1. Pay Tax

Cristiano Ronaldo received $61 million in salary and winnings each year from his former club Real Madrid. World-famous or not, Ronaldo is bound to pay the amount of tax computed on that income.

Tax laws in most countries dictate individual income tax to be imposed on individuals (taxpayers). Income tax is generally computed as the product of tax rate times taxable income.

The tax rate is the ratio (usually expressed as a percentage) at which an individual is taxed. As there are several methods used to present a tax rate — statutory, average, marginal, and effective — they often vary per jurisdiction.

Taxable income generally includes most things that enrich the individual, including compensation for services, gains from sale, interest, dividends, rents, royalties, annuities, pensions, and all manner of other items.

2. Exploit Your Brand

In addition to his salary, Ronaldo makes a whopping $47 million through his brand — a lifetime contract with Nike Inc. worth over $1 billion, his line of CR7 branded products and other deals including Tag Heuer, Herbalife and EA Sports. That means almost half of his income is made up of sponsorship deals commercially exploiting his image rights.

Famous Footballers’ Brand Logos | Image on Footy Headlines

His name, likeness and image as well as characteristics that are inextricably linked to an individual’s personality such as their autograph, signature and nickname, are all exploitable. The more popular the player, the greater the value.

As these endorsements are basically compensations for services enriching the individual, Ronaldo needs to pay tax for this part of his income as well.

But that’s where the magic happens.

3. Shift Offshore

After Ronaldo signed a contract to join Real Madrid in 2008 he ceded his image rights to a little company called Tollin Associates Ltd, domiciled in the British Virgin Islands — a jurisdiction most known for what’s not subject to tax. The company has only one stakeholder. You guessed it: Cristiano Ronaldo.

In turn, Tollin Associates ceded the image rights to a company in Ireland called Multisports & Image Management Ltd. The Ireland-based company was responsible for managing the image rights and closing agreements with purchasers like Nike, Toyota and Emirates. Multisports & Image Management is not owned or controlled by Ronaldo. As a result, recognized purchasing companies are not associated with companies on tax havens, while the profits still end up on the Virgin Islands.

The Irish connection is important because image rights are considered royalties, which normally are subject to withholding tax at the source. This means the company paying the royalty needs to deduct withholding tax at the required rate which is usually equivalent or approximate to the rate of corporation tax (generally about 25 to 30 per cent). In this case, the percentage of withholding tax is substantially reduced since the payments are made to Tollin Associated Ltd, resident of a country with whom Ireland has signed an advantageous tax treaty.

Between 2009 and 2014 Tollin Associates reported income of over $75 million for exploiting Ronaldo’s image rights. On the Virgin Islands however, Tollin Associates is not required to pay any corporate tax.

Following accusations, Ronaldo’s agency GestiFute published a document disclosing financial information in a bid to prove their client declared the necessary assets and rights to Spanish authorities. The document states that Ronaldo held around $250 million of assets outside of Spain.

Cristiano Ronaldo’s ‘Model 720’ tax return released by Gestifute

4. Get The Money Out

Although the company exploiting the image rights is tax-free by being based in a low-tax offshore jurisdiction, Ronaldo needs to get the marketing money out to spend it. At that point, Tollin Associates still has to pay it to him as a taxable dividend.

To prevent this, Ronaldo took advantage of a Spanish Tax Decree designed for all foreign workers (particularly the wealthier ones) living in Spain. Upon application and acceptance by the authorities, such individuals were allowed to choose whether to be taxed as a Spanish resident or a non-Spanish resident. If an individual chose to be taxed as a non-Spanish resident, they are taxed only on income generated in Spain. The income derived from worldwide exploitation of image rights was therefore not subject to Spanish taxation. It goes without saying that the taxable exploitation of image rights in Spain only makes up a small portion of its worldwide total.

It’s no coincidence this Tax Decree was called the ‘Beckham Law’, named after David Beckham, one of the first foreigners to benefit from it.

5. Improvise, Adapt, Overcome

Notably, foreign football players were the main beneficiaries of the Beckham Law that was intended to stimulate the weak Spanish economy by attracting affluent foreign workers. The Beckham Law became shrouded in controversy as it enabled wealthy foreign workers to pay less tax than a Spanish resident.

In 2015, the personal income tax regime in Spain was significantly affected by a new Tax Decree. Employees who earned more than $700.000 a year were no longer eligible to apply for the Special Taxation Regime — effectively excluding high-paid footballers like Ronaldo. Allegedly Ronaldo paid just 4 per cent of his income to the Spanish treasury. With the new Tax Decree, action was required to prevent a massive increase in tax due.

In December 2014 Ronaldo sold his image rights for a lousy $80 million in a 6-year contract. Reports assert that the operations were carried out through Mint Capital, a company linked with businessman and current Valencia president Peter Lim, and directed to a Swiss bank account in Ronaldo’s name.

“This is a very strategic move for me and my management team to take the Cristiano Ronaldo brand to the next level, especially in Asia.” Ronaldo wrote on his Facebook page.

But there’s more. When Italy’s Fiat-affiliated football giant Juventus snapped up Cristiano Ronaldo in 2018 for an extravagant $34 million a year — net — it made big headlines. Italy’s unveiling of an attractive new tax regime to lure rich foreigners to the country also captured the attention of the press — but certainly not on the same scale.

Under the new law, Italy offers a resident non-domiciled tax regime to wealthy individuals that allows them to pay ordinary taxes on the income generated in Italy and a single, fixed tax payment of $120.000 to cover taxes on non-Italian income (derived from worldwide exploitation of image rights). Sounds familiar, doesn’t it?