Ask a tax advisor on the topic of Profit and loss statement

Generated revenue through Paypal

October 9, 2015 | 50,00 EUR | answered by Tobias Heinrich

Dear tax advisor,

I am (still) a small business owner in terms of tax law and work in the sound engineering and media industry. There is a freelancer portal in the U.S.A. where I am registered and receive job assignments. Payment is made through Paypal. I would like to know how to correctly incorporate these earnings into my accounting.

Functionality of the freelancer portal:
Through the portal, companies and individuals can search for and find a sound engineer for various services (e.g. sound design for a commercial). As a premium user of this portal, you can also directly contact these companies/individuals for a job offer and create a proposal.

Payment is made through Paypal:
The customer pays the portal, which deducts various fees and then transfers the money to my Paypal account. From there, I can transfer the money to my business bank account (after deducting additional fees from Paypal for receiving the money).

Now, to the actual question: I do not issue a regular invoice to the customer because they are following a payment request from the portal. And the portal transfers the money to me via Paypal without a payment request, as it is essentially an already earned credit that belongs to me. Can I treat this generated income the same way as income from GEMA or AKM? I simply add this income to my earnings.

So, do I add together all the sums that I have been credited to my Paypal account from this portal (minus the Paypal fee), and then add this amount to my revenue?

As proof, I have a printout of my Paypal transactions. There are no regular invoices with consecutive invoice numbers for these services, similar to generated money from GEMA/AKM.

Would this be the correct approach?

I would also like to mention that all fees on this portal are agreed and paid in US Dollars. The conversion to Euros takes place once the amount is credited to my Paypal account.

Tobias Heinrich

Dear inquirer,

In the context of an initial consultation and your fee commitment, in accordance with the regulations of this forum, I would like to answer your question regarding German taxes.

The approach you have outlined is almost correct. Please note that you should consider the actual turnover (before deducting various fees) as your revenue. The fees, in turn, are considered costs.

From a tax perspective, this does not make a difference. However, it does matter when determining the turnover amount (small business regulation).

In addition to the Paypal documents, you should also keep the correspondence with your portal as evidence.

Lastly, the turnover should be converted into Euros and any exchange rate fluctuations between earnings and payout should be recorded separately. Since these fluctuations are likely to be in the single-digit Euro range (in total), I would recommend omitting this for the sake of simplification. However, this could potentially serve as a "basis of dispute" with a tax auditor.

I hope this answers your questions to the best of my ability.

Best regards,
Tobias Heinrich
Tax Advisor

I am happy to provide further consultation if needed.