The Netherlands Wage Tax Act contains a special regime for professional athletes. For the purpose of the application of the Act, the Act contains a definition of a professional athlete. It is a person who on the basis of an agreement of a short duration (less than three months) or for a short period on another basis performs sport activities as a profession. An important exception to this definition applies to athletes that are employed by a withholding wage tax agent that is resident in the Netherlands. For these people the normal wage tax rules are applicable. Also, there are some special wage tax rules for foreign sports teams.
A person is not a professional athlete if the sports activities are not a source of income for the athlete. It depends on the facts and circumstances of each case whether an athlete is for the application of the wage tax act to be considered as a professional athlete. The Netherlands Olympic Committee and the Netherlands Sports Associations (NOC*NSF) have developed a scheme for withholding agents to determine whether wage tax needs to be withheld. In the Decree of 29 July 2004 the Netherlands Under-Minister of Finance has indicated that he will generally accept the outcome of the scheme for wage withholding tax purposes. However, for the application of the individual income tax legislation the scheme is not relevant at all. The following are just some of the elements that are included in the scheme. Application in practice requires careful analysis of the facts and circumstances of each individual case.
First step is to check whether the athlete has a Statement of the Netherlands tax authorities, according to which he is for income tax purposes to be considered as an entrepreneur. In such case no withholding tax needs to be withheld. A second situation, in which an agent does not need to withhold wage tax, is when the athlete shows a Statement of the Netherlands tax authorities from which it appears that another person is withholding wage tax on payments to the athlete. Thirdly, travel and accommodation costs as well as meals and consumptions during or after the sports activity are not to be considered as taxable wages.
The 4th test consists out of a series of questions (below is a simplified summary thereof):
– Does the athlete receive starting money (if yes wage tax is in principle due);
– Receives the athlete more than Euro 250 (if not then no wage tax needs to be withheld);
– If the answer to at least 3 of the following 5 questions is yes, then wage tax needs to be withheld:
o Does the athlete need to have a certain level or license to be eligible to participate;
o Does the athlete receive reimbursement of travel or accommodation expenses;
o Does the athlete receive price money of more than Euro 350;
o Does the price money for the winner exceed Euro 3.500;
o Do the spectators have to pay for watching the event?
Finally, the Ministry of Finance has recently published a study on the effectiveness of the tax regime for artists and athletes. The not so positive results of the study regarding the accurateness and efficiency of the current regime may in the nearby future trigger amendments to the current system.