More and more people call their career path influencing or digital content creation. These people focus on building an active social media presence and large follower base generated by sharing original content and taking part in brand sponsorship campaigns. You can find examples of such content creators in almost every niche, from food to automobiles or DIY crafts.
The main channels where influencers gather their following are blogs and platforms like TikTok, Instagram, YouTube, Facebook, etc. The number of people subscribing to their content on these platforms often determines the financial return they receive from sponsors and, in some cases, the platforms themselves.
Sources of income
Generating income from the social media presence raises the question of when and how such activities are taxed. There have been many cases of news coverage about influencers who have failed to account for their income derived from sponsorships and pay VAT to the tax authorities.
In recent years, many countries have reacted to this and imposed rules and regulations targeting influencers, including the requirement to mark sponsored posts as advertisements with the ‘#ad’ or outlining cases when and how people with social media fame should pay taxes. These requirements apply to large-scale influencers, generating thousands of euros per post, and micro influencers, often posting for payment-in-kind.
Several types of transactions most often result in financial gains for influencers. These include:
- Sponsored posts mentioning and/or showing a brand or a product;
- Endorsements and reviews and in exchange for money or physical items;
- Mentions of gifted items.
Taxpayer status
For influencers to account for their income, they should register their economic activity. Self-employment status is often the easiest option for those who habitually carry out professional activities. However, in some cases, especially when the person sells merchandise, it can be worthwhile to establish a company.
Both scenarios recommend keeping records of all influencing-related income and spending, such as equipment, travel, phone and internet, marketing, and similar bills. Moreover, it is important to track the total revenue for the past 12 months so that the person knows when to register for VAT. The VAT thresholds differ from country to country, and it’s best to consult with tax professionals for the best accounting practices. You can get in touch with 1stopVAT’s team.
Taxable and non-taxable activities
There are some grey areas when it comes to the taxable activities of the influencers, so it is essential to analyse them on a case-to-case basis.
- Being paid to post
All payments for posts have to be invoiced and included in the records. Once a person exceeds the VAT threshold, these invoices must include a VAT percentage and are filed at the end of the assigned taxation period.
- Getting products in exchange for endorsements or reviews
If the transaction is ‘payments-in-kind’ (barter), the items received must be assigned a monetary value, included in the books, and taxed accordingly. Less often, when the goods received cannot be given an economic value, such a transaction can be excluded from the accounting reports.
- Optional promotion of a gift
When a company sends an influencer a gift without a contractual obligation stating that the person has to promote or mention it, the transaction is considered an optional promotion and is not taxed. However, if the agreement is that the person has to cover the items received, this should be held a barter and taxed, respectively.
It is worth noting that some countries distinguish between trading (full-time) and non-trading (casual) influencers and adopt different levels and scrutiny on their content. However, the difference is unclear, and all social media content creators are advised to keep transparent records of their transactions.
Paying VAT
Once an influencer exceeds the VAT threshold of the country of residence, a standard VAT accounting procedure applies.
When getting paid for content creation and especially if selling merchandise to international customers, it is crucial to follow the guidance based on:
- Where you sell from;
- What platform is used;
- The location of customers;
- The price of goods or services sold.
Nowadays, there are a lot of changes in regulations when it comes to taxing digital services, intra-European sales, importing goods, and similar. Consult with 1stopVAT’s team to stay on top of the changes and avoid any tax-related issues now or in the future.