For most countries in the EU, DAC7 reporting was due last month, with its goal being to create more transparency to help authorities better assess income tax and VAT within the digital economy. Was there friction when you asked your creators for their VAT number? Dive into the intricacies of VAT within the creator economy with us.
Understanding VAT: The Basics
Value Added Tax (VAT) is a consumption tax placed on a product or service whenever value is added at a stage of production and the point of retail sale. For content creators, this means that earnings from various channels such as sponsored content, branded merchandise, and digital products may be subject to VAT, especially once their earnings exceed certain thresholds.
Good to know: even non-monetary transactions, like gifts received in exchange for promotional activities, fall under the VAT umbrella! Yes, that means the merch you gave for your last brand shoutout may be taxable.
Should influencers register for VAT?
The requirement for VAT registration varies by country, triggered when earnings surpass a specific threshold. For instance, in Sweden, the threshold is set at 80,000 SEK. Content creators must be aware of when they need to register for VAT and understand the activities that are subject to VAT.
For example, if an influencer residing in the EU wishes to invoice a client in another EU country, VAT registration is recommended for intra-EU transactions. Compliance with these regulations is essential to avoid potential penalties.
To find out more about regulations regarding influencer collaborations in your country, find your guide here.
DAC7 and Its Impact on Content Creators
The DAC7 initiative marks a significant shift towards increased transparency within the digital economy. Platforms are now required to collect and report information about their users’ earnings to help tax authorities better assess income tax and VAT liabilities. If you were working with influencers registered as sole traders or businesses, you may have had to collect their VAT number. It's important to recognize that since each country implements its own rules for DAC7 reporting, the specific information required varies based on the tax authority in question.
Still feeling lost about DAC7? We've got a guide for that.
How to help your influencers with VAT registration:
To prepare for VAT registration, content creators should:
- Understand Obligations: Be aware of the VAT threshold and registration process in their country.
- Keep Accurate Records: Maintain comprehensive records of income, expenses, and VAT charged.
- Consult with a Tax Professional: Seek expert advice to ensure compliance and understand tax obligations fully.
Conclusion
When the creator economy initially emerged, it was advancing at a pace that tax authorities struggled to match. Now, more structured tax regulations are in place and while the introduction of measures like DAC7 initially posed challenges, they are essential steps towards ensuring transparency and compliance within the digital economy.
