Tax Strategies for Puerto Rico Athletes: Incentives, Nonprofits, and Smart Structuring

Can a professional athlete reduce Puerto Rico tax exposure through strategic entity structuring? This question frequently comes up with Puerto Rican professional athletes who live and play abroad but conduct commercial activities in Puerto Rico. Many athletes' income sources are diversified: professional sports income abroad, brand endorsements and sponsorships, sports clinics and community engagement activities. The challenge: how to structure those Puerto Rico activities in a way that is tax-efficient, compliant, and strategically sound.

Below is a discussion of strategic options.

The Core Question

How can an athlete minimize Puerto Rico taxes on income generated from activities conducted on the island?

When an athlete lives and plays abroad and pays taxes on his professional sports income overseas, PR entity planning must focus specifically on Puerto Rico-source income from these activities. This situation may involve several revenue streams including:

• Sports activities: Youth sports clinics and related training events.

• Brand sponsorships: Endorsements and marketing collaborations with companies doing business in Puerto Rico.

Why Puerto Rico Incentive Programs May Not Apply

Puerto Rico’s Incentives Code (Act 60 of 2019) provides tax benefits for several industries, including:

• Creative industries

• Visitor economy (tourism)

• Export services

• Young entrepreneurs

• Small and medium enterprises (SMEs)

However, in some cases, an athlete’s activities may not clearly qualify under the current structure.

Creative Industries

These incentives often apply to film, television production, media, and digital content exports. Brand endorsements by an athlete generally do not qualify, because the athlete is providing services rather than producing qualifying creative works.

Visitor Economy

These incentives focus on tourism-driven businesses like hotels and hospitality. Youth sports clinics could potentially qualify if they attract non-resident participants traveling to Puerto Rico, but if they primarily serve local residents, they do not qualify.

Export Services

These incentives apply when services are provided from Puerto Rico to clients outside Puerto Rico. In some cases, activities like brand sponsorships and clinics activities primarily serve Puerto Rico audiences, making them ineligible.

Young Entrepreneurs

While most athletes may fulfill the age requirement for qualification, eligibility also requires Puerto Rico residency, which is not present in most cases where athletes live and play abroad.

SME Incentives

These benefits require that the business already qualify under one of the above sectors. Because the activities do not fit those categories, the SME incentives also do not apply.

The Nonprofit Option: Sports Foundation Model

In order to maximize legal planning for tax efficiency, we must look beyond Act 60 incentives. One strategy involves incorporating companies as nonprofit charitable organizations.

This approach is common among athletes and public figures who wish to support community initiatives. A nonprofit structure allows the organization to:

• Receive charitable donations

• Apply for grants

• Conduct fundraising activities

• Build public goodwill around community engagement

Instead of receiving profits as an owner, the athlete would be paid a salary as an employee of the organization. That compensation could partially be directed toward retirement plan contributions, such as a 401(k), which can defer taxation until retirement.

The For-Profit Entity: Managing Sponsorship Income

Separately, an athlete could establish a limited liability company (LLC) to manage their brand endorsements. This entity would:

• Contract with sponsors and brands

• Manage marketing deals

• Pay business expenses

• Pay the athlete a salary for services rendered

Because salaries and business expenses are deductible, this structure can reduce the entity’s taxable income.

For example:

If the company earns $100,000, pays $50,000 in salary, and incurs $50,000 in expenses, the resulting taxable income could be $0 for that year (basic example, consult your CPA).

Again, retirement contributions can play a role in managing personal tax exposure.

Important Compliance Considerations

Whenever legal tax planning strategies are implemented — particularly with public figures — compliance must remain the top priority. Improper structuring can create significant legal and reputational risks.

Nonprofit Governance

To maintain tax-exempt status, a nonprofit must:

• Operate exclusively for charitable purposes

• Avoid private benefit to insiders

• Maintain independent governance through a board of directors

• File required annual reports and informational returns

The organization must also avoid activities such as:

• Distribution of profits to individuals

• Personal use of nonprofit assets

• Excessive compensation to insiders.

Reasonable Compensation

Both the Puerto Rico Treasury Department and the IRS require that salaries paid by corporations — including nonprofits — reflect reasonable market compensation. Excessive compensation may be reclassified as improper distributions or private benefit.

Retirement Contribution Limits

401(k) plans allow tax-deferred contributions from both employer and employee. Current combined contribution limits are approximately $70,000 per year (2025).

Sponsorship Payments vs. Donations

A common misconception is that companies can avoid taxes by paying sponsorship fees as “donations” to a foundation. In reality, payments for services cannot be disguised as charitable contributions. Doing so may violate tax law. If companies wish to support the foundation, the donations must be separate and independent from endorsement agreements.

Conclusion

For athletes and public figures operating internationally, tax planning is rarely simple. But thoughtful structuring — particularly through a combination of nonprofit and for-profit entities — can help align:

• Community initiatives

• Brand partnerships

• Tax efficiency

• Legal compliance.

The key is making sure that the structure reflects the true nature of the activities involved.

MORE RESOURCES FOR YOU👇👇👇

📚 For more insights on Puerto Rico tax incentives, residency planning, and legal strategies for entrepreneurs and athletes relocating to the island, explore our legal articles on Puerto Rico tax planning and cross-border structuring.

🔎 If you are an athlete, entrepreneur, or investor exploring Puerto Rico tax incentives or international structuring opportunities, learn how our firm supports clients through our tax planning and business structuring legal services.

🧠 If you are considering relocating to Puerto Rico or structuring income through incentives such as Act 60, you can schedule a consultation with a lawyer experienced in Puerto Rico tax planning and cross-jurisdictional structuring.

🖋️ For general inquiries and questions about or firm and services, Contact Us.

⚖️ To learn more about how we supports entrepreneurs, athletes, and creators navigating tax and business strategies, visit the Starving Artists legal resources for entrepreneurs and creators.

*This article is provided for informational purposes only, and does not constitute legal or tax advice, counsel or representation.