Formula 1 in Madrid: how Spain taxes non-resident drivers and teams

Formula 1 returns to Madrid on the weekend of 11 to 13 September 2026, at the Madring circuit laid out on the IFEMA exhibition grounds. What a non-resident driver or team earns for competing there is income obtained in Spanish territory, and Spain taxes it at 24 % — or at 19 % where the taxpayer is resident in another Member State of the European Union or of the European Economic Area with effective exchange of tax information. It is taxed in Spain even where the money is not paid to the driver but to the team, and even where the contract is signed and settled abroad. That is the express wording of article 13.1.b).3.º of the consolidated text of the Non-Resident Income Tax Act, approved by Royal Legislative Decree 5/2004.

The Grand Prix therefore raises a question far removed from sport: how much of a global remuneration belongs to three days of racing in Madrid, and who must account for it to the Spanish Treasury.

What makes a payment "income obtained in Spanish territory"?

Article 13.1.b).3.º treats as obtained in Spanish territory the income deriving, directly or indirectly, from the personal performance in Spanish territory of artistes and sportspersons, or from any other activity connected with such performance, even where it is received by a person or entity other than the artiste or the sportsperson. Three elements of that wording carry the entire regime: a personal performance, its location in Spain, and the extension to activities connected with it.

The connecting factor is therefore neither residence nor nationality, nor the place where the contract was negotiated or the money transferred: it is the place of the performance. A driver resident in a third State, engaged by a team incorporated abroad and paid abroad, obtains Spanish-source income for the portion of his remuneration attributable to competing at the Madring. The reverse case is equally instructive: when the performance takes place outside Spain, Spain cannot tax the non-resident, which is what we examined in relation to the prize money of the Spanish national football team. Madrid inverts that picture, because this time the competition is held here.

The extension to "any other activity connected with such performance" matters as much as the performance itself: it brings within the Spanish tax net the promotional appearances, media commitments and sponsor events staged around the race weekend. A driver who is a Spanish tax resident falls outside all of this, since he is taxed on his worldwide income under personal income tax.

Why the tax applies even when the team, and not the driver, is paid

The closing words of article 13.1.b).3.º — "even where it is received by a person or entity other than the artiste or sportsperson" — are the heart of the provision. Without them, the tax could be avoided by simple contractual engineering: the driver's services would be invoiced by an image-rights company, a service company or the team itself, none of which performs personally in Spain, and the Spanish source would formally disappear. The Spanish legislature closed that route in the text of the rule, not through anti-abuse doctrine: the income is taxed in Spain because it derives from a personal performance in Spain, whoever collects it.

The same logic underpins the international framework. Article 17 of the OECD Model Tax Convention allows the State where the performance takes place to tax the income of artistes and sportspersons even in the absence of a permanent establishment there, and its second paragraph extends that power to income accruing not to the performer but to another person. Domestic law and the treaty model thus point in the same direction, although each bilateral treaty must be checked case by case: it may modulate the allocation, and it governs how the State of residence then eliminates double taxation.

The rate and, more importantly, the base on which it applies

Under article 25.1.a) the general rate is 24 %, reduced to 19 % for taxpayers resident in another Member State of the European Union or in a State of the European Economic Area with effective exchange of tax information. The five-point spread is not the whole story, however: the base matters more than the rate.

Article 24.1 provides that, for income obtained without a permanent establishment, the taxable base is the gross amount, with no reductions and no deduction of expenses. Article 24.6 introduces a decisive exception: taxpayers resident in another Member State of the European Union — and, in the terms of that same provision, in an EEA State with effective exchange of information — may deduct expenses, provided they prove that those expenses relate directly to the income obtained in Spain and have a direct and inseverable economic link with the activity carried on here. For individuals the deductible expenses are those of the personal income tax legislation; for entities, those admitted by Corporate Income Tax Act 27/2014.

The practical consequence is significant for a paddock whose teams are established in several jurisdictions. A team resident in the European Union is taxed at 19 % on a figure from which the costs directly and inseverably linked to the Madrid weekend may be deducted; a team resident in a third State is taxed at 24 % on the gross amount, with no deduction whatsoever. On identical contractual terms, the effective burden differs materially.

Who must withhold, and who answers if nobody does

For a non-resident without a permanent establishment, the tax is ordinarily collected at source. Article 31.1.a) obliges entities resident in Spanish territory to withhold and pay on account in respect of the income subject to this tax that they pay or credit, and article 31.2 requires the amount withheld to equal the tax debt determined under the Act or under the applicable double taxation treaty, but computed "without taking into account the provisions of articles 24.2, 24.6, 26 and 44". That carve-out is decisive here: the deduction of expenses under article 24.6 is disregarded when the withholding is calculated, so a team resident in the European Union has tax withheld on the gross amount. In the ordinary case the withholding exhausts the tax, and article 28.3 accordingly relieves the taxpayer from filing a return for income on which it has been made; but a taxpayer wishing to apply article 24.6 must file a return and claim a refund of the excess withheld. The net base is a genuine advantage, yet it materialises afterwards and has to be claimed.

The corollary falls on the Spanish payer, and it should be placed where the statute places it. The exposure arises from the capacity of withholding agent: article 31.3 provides that those obliged to withhold assume the obligation to pay the amount into the Treasury, and that failure to withhold does not excuse them from paying it, so a payer who settled the invoice in full without withholding remains answerable for what should have been withheld. The joint and several liability of the payer under article 9.1 does not add to that exposure, because that provision itself excludes such liability where the withholding obligation under article 31 applies, without prejudice to the liabilities arising from the capacity of withholding agent. Any Spanish resident entity paying appearance fees, sponsorship or promotional services connected with the Grand Prix should therefore treat withholding as part of the contract, not as an administrative formality to be resolved afterwards.

How much of a season belongs to three days in Madrid

The hardest question is not the rate but the apportionment. Where a driver's or a team's remuneration covers a full championship season contested across several countries, determining what portion corresponds to the performance in Spain is a question of fact: what the contract remunerates, which obligations are performed here, and what documentary trail supports the allocation. The statutory perimeter is wide — the personal performance and any other activity connected with it — and the applicable treaty may refine it. The criterion should therefore be defined and documented before the payment is made, not reconstructed when the tax administration asks for it.

How we help with the taxation of non-resident sportspeople at RCM Legal

There are two recurring difficulties in these files. The first is the apportionment: contracts drafted for an international season rarely identify what is paid for competing in Spain, and an allocation improvised after the event is hard to defend. The second lies with the payer: Spanish organisers, sponsors and resident companies discover the withholding obligation once the invoice has been settled in full, when the tax must be borne by someone who did not budget for it and remains liable to the Treasury under article 31.3.

At RCM Legal we advise non-resident sportspeople, teams and their sponsors on the taxation of income obtained in Spain: identifying what is Spanish-source income, applying the correct rate under the domestic rules and the applicable treaty, quantifying and documenting the withholding, and handling the filings and refund claims. As a firm of lawyers in Murcia specialising in tax advice for non-residents and international taxation, if you compete in, organise or sponsor an event held in Spain, tell us about your case before the payment is made.