More and more people are earning money online as bloggers, vloggers or influencers. Through social media, you can reach millions with a well-targeted message, and this can result in a substantial income. These incomes are subject to tax – but it’s important to think about how to pay it.
According to the latest research, 55% of brands use YouTube consciously for brand building and marketing purposes. This is no surprise, as you can reach a huge potential customer base through this channel: YouTube alone has more than 2 billion active users and YouTube users spend more than 1 billion hours a day watching various videos. Other social media channels, such as Facebook, Instagram, TikTok and Twitter, have similar viewing figures.
A popular tool for brand building is to use influencers, who promote brands through online channels. They receive fees, royalties and product samples from the companies, and – depending on the number of subscribers and views – may receive various categories of revenue from YouTube. These incomes are all subject to tax.
The base scenario: receiving fees from a Hungarian client
If the influencer receives a fee or a product sample as a private individual from a domestic client, these are normally taxed as a service fee (as revenue from independent activity), in accordance with the rules set out in the Personal Income Tax Act. The influencer may offset its expenses, certified with receipts, against these fees; if he/she does not specify such expenses, the tax is charged on 90% of the service fee. From this income base, the client deducts various taxes, such as the 15% personal income tax (PIT), the 13% welfare contribution tax and the 18.5% social security contribution. This is obviously a very costly solution in terms of tax.
Alternative taxation options
Compared to the above scenario, the influencer will be far better off if he/she is registered as a sole entrepreneur and selects the “kata” (itemised tax for small businesses) tax scheme. In this way, it can complywith virtually all public dues through a monthly lump-sum tax payment of HUF 50,000. And it’s even better if he/she has a full-time job or is a full-time student or a pensioner, as in that case he/she only has to pay HUF 25,000 in “kata” a month. However, this is only possible as long as the influencers annual net income does not exceed HUF 12 million or its income from the same client does not exceed HUF 3 million in any tax year. If the income exceeds this limit, he/she will also have to pay an extra 40% “kata” on the difference.
As a result of the tax changes effective from 2022, flat taxation could also be a viable alternative, especially if the “kata” route is no longer worthwhile for whatever reason. The condition for this is that the influencer registers as a sole entrepreneur and that his/her annual income does not exceed HUF 24 million. In this case, as a general rule, a flat expense rate of 40% can be applied, i.e. only 60% of the revenue earned is taxable. Another benefit is that he/she does not have to pay PIT on the first HUF 1.2 million earned in any given tax year. And if he/she is under 25, then exemption from PIT to an even greater extent of the income may also be achieved.
For certain activities – especially in the case of musicians and other performers – the option of a simplified contribution to public revenues (“ekho”) may also arise. In other cases, for a more substantial income, it’s worth considering the benefits of the 10% small business tax (“kiva”).
And what about foreign clients?
If the Hungarian influencer receives a fee from a foreign entity (such as from YouTube, for example), he/shemust ensure that the tax payment obligations on the fee are met. The tax payment obligation arises primarily in the country where the influencer is a tax resident – if the influencer lives in Hungary, works here and has a family here, then he/she is taxed on its income in accordance with Hungarian law. For digital nomads, the situation can be much more complicated than that.
The question also arises as to whether the income is subject to tax in the country of the client (or the country in which the given channel is registered). The answer is down to several factors, in particular the category of income, the domestic tax laws of the client’s country and the double-taxation treaty in force between the client’s country and Hungary. Thus, for example, if someone receives a fee or royalty from YouTube in the US, that income will not be subject to tax in the US if he/she proves that he/she is resident for tax purposes in Hungary. But, for example, income received from Argentina may result in a local tax liability. This does not, however, mean that the influencer needs to know the ins and outs of the tax laws of the client’s country, as the client will simply deduct the tax from the income and the influencer will only receive the net amount.