Influencers and taxes: News from the tax office

Who has to pay taxes on what? This was announced by the Schleswig-Holstein Ministry of Finance

Frankfurt am Main

October 11, 2024

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Income tax assessment of influencers’ activities

With a decree issued by the Schleswig-Holstein Ministry of Finance on July 2, 2024 (file number VI 3010-S 2240-190), the tax authorities issued a statement on the income tax treatment of "digitally active taxpayers (influencers)." These activities primarily generate income as advertising partners or from commissions. Below, we outline the most important aspects to clarify the need for action in practice.

TaxPro recommendation!

In practice, knowledge of the income tax consequences of such activities is important, as they often give rise to tax obligations that taxpayers must comply with. The VAT aspects of such activities will not be addressed here. These must also be considered in practice.

Type of income :

From an income tax perspective, the first step is to determine the type of income. This is particularly important because commercial income is also subject to trade tax. The starting point for determining the type of income is an analysis of the individual case for the activity being performed. It is important to clarify what income has been generated, what training is required for the activity and the taxpayer performing it, and how closely the content of the activity is linked, for example, to the generation of advertising revenue.

Due to the multitude of possible forms, the specific case must always be assessed, but the following principles can be highlighted:

• A commercial activity exists unless, in exceptional cases, self-employment is involved. Advertising revenue is usually considered income from a commercial enterprise. This applies even if the activity is otherwise not commercial in nature.

• Trading one's own products such as clothing, jewelry or cosmetic products is a typical commercial enterprise.

• The decisive factor is whether the influencer, based on their training, carries out a freelance activity designated as a catalog profession, or whether they have comparable qualifications. If they report solely on their own experiences, this is not sufficient to assume freelance activity; rather, it constitutes commercial activity. However, if a lawyer, for example, uses social media to inform consumers or tenants about their rights, this constitutes freelance activity. However, advertising revenue generated in this context constitutes commercial income.

• If the influencer engages in product placement by highlighting the positive qualities of the product, this does not constitute artistic activity. Advertising activity generally offers too little scope for the development of one's own creative work of artistic quality.

• For example, a travel influencer only engages in literary activity if their travel reports are objective and critical. This cannot be assumed if they work for a client as part of a trust-based advertisement, for example, if travel or accommodation expenses are covered. If a travel blog is used as a platform to advertise and generate revenue from it, this constitutes commercial income.

TaxPro recommendation!

Such an activity is only tax-relevant if there is an intention to generate income, i.e., if the goal is to achieve a surplus of income over operating expenses over the entire duration of the activity. This can be questionable, especially in the initial phase of an activity, so in cases of doubt, the intention to generate income must be demonstrated using a business plan. If there is no intention to generate income, the income generated is not tax-deductible, but then no operating expenses can be claimed either.

Income determination:

In determining taxable profit, operating income must be compared with operating expenses. With regard to operating income, particular attention should be paid to the following items:

• By placing links to commercial (such as sales platforms) and non-commercial providers on their own website or in video contributions, influencers receive regular sales shares, which are to be recorded as operating income.

• Influencers often receive products or services from other companies to promote. These are not gifts, but rather compensation for the advertising activity. Regarding the products provided, a distinction must be made as to whether they are allowed to keep them or whether they must be returned to the client or are consumed in the process.

• The services or products that the influencer is allowed to keep are income in monetary value, which must be recorded as operating income at fair value.

The following applies in particular to operating expenses:

• Operating expenses are expenses incurred by the business. Typical operating expenses can include office equipment costs, travel expenses, rent and leasing costs, or even license fees.

• Expenses for food, clothing and health maintenance generally fall under the prohibition on deductions for costs that affect private living.

• The costs of acquiring an internet domain must be capitalized as an intangible asset. However, depreciation is generally not required, as it is a non-depreciable asset.

• Travel expenses for trips solely for business purposes (e.g., trade fair visits, customer appointments) are deductible as business expenses. If expenses for a trip are for both business and personal reasons, and the expenses can be allocated based on objective criteria (e.g., time spent), the business-related portion of the travel expenses can be considered a business expense.

• Expenses for everyday clothing are not deductible as business expenses, even if they are worn exclusively in the course of professional activities.

TaxPro recommendation!

The person's name can be particularly important with regard to the scope of the activity. Criteria for determining the value of such a position can include the influencer's reach (number of followers) and the composition of the profit (payment for affiliate links, services, own products, advertising, or even direct payments for the use of the name). Tax-wise, a distinction must be made in this regard:

• According to the case law of the Federal Fiscal Court, the commercializable portion of a natural person's name right constitutes an intangible asset for income tax purposes, which can be contributed. The contributed value can then be depreciated over its useful life. The useful life can generally be set at ten years.

• A distinction must be made between the contributed asset and the intangible asset created in the influencer's business, which is neither contributable nor depreciable.

• In this respect, it must be examined on a case-by-case basis whether such a value exists and is deposited at the time the (commercial) activity is commenced. However, a mere "influencer" profile together with the "followers" does not constitute an (independent) asset in the tax sense.

TaxPro recommendation!

In such cases, tax advice should always be sought because an assessment requires a precise analysis of the specific situation on the influencer side.