to 8 years.
• Turkey: Tax rates vary between 5%-15% depending on the league level of the athlete.
• Cyprus: Up to 50% of salary is exempt from tax. The benefit is granted for up to 10 years.
• Finland: Tax rate of 35%. The benefit is granted for up to 4 years.
• Russia: Tax rate of 13%. The benefit is granted for up to 3 years and can be renewed.
• Sweden: Up to 25% of salary is exempt from tax, as well as certain allowances that are tax-exempt. The benefit is granted for up to 3 years.

As mentioned, Israel provides many tax benefits to foreign athletes. Through optimized tax calculations, many of these benefits can be utilized and planned for tax purposes. For questions on this topic, please contact our office.