Taxes on Affiliate Marketers – How Does It Work?

Affiliate marketing is one of the most attractive online activities for earning passive income. For example, gambling affiliates attracting paying users to iGaming platforms get a good percentage of the operators’ profits. Now comes a new era of freelancers and internet entrepreneurs not willing to work from 9 am to 5 pm. And affiliate marketing allows you to make good money with a minimal time commitment. So, the average affiliate marketing income in India is around $4,000, with some successful betting affiliates making five-figure sums.

So, while affiliate marketing is becoming an increasingly popular business, you need to understand the tax implications before you start your business. Keep in mind that taxes for affiliate marketing depend a lot on where you live and which GEO you work with. We’re here to tell you what affiliate marketing is, what affiliate marketer salary you can expect and how much tax you’ll have to pay. While this post can be a great starting point, we also recommend reading more about tax law or even seeking help from a tax adviser.

The Commission System

affiliate marketing taxes

Before we discuss how affiliate payroll is calculated, let’s remember that affiliate marketing is a specific business technique aimed at the online segment. While affiliate marketing has its roots in the early 2000s, it has grown considerably in the last 5-7 years and continues to evolve rapidly. To better understand how it works, let’s look at the 3 parties involved in this marketing strategy:

  • A retailer. This is a company that wants to sell its products and services online. For example, it could be an iGaming or sports betting platform expanding its user base to generate more revenue from paying customers (gamblers and bettors).
  • Affiliate marketer (webmaster). This is an individual or company attracting interested parties to a product. The affiliate marketer uses different sources of traffic (search engines, social media, organic traffic, video hosting platforms, etc.) and places advertising banners with affiliate links. The main goal of the marketer is to encourage customers to click on the affiliate link and make deposits or bets as a result.
  • Customer. The main purpose of affiliate marketing is to attract customers to the product to increase sales. Thus, affiliate marketing income India (and other countries) depends on how many potential customers click on the affiliate link and how high the percentage of those who convert afterwards is.

Now that you know the important components, let’s move on to the affiliate marketer salary scheme. Unlike simple online advertising where you get paid per click, affiliate marketing uses a slightly more complex model. However, unlike advertising with its low pay per click, you can expect a pretty high affiliate marketing income in India. So, here’s how it works, step by step:

  • The marketer chooses their preferred affiliate program and signs an agreement with the retailer (registering on the website).
  • The marketer chooses a niche, such as a casino affiliate program. This means that the product being promoted is the online casino platform.
  • In the next step, the retailer and the marketer (webmaster) agree on the payment model to use (RS, CPS or Hybrid model including both RS and CPA).
  • The marketer must do more than just encourage the user to click on the affiliate link. In addition to the click, there must be a sale. That is, in the example of an online casino platform, the affiliate marketer salary is based on whether or not the referred customer makes a deposit.

The main advantage of affiliate marketing is that the webmaster is not heavily dependent on the retailer. In addition, the latter pays solely for efficiency. It is a win-win model where everyone profits only if the affiliate generates sales. While affiliate marketing income depends on the amount of time and effort the webmaster puts in, on the other hand, he has complete freedom in choosing which product to promote and how much time he is willing to invest in it. Moreover, affiliate programs often offer all the necessary marketing tools for free.

Affiliate Offers

affiliate offers

Before you start, browse through the available affiliate offers with your preferred niche in mind. For example, if you feel confident about online gambling, you should look for gambling affiliate offers. Since the online gambling/betting market is on the rise right now, you will find many different offers. However, how do you find a worthwhile option? Here are some important things to consider:

  • Brand (retailer) reputation. It is easy to guess that you should give priority to well-known companies with products that are in demand. For the online gambling/betting example, choose a platform with a large user base and good media coverage.
  • Quality of the product being promoted. In order to build trust with your audience, you must promote products that you do not doubt.
  • Commissions. Find out about the available payment models and check affiliate marketing paying taxes for your chosen niche. Also, make sure the affiliate program supports a convenient payment method (e.g. a bank card or e-wallet).

Finally, find out about payout rates (on average retailers pay between 10% and 30% of the sale). Review the available options for the payout rate and also read user reviews.

Launching Paid Advertising Campaigns

Affiliate marketing taxation

While affiliate marketing is an attractive option that can generate good profits, it doesn’t mean you’ll make five-figure sums as soon as you start. Once you know how much affiliate marketers make in India, you run the risk of getting started right away and getting discouraged the first time you fail. Here are some important things about affiliate marketing that you should know:

  • You have to be patient. Affiliate marketing is not a place where you can get rich in the blink of an eye. Before you get a solid audience and become an Influencer, you need to put a lot of effort into market research to find the most promising products to promote. In addition, you need to find the channels through which you will connect with your target audience in the best possible way, as well as create quality content.
  • Your remuneration scheme is commission-based. You will be paid for clicks, leads and sales, so your income depends on your performance.
  • Adhere to the rules of the affiliate program. Although this activity gives you the freedom to choose the products you want to promote, you will have to follow certain rules set by the retailer when you join a particular affiliate program. In other words, you need to follow some guidelines on how you convey your message and how you promote the products.

Of all the above, perhaps the worst news is that you will spend a lot of time and effort to gain an audience. However, with paid advertising such as Google Ads or Facebook Ads, you can acquire visitors much faster and more effectively. Paid advertising is just one of many strategies used by webmasters, so don’t abuse it. Furthermore, it is expensive, so Google Ads can substantially reduce your affiliate income. As you develop as a marketer, you will apply more cost-effective techniques to increase your profits.

Affiliate Marketing and Taxes

Having the characteristics of a commercial business providing advertising services and an agency business with commission payments, affiliate marketing is a tricky one regarding the taxation of these activities. Since affiliate contracts are different, it is necessary to audit a particular one to find out how much tax the marketer has to pay.

Managing Affiliate Marketing Earnings

As a person carrying out economic activity on a regular basis, you can use any of the following options:

  • Open a VAT number so that you can declare income from existing affiliate programs.
  • If you have started recently, self-employment activity is a better choice.
  • Alternatively, you can fill in a 730 form.

So, opening a VAT number may not be necessary for the first year of your affiliate activity, as the costs of maintaining the number may be extremely high given that your activity generates only a small profit.

Opening a VAT Number

You will need to open a VAT number to pay taxes on affiliate marketing in case your profits are significant and/or you have been working as a marketer continuously for more than one year. Use invoices (including your remuneration for referred clients) to report your income and also file an annual tax return. Notably, you will need to issue foreign invoices in case the retailer is a cross-border company. In addition, you have to submit Intrastat lists in case the retailer is a company registered in the European Union.

Tax Return

The US was one of the first to recognize the profitability of the affiliate marketing market and the need for a taxation model. The EU followed, introducing relevant amendments to tax law in 2015. Ultimately, income from affiliate marketing – whether you promote flower delivery services or gambling platforms – should be taxed directly. You can frame this as occasional self-employment or approach the problem professionally by opening a VAT number. Ultimately, you must report your income by filing a tax return.

Closing Thoughts

So, affiliate marketing is a very attractive activity with a low entry threshold and almost unlimited earnings (depending on how much traffic you attract and how it is converted). However, like in any economic activity, you also have to take care of taxes for affiliate marketing. If you are not yet familiar with the world of affiliate marketing, we have some extra tips for you:

  • Be aware of your tax obligations in the region where you live. If you are not familiar with the local laws, it is a good idea to consult a professional lawyer or accountant.
  • Know the difference between a fun hobby and an economic activity. Although affiliate marketing can be an exciting activity, remember that it makes you a profit and therefore you are liable to pay tax.
  • Set up a separate bank account for your online activities. This will simplify how you keep track of your affiliate marketing income.

Finally, keep a record of all income and expenses. By keeping all receipts, you can easily prove your income and expenses in case of an audit.