With an increasing number of followers, the first advertising cooperations or offers from companies that send you products are often received – sometimes intentionally and sometimes unintentionally. This is accompanied by the question of income and sales tax treatment on your own side. To avoid putting your foot in your mouth, we will outline the most important basics and facts below and provide an initial guide to tax classification.
Am I an entrepreneur?
If you act with the intention of generating sales more than once, you are generally classified as an entrepreneur for VAT purposes. However, if you do not exceed a turnover of EUR 22,000 per year, you have the option of being treated as a small business so that no tax is payable. The disadvantage here is that VAT from input services cannot be deducted as input tax.
For income tax purposes, anyone who intends to make a profit is deemed to be commercially active or self-employed. This should always be the case if sustainable profits are to be generated as part of a surplus forecast. Depending on the actual performance, the income is attributed to commercial or self-employed income.
Product placements or “classic” advertising for brands
These are pure services – other services from a VAT perspective – which result in taxable services for which an invoice must be issued. If the advertised product may be kept in addition to the monetary payment, this is also included in the assessment basis for the service, so that income and VAT are increased. From a tax point of view, it is “easiest” if the advertised products are returned. If the advertising partner is based abroad, e.g. Google or Meta, invoices may have to be issued without VAT, depending on the contractual partner.
Do free products have to be taxed?
“Free” is relative and must be examined on a case-by-case basis. If I am allowed to keep or use products or services – e.g. a trip – and in return I am obliged to advertise this or these (e.g. through a certain number of posts or mentions), this constitutes a so-called barter deal. As a rule, no additional payments are made. Both parties must nevertheless issue invoices for the value of the services. How this “subjective net value” is to be determined must be determined on a case-by-case basis.
Genuine free products – so-called seeding – which the company hopes will be advertised by the influencer must also be taxed on sales and income, as they were given to you as a result of the advertising activity. An exception exists here if the donor has already paid flat-rate tax on the goods. But beware: If the influencer removes the products from the business to the private sphere, this can also lead to taxation again.
Raffle of articles
If lottery tickets are sold, the income from this is subject to VAT. On the other hand, the sale of the non-cash prize is not taxable, as this takes place outside of an exchange of services and the tickets do not constitute consideration for the potential prize. There is no right to deduct input tax from the purchase of profits, unless they are merely gifts of low value or samples. If gifts are items that were previously used in the company, they must generally be taxed on the outgoing side when they are given to the winner.
Acting is better than reacting
The tax authorities are alarmed. In recent years, tax authorities have increasingly targeted players in the digital world. Investigations are to be expanded in the future. To this end, the tax authorities often make use of the “big players” and ask companies such as Google, Meta, Zalando, ASOS or ABOUT YOU for cooperation partners. They are obliged to provide information as part of their duty to cooperate. If the tax office finds discrepancies between the reported figures and those reported in your own tax return, this can lead to unpleasant consequences.
So if you are unsure whether your income is taxable or have further questions on this topic, please arrange an initial meeting with us!
