According to articles shared in Facebook groups, some individuals working as affiliates with Shopee claimed to have been charged back taxes amounting to billions of VND. The reason is that they had to pay progressive personal income tax at a tax rate of 35% on their affiliate income.
EARNING 1.8 BILLION VND, SURPRISINGLY DISCOVERING HAVING TO PAY TAX OF 5.1 BILLION VND
Affiliate marketing is an online brokerage service, in which businesses pay commissions to partners (who can be individuals or organizations) when they refer customers to purchase goods through links on the internet platform.
The most concerning issue shared currently is the case of an individual doing affiliate marketing for Shopee and being paid 20 billion VND, with Shopee deducting 10% in source tax, or 2 billion VND. After deducting expenses for personnel, equipment, and tools to create content, the net amount this individual received was 1.8 billion VND.
When carrying out tax settlement, this individual discovered owing 5.1 billion VND in taxes due to being subject to progressive personal income tax at the rate of 35%.
According to the shared experiences of individuals working as affiliates, among the commissions received from affiliate work, expenses for running ads, hiring labor, purchasing channels, pages, groups,… account for about 50% – 80%. Thus, in reality, these individuals do not receive the entire income from receiving commissions.
However, these individuals argue that when Shopee declares to tax authorities, the commission is declared as salary and wages and due to the amount reaching up to billions of VND, it is subject to the progressive tax rate at the highest level of 35%.
The aforementioned articles indicate that Shopee’s support department did not advise KOLs, KOCs and stated that paying only 10% tax would suffice. Shopee has deducted 10% as pre-payment of tax from the commission, so when the remaining 25% tax was claimed, many people were ‘alarmed’ to discover that the tax they owed amounted to several billion VND.
Some people think that the fact that Shopee declared the taxes of their affiliate partners as employees receiving wages and that such high taxes may have to be paid is unreasonable. Shopee’s declaration of “partners as employees” is a way to “pass the buck” to affiliate marketers, to make it easier for Shopee to carry out tax- and related procedures.
According to the article by the affiliate, Circular 40/2021/TT-BTC stipulates on the business cooperation contract between individuals and organizations: For the business line of advertising on digital content products and services, the VAT rate is 5% and the PIT rate is 2%, totaling 7%. Accordingly, those doing affiliate work are subject to a tax rate of 7% instead of 35%.
THE DIFFERENCE BETWEEN AFFILIATE MARKETERS AS ‘INDIVIDUALS’ AND ‘BUSINESSES, BUSINESS HOUSEHOLDS’
According to lawyers, the declaration and deduction as mentioned above does not mean that affiliate partners are Shopee employees. Instead, Shopee is paying remuneration or service fees in the form of brokerage commissions, marketing and temporarily deducting 10% tax before payment.
Responding to Cong Thuong Newspaper, Ms. Tran Quynh, representative of Shopee Company Limited, emphasized that Shopee always ensures compliance with legal regulations on declaration and payment of income tax of affiliate marketing partners as prescribed in Circular No. 111/2013/TT-BTC dated August 15, 2013, in accordance with each type of enterprise, business household or individual when partners register for affiliate marketing activities with Shopee.
According to Article 7 of Circular 111/2013 of the Ministry of Finance, the progressive tax rate (maximum 35%) is applied when individuals carry out tax settlement for total income from salaries, wages, including amounts of remuneration received in forms such as: sales agent commission, brokerage commission; advertising service fees; other service fees, other remunerations from all sources of income payment during the year.
In case affiliate marketing is done by individuals, the representative of Shopee stated that payments will be subject to personal income tax deduction, according to current regulations. The tax rate currently being applied according to Circular 111/2013/TT-BTC of the Ministry of Finance is 10% for income of 2,000,000 VND/payment or more.
Shopee’s affiliate marketing partners who are being claimed for additional tax according to the progressive calculation (up to 35%) are those where personal income tax is being applied at the prescribed tax rate.
For cases where affiliate marketing partners provide information as businesses, business households, business individuals, Shopee currently has a payment mechanism based on contracts, and valid invoices and documents provided by the partner. In such case, the partner shall be responsible for the obligation to declare and pay taxes to competent state authorities.
“According to Circular 40/2021/TT-BTC issued on June 1, 2021 and the decrees and the Law on Taxes stated in this document, business individuals, business households are subjects paying VAT and PIT with a total tax rate ranging from 0.5% to 10% calculated on the revenue ratio depending on the form of business, provision of goods or services”
Ms. Quynh also said that business individuals, business households must register a tax code for the specific business line such as brokerage, auction and agency commission, advertising services on products, digital content information services, etc. In case business individuals, business households participate in affiliate marketing programs, provide advertising, communication, and brokerage services for Shopee, they must issue corresponding service invoices, and carry out reconciliation procedures to receive affiliate marketing commission fees.
HOW TO AVOID BEING TAXED UP TO 35%?
Thus, to avoid having to pay progressive tax of up to 35%, individuals working as affiliates for e-commerce platforms need to register as business individuals, business households or service provider companies, register a tax code for the specific business line such as brokerage, auction and agency commission, advertising services on products, digital content information services, etc. Then corresponding service invoices must be issued to the e-commerce platform, and reconciliation procedures must be carried out to receive affiliate marketing commission fees. And carry out the declaration of lump-sum tax payment, payment of tax each time it arises or periodic annual tax declaration with the local tax authority.
When registering under the form of business household or enterprise, reasonable expenses will be deducted as prescribed, and business individuals will be entitled to family circumstance deduction.
