Do you have to pay tax on youtube earnings

• YouTube will begin deducting US taxes from payments to creators as early as June 2021 from creators outside of the US.
• The move will impact the earnings of the YouTube creators' community in India and other countries too.
• There are more than 1700 Indian YouTube channels with more than 1 million subscribers as per the latest data.
• If a creator doesn't submit tax info by May 31, they may have to pay up to 24% of their total earnings.
• However, for those that will submit the tax info by May 31, the rate will be 15% of the earnings from viewers in the US.

In a daunting news for the Youtube creators in India and outside US, the search engine giant Google said that it would begin deducting US taxes from payments to creators as early as June 2021 from creators outside of the US.

Earnings from viewers in the US through ad views, YouTube Premium, Super Chat, Super Stickers, and Channel Memberships will be taxable.

Google said it would soon be updating its terms of service for creators outside of the US, where your

will be considered royalties from a US tax perspective. Adding that they had already made this change to US creators' terms of service in November last year.

"Over the next few weeks, we'll be asking you to submit your tax info in AdSense to determine the correct amount of taxes to deduct, if any apply. If your tax info isn't provided by May 31st, 2021, Google may be required to deduct up to 24% of your total earnings worldwide," Google said in an email to creators. Google AdSense program allows a faster and easier way to display relevant Google ads on your result pages

The move will impact the earnings of the YouTube creators' community in India and other countries too. There are more than 1700 Indian YouTube channels with more than 1 million subscribers as per the latest data.

What is the creators' community required to do now?

The streaming giant YouTube has asked creators to submit their tax information to AdSense to understand the correct amount of tax deductions.

To explain further, the company gave an example that if a creator in India earns $1,000 in revenue from YouTube in a month. Of the $1000 in total revenue, their channel generated $100 from US viewers.

Then these are the possible withholding scenarios:

• Creator doesn't submit tax info: Final deduction is $240 because the withholding tax rate, if you don't submit a form, is up to 24% of total earnings. This means that until Google has your completed tax info, Google will deduct up to 24% of your total earnings worldwide - not just your US earnings.
• Creator submits tax info and claims a treaty benefit: Final tax deduction is $15. This is because India and the US have a tax treaty relationship that reduces the tax rate to 15% of earnings from viewers in the US
• Creator submits tax info but is not eligible for a tax treaty: For creators falling in this category the final tax deduction will be $30. As the tax rate without a tax treaty is 30% of earnings from viewers in the US.

Once Google begins withholding taxes, the creators will see the finalised amount withheld in their regular AdSense Payments Transactions Report.

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In this world, nothing can be said to be certain, except death and taxes. Benjamin Franklin made this statement in 1789, long before the internet, and even longer before YouTube exploded the internet with cat videos that could make a million dollars from ads alone. However, if you are a YouTuber monetizing the platform, you might just be about to feel the sting of this age-old truth as the platform looks to take tax remittance more seriously.  

Introduction

YouTube recently announced some major updates to its Terms of Service (“the Terms”). These new Terms which have been in effect in the United States since November 2020, came into effect for the rest of the world on 1st June 2021.

The new Terms incorporate 3 changes – data privacy, YouTube’s right to monetize content and a new tax policy. This article will focus on the new tax policy and how it affects users.

The YouTube Business Model

YouTube is essentially a “free” media outfit that allows users upload and stream video content online. YouTube embeds targeted advertising directly into the videos its users watch – and this model forms one of the biggest revenue sources for YouTube. [1]

The content creators called “YouTubers”, are the lifelines of YouTube’s advertising business and are paid royalties on an agreed Cost Per Mille (CPM). Mille, derived from the French word for “a thousand” references “cost per thousand views”. Rather than having a flat rate across the board, the CPM on any given piece of content will vary depending on the type of content (music, skit, tutorials videos etc.) and the ad space competition for such content.

The New Tax Policy

YouTubers that are paid for their contents are called “Monetizing YouTubers” and under the new Terms, they are now required to pay Withholding Tax (WHT) on their US earnings. WHT, simply put, is an advance collection of income tax. In effect, YouTubers will pay taxes on all revenue, i.e., the royalties, generated from YouTube. This includes earnings from ad views, YouTube premium, Super Chat, Super Stickers and Channel Memberships. These taxes are due to the country where that income is generated from. For example, views emanating from the US attract US taxes to be paid to the Internal Revenue Service (IRS), and Kenyan views attract Kenyan taxes to be paid to the corresponding tax authority in Kenya.

For the longest time, YouTube simply paid users what they were owed and the YouTuber was expected to pay any applicable taxes on this income to the appropriate tax authority. The new tax policy completely overhauls this structure for both foreign and domestic users.

Since YouTubers are not all residents in the US for tax purposes, there has been no means of enforcing the tax rules, thereby allowing foreign YouTubers make money from US views under the IRS’s radar.  This has necessitated the move to make YouTube, which is resident in the US for tax purposes, responsible for the collection of taxes before payment is made to the YouTuber.[2]

Under the US tax laws, YouTube is mandated to collect tax information and withhold taxes from ALL monetizing YouTubers outside the US, particularly on incomes from views in the US. YouTube will now withhold the tax and remit same to the IRS. This means that all monetizing YouTubers outside the US will now be required to update their tax information using Forms W-8BEN[3] and W-8BEN-E[4] via Google AdSense.

Applicable Tax Rates

The applicable tax rate, which lies between 0 to 30%, is determined by a number of factors which include:

• whether the YouTuber has submitted their tax information;
• whether the YouTuber’s country of residence has a tax treaty with the US[5]; and
• the Amount of revenue from the US.

Where the affected YouTuber has not updated their tax information as provided above, such YouTubers are presumed as US residents for tax purposes. Where the tax information is not uploaded by the due date, 24%[6] or 30%[7] of earnings from viewers worldwide will be withheld, as opposed to a lesser percentage from US viewers alone, where the foregoing conditions are complied with.

Will this amount to Double Taxation when paying taxes in the country of residence?

Affected YouTubers are required to fill in their Tax Identification means while uploading their tax information. They will be able to deduct the amount withheld by YouTube from the final income tax payable in their country of residence before local tax remittance to avoid any incidence of double taxation.

Comments

Global interest in digital economy taxation is growing, multinationals are increasingly being strong armed by tax authorities in an aggressive revenue drive. Content creation has increasingly become a source of income for many people around the world. This new policy grants no exemptions to small-time creators whose content majorly depend on US viewership. In addition to YouTube’s cut from the creators’ income, the new policy could potentially suffocate upcoming content creators before they are stable enough to withstand the impact.

As there are millions of small-time digital entrepreneurs dependent on the digital economy, the tax policies that affect this economy must be carefully curated. They must be nurtured and not extinguished by an aggressive drive for revenue by tax authorities.

For more information, please contact Centurion Law Group below:

Oneyka Cindy Ojogbo, Senior Associate, Centurion Law Group

Ibrahim Moshood, Associate, Centurion Law Group