A trend of digital high earners moving to tax havens

Online video creators are a very recent phenomenon to burst onto the global market. Therefore, governments and their tax laws are not equipped to deal with this small but increasing number of digital high earners.

Earlier this year, a popular Spanish YouTuber announced that he was moving from Spain to Andorra. He hosts an extremely popular channel with millions of subscribers and rakes in an income of $2.3 million annually. Andorra is a small state atop the Pyrenees mountains between France and Spain where residents pay a lower tax rate compared to neighbouring countries. In Spain, someone who earns €300K pays up to 47% tax on earnings, much more than the flat rate of 10% in the neighbouring small state.

In Andorra it is acceptable to place “Youtube” under the company’s purpose from 2019. It has been attracting social media celebrities and influencers from all over Europe. Critics of this exodus believe that they should pay taxes, like everyone else and that it is unpatriotic especially at a time where many countries are struggling economically.

The Spanish YouTuber’s announcement unofficially spurred the Spanish tax agency into crackdown mode to track financial data more prudently to identify potential tax fraud. This trend of digital high earners moving to tax havens has been a pattern for some time now with some relocating in favour of paying less or no tax at all. They see nothing wrong with their choices and regard present tax laws as archaic because they woud not make any allowances for online creators, like themselves.

Other countries that offer tax incentives for foreigners are Costa Rica, Dubai, Bermuda and  Thailand, amongst others. European countries like Estonia, Portugal, Malta and the Czech Republic are also attracting people who can work remotely by offering digital nomad visas. Croatia has been recently added to the list of destinations where foreigners are exempt from the country's taxation laws.

Malta is also attractive to influencers because of its location in Europe and its tax incentives, like foreigner residents living in Malta are not eligible to pay tax on income arising outside Malta which isn’t remitted to a Maltese bank account (very handy for European Youtubers who would like to spend 6 months in Malta and 6 months in their home country for instance).

Dubai and its extravagant lifestyle attracted many social media influencers who receive gifts, holidays and luxury experiences in return for posting about them giving brands and companies publicity and advertising. Many consider Dubai the best “Instagram'' city with good reason as city planners adopt a strategy of developing new areas of the city with an Instagram aesthetic (colors, layout, tone, and overall feeling to make great pictures) in mind.

A move to end the free-tax status of social influencers

Some social media influencers had up to this point considered their “work” non-taxable because they were not doing business in the conventional ways. However, some governments are now beginning to clamp down.

Earlier this year the United Arab Emirates (UAE) Federal Tax authority, which includes Dubai, announced that all influencers and artists are eligible to pay 5% tax on their annual earnings if they exceed Dh 375K ($102K). They have made it clear that all gifts, holidays and paid appearances form a part of their income. This move will definitely see YouTubers rethink Dubai as a destination where they can earn money without paying taxes.

A recent change of legislation in the US can impact YouTubers

Earlier this year, Google-owned YouTube has announced a plan to deduct tax from content creators who reside outside of the US in accordance with the US Internal Revenue Code.

The platform has already reached out to creators informing them of this decision and for them to submit their tax information. This new policy is applicable to all content creators except those residing in the US who are eligible to pay local US taxes. Those creators that do not conform to the new YouTube policy will be charged up to 24% of all global earnings. Google could withhold Youtubers’ earnings from ad views, channel memberships, etc.

The amount the creator is taxed depends on a number of factors like how much they earn from US viewers, the country of residence, if they are a business or individual, etc.

How do you make money on YouTube?

Who is the typical YouTuber?

The term Youtuber was first coined in 2006 even though most of us only became aware of the concept much later. These are individuals who create Youtube content which, if they're talented and lucky, will attract billions of views and earn them millions of dollars.

In the beginning of this phenomena, most of them were young but this is changing rapidly as the platform becomes popular to people of all ages.

What is popular on Youtube?

Video content from following “genres” are wildly popular at the moment:

• Comedy skits
• Gaming (a YouTuber shares and records his screen as he plays a game giving tips and commentary).
• Beauty tutorials
• Health and fitness
• Fashion
• Vloggers

How does a YouTuber earn money?

First of all, more than 99% of the people posting videos on YouTube make very little money or none at all. However, some popular Youtubers can generate hundred of thousand dollars of income every months. The most famous YouTuber and record breaker is PewDiePie with 110 millions subscribers, with any videos reaching millions of viewers. They make money through many different channels, such as:

• Budding Youtubers can join the YouTube Partner programme which gives them access to tools that can monetize their videos using Google Adsense. You can only join this programme if you have more than 1000 subscribers to your channel and have over 4000 hours of cumulative viewing time over one year. Advertisers will pay based on the number of clicks you get. YouTube earns 45% of payments with the remaining 55% going to the digital content creator. so this advertising model is very lucrative for Youtube.
• Brand Sponsorship is another form of advertising where a company pays the YouTuber to promote their brand or their products in their videos. An example of this is makeup tutorials which feature products from one cosmetic company. This is usually reserved for very popular YouTubers, with a guarantee that the message will be viewed by a large audience.
• Fan Funding works by followers subscribing and making payments for bonus content. This feature can be accessed by YouTubers if they have 1000 subscribers. Some popular channels earn up to $40K per month solely from fans that pay subscription fees. They can also open separate programes such as Tipeee, Patreon or Buy Me A Coffee and ask their supporters to contributes.
• Merchandise Sales is another way Youtubers can earn money on their channels. They are able to sell up to 12 items of merchandise if they enable this feature on their accounts. Some popular content creators have sold millions of dollars worth of cosmetics online.
• If fans want their messages standing out in the chat they can pay for the honour via Super Chat and Super Stickers.
• A portion of the YouTube premium subscribers subscription fee is paid over to the content creator when their content is viewed.

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