If you want to get into self-publishing you’d better know what you’re doing

Getting close to having the design and stats for almost 100 Ancient Lands complete and turning towards writing the individul descriptions, I started looking into options to raise money for commissioning illustrations. I didn’t even get to look up common rates for artists yet but it’s already gotten complicated just looking at the legal issues regarding financing. I am in Germany. So very complicated.o

Fortunately for me, three semesters of German business law in one of my past failed academic endeavors turned out to come in very handy once more. I do speak some legalese. If you don’t it’s probably all much worse.

It did all start out quite simple. Kickstarter is now doing business in Germany and that seems where most backers for RPG materials are already having accounts. This could potentially have been a major obstacle. (I don’t think many people would bother to make a new account on some tiny site they never heard of to make a single 2€ pledge.) 5% fee for Kickstarter also doesn’t seem so bad. Quite reasonable actually.

But then I was wondering about taxes on the money raised. And oh boy… Wellcome to Germany! ^^

First thing, the whole sum that people have pledged is income. And subject to income tax. Not sure about the exact rates but this can easily gobble up some 20% of the money. If you fail to report what you spend it for. Money used to buy art for a book are business expenses. You don’t pay taxes on it. Buying layouting software is a business expanse even when you run it own your own computer. No tax on the money you spend on it. And the 5% fee you pay to kickstarter is also business expenses. If you spend all the money raised on producing your product you don’t have to pay any income tax on it. Income tax is only on the leftover money that you pocket at the end. But only if you correctly list the business expenses in your tax report.

When someone gives you money and you promise something in return, it’s a purchase. Kickstarter pledges clearly qualify for that. And everything that is a purchase is subject to 19% VAT. However, VAT is meant to apply only to sells to end consumers. As a business you can get the VAT that you payed to your suppliers and contracters refunded by the German revenue service. If your contractor is based in Germany. Which to my knowledge very few good fantasy artist are. It’s not to bad if I’d want money from the French or Dutch revenue service but if I’d hire an American artist it would get much worse. Hiring a tax lawyer to do it for you would probably cost more money than you’d get back.

But contrary to common belief, German administration clerks are not total monsters. If your annual revenue is under 17,500€, small business owners have the option to opt out of paying VAT for sales and getting VAT payed to suppliers refunded. Small business owners mostly don’t know how to do proper accounting anyway and the amount of money gained by the revenue service wouldn’t justify the costs of having their accountants spend time on figuring out the exact numbers. I was genuinly concerned about the possible situation of raising more than 17,500€ (which I very much doubt) and suddenly having to pay 19% VAT, possibly ending up with less money in the end. But no, the excemption applies for the whole year, you simply lose it for the next year. No such risk of falling into accidental debt because you made too much money. If you don’t expect to get any significant VAT refunds this is wonderful. Saves you a lot of accounting and you get to keep the whole 95% of pledges from a Kickstarter campaign.

Sounds too good to be true? Well, it is. Because you are now a business owner. Welcome to the Chamber of Commerce, young initiate. In Germany there are two types of self employment. Businesses and free professions. Business owners automatically become members of the chamber of commerce while most free professionals do not. If you’re an author you are a free professional. If you are selling goods, you’re a business owner. Writing your own books and selling them? That’s a confusing question that leads to hundreds of online search results from the last 12 years and nobody really seems to know anything. As a painter or sculptor your status as a free professional appears to be secure because selling each painting or sculpture is part of the job. This seems not to be the case with books. German law makers and judges seem to assume that only writing books for commission is part of the writers art. Publishing is a trade business and as such not a free profession. And think about it: As a self publishing writer how much money do you make with writing? None. All your income and profit is from selling large amounts of books. The different state revenue services and regional chambers of commerce still seem to be very uncertain about the whole situation and you might be able to weasel out of becoming a business owner. But I don’t think it’s worth the trouble of potentially getting accused of tax evasion.

And here is why: In case of releasing a monster book with commissioned art, could I be regarded as acting as a publisher for the artists? I think I very well might and then there’d be no doubt about my status. The revenue service might never know since they won’t be looking inside my book? Well, any money raised through Kickstarter is income subject to income tax. If I want to avoid that I have to show that I spend it on tax deductible business expenses, so I have to hand in the recipes from the artists. Also, if I’d ever end up collaborating with someone else on a book and split the profit, or use my resources to sell a book for someone else, I’d no longer be just selling my own art. It’s just so much easier to register as a business owner right from the start.

I’ve seen people worry about being subject to business tax and membership fees for the Chamber of Commerce if they are business owners instead of free professionals and that this might eat up all your profit leaving you with a net loss. But if you sell some books at the side as a minor second job this will be negligible in Germany. Business tax is only paid on profits after income tax has been subtracted. And as a business owner with no employees you only pay business tax on profits above 25,000€ per year. Good luck ever getting that much out of self-publishing your books. And on that money you only pay 10% business tax. If you make a profit of 30,000€, that is cash in your pocket, you still pay only 500€ business tax. That’d be under 2%. I consider this very reasonable for what I would regard as a big fish.

Membership fees for the chamber of commerce aren’t also that bad. If your profit is under 5,000€ per year you can apply for having all fees waived. If your profit is up to 15,000€ per year you have to pay a yearly fee of about 30€. Above that you also have to pay a small part of your profits. Which in my city is currently the low rate of 0,15%. So if you’re annual profit is 30,000€ you have to pay 500€ business tax and 52.50€ to the chamber of commerce. The later of which are also tax deductable. It won’t ruin you. The vast majority of taxes will be income tax, which you will have to pay anyway regardless of how your enterprise is registered.

This is just an example for Germany and I might very well have gotten very important things totally wrong. Getting here took me about 12 hours of research and I already had preexisting knowledge about the basics of business law. And all of it just to raise some money to sell a small book with negligible expected profit. The lesson here is this: Consider very well if you want to deal with alll this trouble.

In the end I found out that the amount of taxes and fees I’ll have to factor into the cost of the project are basically nothing. If I file all the right registration forms and correctly list my tax deductable business expenses. It’s not magic, but it’s rocket science.

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