Athletes often receive cash prizes or other benefits for their achievements in tournaments held outside Poland. This raises tax questions. For example, is a prize won abroad taxed in the country where the tournament occurred? Or in Poland, where the athlete resides and reports their income? Or perhaps in both countries simultaneously?

The taxation of such income is complicated because it involves the tax laws of both the country hosting the tournament and the taxpayer’s country of residence. Therefore, understanding how the law treats this income and how to prevent double taxation is crucial. 

How to properly qualify such income?

First of all, it should be clarified that income from winnings in foreign tournaments is classified as income from activities performed personally (Article 10, Section 1, Point 2 and Article 13, point 2 of the Personal Income Tax Act), unless the athlete conducts business activity and issues invoices to the club, in which case the income is classified as business activity (Article 10, Section 1, Point 3). Income from activities performed personally is considered to include, among others, income from personally performed artistic activities, practicing sports, sports scholarships, and referees’ income from conducting sports competitions.

Why is the matter complicated?

When a Polish tax resident takes part in a competition abroad, the regulations of two countries come into play:

• Source country – i.e., the country where the tournament takes place and where the athlete receives the award.
• Country of residence – a tax resident in Poland is a natural person who has a centre of personal or economic interests (centre of vital interests) in Poland, or stays in Poland for more than 183 days in a tax year (Article 3, Section 1 of the Personal Income Tax Act).     

To avoid a situation where a player pays tax twice on the same income, double taxation agreements are used.

Double Taxation Agreements (DTAs)

DTAs are agreements between two countries that are intended to prevent situations where a taxpayer is taxed on the same income in both countries. DTAs between Poland and other countries often stipulate that an athlete’s income from sports activities may be taxed in the country where the activity (such as a tournament) takes place.

The provisions of the relevant double taxation agreement govern the specific method applied to a given income category. In the double taxation agreement concluded by Poland, two methods of avoiding double taxation are generally used:

1. The proportional deduction method, which means that the country of residence taxes the income earned abroad but allows a deduction for the tax paid in the source country. This deduction is only possible up to the amount of tax proportionally attributable to the income earned in the foreign country.
2. The exemption with the progression method means that income earned abroad is exempt from taxation in the country of residence, but it affects the tax rate applied to domestic income. It applies only if the taxpayer earns other income in the country of residence that is taxed under general rules. If an athlete earns no income in Poland, they pay tax only in the country where the tournament took place, and the income remains exempt in Poland.

How does this work in practice?

An example is the Supreme Administrative Court’s judgment of December 6, 2022 (II FSK 989/20), concerning a Polish tax resident golfer who received prizes for tournaments played in Germany. Under the double taxation agreement between Poland and Germany, which uses the exemption with the progression method, this income was taxable only in Germany. In Poland, it was tax-exempt; however, this affected the tax rate applied to other domestic income (domestic income + foreign income → tax rate → application of this rate to domestic income).

Abatement Relief

If Poland has not concluded a double taxation agreement with a given country, or the treaty does not provide for income tax exemption, the proportional credit method applies. However, because the exemption with the progression method is usually more favorable to the taxpayer, the legislator has introduced the so-called abatement relief (Article 27g of the Personal Income Tax Act). This relief allows for reducing the tax calculated using the proportional deduction method by the difference between it and the tax that would have been charged using the exemption with the progression method.

As a result, the tax amount after applying both methods should be approximately the same. The purpose of the tax abatement relief is to equalize the tax burden on individuals earning income abroad in countries with which Poland does not have a tax agreement or where the proportional deduction method is used. However, it should be noted that the relief is not applicable if the tax in the source country has not actually been paid. Furthermore, the tax abatement relief has been limited to PLN 1360.

In conclusion

Athletes earning income abroad pay tax in the country where the tournament is held. In Poland, this income is managed using double taxation avoidance methods and, if needed, tax relief. This prevents double taxation and helps reduce additional tax expenses.

Our law firm specializes in tax law and sports. If you have any questions or concerns, we are happy to assist.

Sources:

1. Ministry of Finance. Rozliczenie dochodów zagranicznych osoby nieprowadzącej działalności gospodarcze [ENG: Settlement of foreign income of a person not conducting business activity]. Available online: https://www.podatki.gov.pl/pit/osoba-nieprowadzca-dzialalnosci-gospodarczej/rozlicza-osob-26-60/rozlicza-dochodow-zagranicznych/ .
2. Personal Income Tax Act of July 26, 1991. Journal of Laws 1991, No. 80, item 350. Available online: https://isap.sejm.gov.pl/isap.nsf/download.xsp/WDU19910800350/U/D19910350Lj.pdf .
3. The Supreme Administrative Court (NSA), Judgment of December 6, 2022, ref. No.: II FSK 989/20.
4. Ministry of Finance. (2025). Ulga abolicyjna [ENG: Tax abatement relief]. Available at: https://www.podatki.gov.pl/pit/ulgi-odlicza-i-zwolnienia/ulga-abolicyjna/ .