Why is my AdSense earnings low?
Everything tax law related to income from online advertising with Google Adsense, Youtube & Co
Online advertising refers to the addition of advertising on your own website or blog. This type of service delivery has gone through a great development in recent years. Both companies, webmasters and private individuals have discovered this service trend as a lucrative source of income.
The obligation to pay taxes arises at the moment when income is realized from the activity carried out.
Income from online advertising is income from a commercial activity, so there is generally an obligation to pay a trade tax. However, this is only charged if a high earnings limit is exceeded. Income from Adsense, YouTube, Affiliate Marketing and AdMob are not subject to sales tax. However, all income generated must be declared with the income tax return. The tax office differentiates between private individuals, commercial entrepreneurs and freelancers. There is a further subdivision into private individuals with income from occasional brokerage, small business owners and entrepreneurs who are obliged to pay business taxes. Who has to set up which taxes from online advertising, decide earnings limits and thus tax allowances.
Do private and commercial service providers have to pay tax on their income from online advertising and register a business?
According to § 3a UStG, Paragraphs 3 + 4, every type of online advertising (Adsense, Affiliate Marketing, YouTube, AdMob) is a "service provided electronically". The aforementioned paragraph determines the location of the other services. It is a catch-all provision that designates the place of performance as the place of business of the recipient of the service. For German users, Google Ireland is usually the contractual partner for the provision of their services. Under certain circumstances, Google Inc. be a contractual partner in the USA. Before starting their work, service providers in online advertising should find out who their contractual partner is. Thus, § 1 UStG is not applicable to German users of these advertising programs, as the services are not provided in Germany but in Ireland and are therefore not subject to German VAT. Since Google Ireland is based in Ireland, the place where the online service is provided is relocated to the place where Google as the recipient of the service is based. The advertising services of the German advertising service providers are provided in Ireland for VAT purposes. As a service recipient, Google Ireland is obliged to pay the Irish sales tax for its German contractual partners in the reverse charge procedure (Article 21.1 (b), 6th EU Directive). For Google Inc. The same sales tax rules apply. The company, based in the USA, pays the sales tax of German users to the domestic tax authorities.
However, German entrepreneurs are obliged to declare their domestic income. According to § 18 UStG you have to declare the income from online advertising that is not taxable in Germany with the advance VAT return and the summary report at the Federal Central Tax Office in Saarlouis. These Irish taxed advertising services are also recorded in the annual sales tax return in Appendix UR.
Private individuals and freelancers also use the trend of online advertising from Google Adsense, AdMob and YouTube. Private providers of advertising services do not have to pay sales tax or submit a recapitulative statement. Nevertheless, all profits from Google Adsense and other online advertising are considered income for tax purposes. Private individuals and freelancers (tax exemption 17,500 euros / year) declare their income in their income tax return. This is done by means of the income-surplus-calculation, in which income and expenses are offset against each other. If the income from online advertising is low, the tax office can classify it as a hobby and ignore it. However, if the private service providers realize income that exceeds an amount of EUR 410 per year, this is usually taxed. Whether the income from Adsense, Affiliate Marketing, AdMob and YouTube is classified as non-self-employed, self-employed or commercial income depends on whether or not there is a business in accordance with Section 15 of the Income Tax Act. The tax office makes a distinction between income generated in the course of a freelance activity and commercial income. According to Section 15 of the Income Tax Act (EStG), there is always a trade when a person carries out a sustained, repetitive activity independently, on his own account and at his own risk, with the intention of making a profit. The income generated exceeds the expenses and expenses sustainably. The person concerned takes part in commercial transactions by regularly making an offer to the general public for a fee. If these characteristics apply to the exercise of an activity, a trade must be registered with the regulatory office of the municipality in which the seat of the activity is located. The applicant must fill out a questionnaire for tax registration, whereupon the responsible tax office checks whether the applicant can be classified as a freelancer or a trader.
Freelancers differ from businesses in that they are self-employed in accordance with Section 18 of the Income Tax Act. These liberal professions include creative and intellectual achievements. These include doctors, architects, engineers, journalists, writers, painters, translators, typists and copywriters. They do not take part in commercial transactions at their place of activity. For freelancers, it is sufficient to register the activity with the tax office. They declare their online advertising income along with their freelance income. Freelancers should clarify with their tax advisor and the trade office whether a business registration is still necessary. For most freelancers, the reduced tax rate of 7 percent is applicable anyway.
In order to clarify whether someone is acting as a private person or an entrepreneur with Google Adsense and similar online advertising providers, a further subdivision according to sales tax law is necessary. An entrepreneur is someone who, in accordance with § 2 UStG, carries out a sustainable activity to generate income. In contrast to a commercial activity, however, no intention to make a profit is necessary here. The repetitive, scheduled activity alone, which is designed for several years, is sufficient to be classified as an entrepreneur in accordance with sales tax law. The purpose pursued is not important in itself. Even if private individuals carry out a service in the online advertising segment such as Google Adsense, AdMob, Affiliate Marketing or YouTube, they are considered entrepreneurs in the aforementioned sense.
If the earnings in the current calendar year do not exceed the limit of 50,000 euros and the service provider did not earn more than 17,500 euros in the previous year, the small business regulation (§ 19 UStG) applies. This rule applies in particular to those starting up in business. Small businesses are subject to sales tax law, but sales tax is not levied (§§ 38, 218 AO). However, they are then not entitled to input tax deduction. Small entrepreneurs are not obliged, like commercial entrepreneurs, to submit a recapitulative report to the Federal Central Tax Office in Saarlouis. The freedom of choice applies up to the aforementioned earnings limit, i.e. the small business owner can still opt for sales tax, but is then bound to five years. This option is chosen in particular by entrepreneurs who are planning extensive initial investments and large-scale activities, which is not the rule for the majority of service providers in the field of online advertising.
All of the aforementioned activities apply to online advertisers. Therefore, the legislature basically classifies income from online advertising as income that is subject to a business (Section 15 EStG) and requires the registration of a business. The income from the small business, which is mostly used for freelancers (less than 17,500 euros together with other income annually), is subject to income tax and is declared in the income tax return alongside other income such as wages, salaries, rental income and similar income. If the income is rather low, especially in the initial phase, a business registration is not necessary. The declaration of the income in the income tax return is sufficient.
Most users fall under the category of subscribers whose earnings are low rather than high. This means that the small business regulation (§ 19 EStG) applies to them. This includes schoolchildren, housewives and non-self-employed workers. Section 22 of the Income Tax Act applies to private individuals who only earn income from occasional brokerage. A full taxation takes place from an income of 410 euros annually in addition to other income. For business owners, the tax exemption of 24,500 euros applies annually together with other income. A trade tax (11 GewStG) is only payable when this exemption limit is exceeded and the former small business owner is now considered an entrepreneur who is required to provide a VAT ID.
In principle, all income should be reported to the tax office on a regular basis. Since every situation is set up individually, online advertising service providers should definitely seek the help of a tax advisor before starting their work. Income from online advertising is not subject to sales tax (§ 1 UStG), as the contractual partner is Google Ireland, which pays the Irish sales tax for German users to the local tax authorities using the reverse charge procedure. Private individuals who generate less than 410 euros in profit per year are not subject to tax in Germany. All income that goes beyond this is declared in the income tax return alongside other income.
Since all income in Germany is generally subject to German income taxes (income tax, trade tax), service providers for online advertising, regardless of whether they are students, housewives, tradespeople or freelancers, are subject to income tax. The tax office differentiates between traders, freelancers and private individuals. If someone advertises permanently online via his website and independently decides on its content, all the characteristics of a business (Section 15 EStG) apply, for which a business registration is usually required, unless the regular income is rather low as high. The small business regulation (§ 19 UStG) applies up to an annual income of 17,500 euros, annual amounts up to a limit of 24,500 euros are exempt from trade tax. The invoice is sent to Google Ireland in order to document the income. Small business owners are subject to simple accounting to the tax office through the income surplus calculation, while commercial entrepreneurs have to account for their income and expenses.
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