YouTube’s new rules are either going to have little impact or a profound effect on Zimbabweans depending on your audience make up. If you run a channel that barely gets any viewers from the United States then this is a storm in the teacup. If the bulk of your viewers or a substantial number of them come from the United States, then you might be in a world of hurt. The majority of channels are going to be inbetween these two extremes though.
So how are the new rules going to affect Zimbabwean YouTubers?
So first of all let me explain how Zimbabwe’s taxation works in laymen terms here. In Zimbabwe, if you are a company or involved in a business venture you are required to pay tax on all income generated in Zimbabwe. That sounds simple enough but it isn’t. Tax practitioners would have little to do if things were that simple. Let me school you:
- A while back an individual who was resident in Zimbabwe wrote a book which was mildly popular. He wrote the book while in Zimbabwe but it was published abroad. In the United States, where it was sold and made a bit of money. ZIMRA caught wind of this and send a tax bill to the Zimbabwean author. They wanted a share of that US money.
- The author didn’t want to pay tax because he was of the opinion that since the book had not been sold in Zimbabwe, the income ZIMRA was trying to tax had not been generated in Zimbabwe.
- ZIMRA disagreed, they pointed out that the actual activity that had generated the income had occurred in Zimbabwe. The author had merely exported this work abroad after it had been completed.
- Long story short the case went to court and the High Court ruled that ZIMRA was right. The income generated had come from Zimbabwe never mind the book being only sold in the states. ZIMRA got their tax.
So what has this book got to do with YouTube income you ask? This is called case law. It simply means that as long as you are a YouTube creator who is resident in Zimbabwe and are uploading your videos from our tea-pot shaped country of sadza-eaters, then my dear friend your earnings from YouTube are indeed illegible for taxation in Zimbabwe. If you havent been paying your taxes you have been violating the law.
You are supposed to pay a tax of 24.75% including AIDS levy. So if you were earning an average of US$1000 per month your tax bill would be:
0.2475*1000
ie. US$247.50 on average every month.
That’s how simple things were before YouTube’s latest change. Now the United States, where YouTube as a business is actually located, has their own version of ZIMRA called the IRS. The IRS has decided to label all income generated by YouTubers as royalties which means that this income will also now be subject to taxation in the United States. The effective tax for such income in the United States 30%.
Now here is where things are about to get interesting. According to YouTube:
- If you as a YouTuber submit your tax information to them, you will pay a tax of 30% in the United States on all income generated in the United States i.e. from viewers and subscribers resident in the United States.
- If you don’t submit any information you will pay a withholding (or default tax) of 24% on all your entire income
Now let us have some fun. First, let us consider scenario 1 where you actually submit your tax information to YouTube and Adsense. To make sense of things let us consider the following example of a fictitious YouTube business called Chiteshi TV:
- Chiteshi TV is a Zimbabwean YouTube business with 100 000 subscribers about 10% of which are in the US. Their videos are viewed pretty much in the same way with 10% of the views and ad revenue they make through Adsense coming from the United States
- In June 2021 they make US$5 000 from Adsense again with 10% of the revenue coming from the United States
In such case Chiteshi will pay the following taxes:
- In the US they will pay $US150 in taxes that is 30% of $500 which is the money they made from US residents
- But what do they pay in Zimbabwe? Surely it cannot be 24.7% of $5000 i.e. $1 237.50?
You are right. But they also don’t get to pay ZIMRA tax on their net proceeds either ie. US$4 850 ($5 000 less US tax of $150). Zimbabwe doesn’t have a tax agreement/treaty in place with the United States. However it doesn’t seem fair to make someone pay tax twice on the same income and the law agrees. In such cases you get to only pay the difference.
i.e. Zimbabwean Tax would be:
US$1 237.50 (the amount you were originally supposed to pay)-US$150 you already paid out to the US government. So your tax bill will be:
US$1 087.50
Now let us consider scenario 2 outlined above where you don’t actually submit anything to YouTube and Adsense. Here you will have to pay a US withholding tax of 24% which will be deducted from your entire revenue. The same double taxation protections apply.
Here the witholding tax would be:
24% x 5 000
i.e. US$1 200.00
This means that your tax bill in Zimbabwe will be:
US$1 237.50-US$1 200.00 i.e.
You will pay ZIMRA US$37.50 in taxes.
Something to note, in the even that the US withholding tax ever goes above 24.75% (Zimbabwe’s withholding tax) and you end up paying more tax in the US than you would have in Zimbabwe, then you can claim the negative difference as a tax credit against your other revenue here in Zimbabwe. Your head is probably reeling right now so I will end it here.
If you were paying taxes this is not a big deal
If you were already paying taxes on YouTube revenue this is not a big deal. All that is going to happen is that ZIMRA is just going to be getting less from you. If you were not paying taxes then you are going to take a hit, again depending on how much of your revenue is generated in the United States. In any case it is wise to submit your tax information as:
- It will help ZIMRA get more revenue
- It will mean you not paying the withholding tax in the United States which is a big plus if you are a tax-defaulter as it means less of your money will go to the IRS.
Acknowledgements
A big thank you to my college colleagues for helping me with this one. My Tax knowledge was a bit rusty.
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