This article is about taxation of sport in Ukraine.

The main idea is that taxation of sports activities in Ukraine has its own peculiarities and requires further development in accordance with the best international practices.

Generally, sports law is understood as the specific segment of legal rules governing relations occurring in the sphere of physical culture and sports. Such segment appears to be the organic conjunction of various laws relating in different ways to sports. These include, for example, civil law, employment law, corporate law and, in particular, tax law. The sports industry is one of the fastest growing industries worldwide, and Ukraine is not aside of this global process. A growing number of taxpayers nowadays earns income from sports, for example, professional football players and clubs. Needless to say that the applicable taxation regime depends, mainly, on the status of a particular taxpayer. This may be inter alia a business company (e.g. professional sport club), a non-for-profit organization (e.g. sport federation or association, amateur sport club, National Olympic Committee of Ukraine), a non-resident's representative office or permanent establishment in Ukraine and an individual (e.g. employee, private entrepreneur, amateur sportsperson). Accordingly, these taxpayers incur a range of tax obligations and some of them will be considered throughout this article.

Corporate profits tax

Again, corporate profits tax (CPT) implications will depend on the status of a particular CPT payer.

Thus, according to the Tax Code, the profit of a Ukrainian business company determined as the difference between incomes and costs will be subject to taxation at the 21% rate. Incomes may be generated through a variety of sources, including, for example, sportsperson transfer fees, prize moneys, attendance receipts, sponsorship contracts, merchandising, image rights payments, appearance fees and TV rights. Some proceeds, like loans or capital contributions, do not qualify as taxable incomes. Costs also vary and may include, for example, salaries and other remuneration, lease fees and insurance premiums.

For a non-for-profit organization, only allowed proceeds, as established by the Tax Code, are exempt from taxation, whereas non-qualifying proceeds are subject to taxation. The former include, for example, donations, passive incomes and proceeds from charter activities.

Finally, any income of non-residents derived from sources within Ukraine is subject to taxation in Ukraine (unless the applicable double tax treaty of Ukraine provides otherwise), and such income include inter alia remuneration for performance of sports activities on the territory of Ukraine.

Value-added tax

Generally, according to the Tax Code, the supply of goods/services with the place of supply on the customs territory of Ukraine is subject to the 20% value-added tax (VAT). The Tax Code further specifies that the place of supply of services in the sphere of sports is the place where these services are actually rendered.

Whereas some sport related transactions are VAT exempt (e.g. organization of sport activities for children, pupils and students) or are not subject to VAT (e.g. secondment of personnel (it may be, for example, lease of a sportsperson) to a non-Ukrainian lessee, the most of them are VATable. These may include, for example, sale of tickets for entry into any sporting or other entertainment event, merchandising and appearance fees.

In sport, it is common that sportspersons are transferred from one sport organization to another. For example, in accordance with the FIFA (Fédération Internationale de Football Association) rules, a player who is contracted to a club can have his contract transferred ("sold") to another club based on a process known as the transfer system. The relevant procedures require the club "buying" a player to pay compensation (transfer fees) to the club "selling" its player. In fact, what is being sold is the rights of the club to require the player's services.

Whether transfer fees receivable by the "selling" sport organization from the "buying" sport organization are subject to VAT appears to be an issue in Ukraine. As soon as the Tax Code does not specifically regulate this question, there are two opposite approaches. The aggressive approach would be that such transfer does not fall with the definition of the supply of goods or services for VAT purposes, whereas pursuant to the more conservative approach such transfer should be treated as the VATable supply of services. It is worth mentioning that the same issue appears to exist in Russia, whereas the EU countries and the United Kingdom consider the transfer fees as subject to VAT.

Personal income tax

Identically with CPT implications, these of personal income tax (PIT) are dependable on a status of particular individual. Thus, this can be an employee or a private entrepreneur, a professional or an amateur sportsperson, a resident or a non-resident, etc. Furthermore, a private entrepreneur may enjoy the simplified taxation system and does not fall within the scope of PIT regulations.

There is very limited number of instances when certain sorts of personal incomes relating to sports are exempts from PIT. These are, for example, prizes which value does not exceed 50% of a minimum monthly wage, except prize moneys (except prize moneys paid by or on behalf of the Ukrainian State).

Salaries, wages and similar items paid to employees, including sportspersons, by employers are subject to PIT at applicable rates. Taxable personal incomes may inter alia include the signing-on fees (received by a sportsperson when signing up a contract with a sport organization), prize money, bonuses and other benefits obtained from employers and/or third parties (sponsors, contest organizers, etc).

Personal incomes of non-residents sourced from Ukraine are taxed in Ukraine (unless the applicable double tax treaty of Ukraine provides otherwise), and such incomes include inter alia prizes.

Double tax treaties

Double tax treaties of Ukraine often provide the specific regulation for taxation of sportspersons, which regulation is based on the OECD (Organization for Economic Cooperation and Development) Model Convention. Thus, in accordance with the most treaties (for example, treaties with Brazil, the Netherlands, Romania and the USA), sportspersons who are not Ukrainian residents may be taxed in Ukraine in which their personal activities as such performed, whether these are of a business or employment character. Even if income from their activities accrues to other persons (e.g. agents, star-companies, etc), the Ukrainian tax still applies. Some treaties exclude from the Ukrainian tax income derived from these activities if the visit to Ukraine is supported by public funds of one (for example, treaty with Austria) or both contracting states, or if these activities are performed under [cultural or sports] agreement between the contracting states (for example, treaty with the Netherlands).

Summary

Analysis of the applicable Ukrainian legislation confirms that taxation of sports activities in Ukraine has its own peculiarities. At the same time, the Ukrainian tax legislation in contrast with many other countries does not appear to be stimulating the development of sports in Ukraine. For example, the Tax Code does not allow the deductibility of fees paid by employers to sport clubs where their employees do sports (fitness, swimming, etc) and permits only limited deduction of donations to non-for-profit organizations. There are, therefore, the areas for improvements of the Ukrainian tax laws in accordance with the best international practices.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.