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Friday, June 6, 2014

Why Bitcoin can (not) be used for monetization of blogs and e-books

In some countries anonymous payments to individuals are illegal because taxpayers can't fill out tax forms properly. This makes using Bitcoin for donations to individuals impossible (legally). For example, the author of a book (or a blog) can write his Bitcoin address on the book (or a blog) and receive payments from readers directly. But this will be illegal.

In these countries the payee must write the name and identification number of the payer if the payer is a resident of the same country. If the payer is a resident of another country, the payee should write the name of the payer and the name of the country where payer resides.

Because law abiding citizens can't declare their taxes if they don't know these details, they can't receive payments made with anonymous payment systems like Bitcoin.

Legal entities do not have this problem. They can receive payments from anonymous customers.

Therefore, the way to get around the law is to use a legal entity as an intermediary. This intermediary will receive payments from the readers and then will pay the royalties to the individuals (something like Amazon's Kindle Direct Publishing, but instead of national currency will be used cryptocurrency).

This intermediary should be a registered legal entity and should sign contracts on paper with the authors because otherwise the authors (payees) can't prove the reason for the payment (in case payee get audited).

Also it is not possible for individuals to receive payments from other individuals because this may look like "commercial activity" ("they sell e-books"), and for doing "commercial activity" the individual should be a "sole trader" or this activity should be performed by a legal entity (like limited company). Both options are equally expensive. If the author is poor, he can't afford paying for owning a legal entity.

Another way to solve this problem is simply to not comply with the law. But in this case the author should use a pseudonym and make measures to hide his identity in order to reduce the risk of prosecution.

Oh, by the way, who is John Galt?

This really is not an issue, just register yourself as a company. There are many forms this can take, here in my country there is one that is free (no fees for registration) but the yearly-amount you can earn is indicative that this is not a full-time thing. Just as an example. As said, there are many forms of companies and also each country does it different.

After registration you can take anonymous payments and just have to keep bookkeeping and pay your taxes at the end of the year.

It really isn't an issue. LifeIsSoSweet

The cost of having a legal entity (or to be a "sole trader") is about one small salary per month (because you need to pay for accountant and to pay "state insurance" which is de facto tax on work - if you work - you pay tax on work even if you don't earn money or earn less than your tax on work). If you earn from donations less than one small salary per month (or about one small salary per month), it is nonsensical to have legal entity.

For example, you should pay minimum 55.41€ per month "state insurance" (tax on work) if you earn less than 214.75€ per month. The payment for accountant does not depend on income - it is about one small salary per month (it depends mainly of quantity of invoices).

You pay tax on income only if you have income. But you pay "tax on work" ("state insurance" ) and fees for accountant regardless of your income.

So, if you have good income (several small salaries per month) - you can afford to pay one small salary per month for accountant fees and "tax on work".

But if you can't have good income - you should not receive payments at all because it does not make sense to pay for taxes more than your income.

Taxes on profit are small portion of your expenses. The bigger portion are taxes on work (if your income is low tax on work can be more than your income) and fees for accountant (one small salary per month).

You seem to have experience with this that is different than mine. The "State insurance" sounds rather odd, I've never had that. Which country or state did you experience this in? LifeIsSoSweet

Welcome to Bulgaria. There are many countries with similar laws.

It is called "задължително обществено осигуряване" (Google translate: "compulsory social security" or "Mandatory Social Insurance", the latter is word-by-word translation*) or "държавно осигуряване" ("state insurance" - word-by-word translation*). It contains "compulsory government pension insurance" + "compulsory private pension insurance" + "compulsory government health insurance" (you are obligated to pay part of your insurance to private entity, part to state organization; the state organization is paying pensions using money from "compulsory government pension insurance" paid by workers today - this is a legal pyrmid scheme).

You receive almost nothing in return of your "Mandatory Social Insurance" (you still pay most of your health expenses, you should have savings if you don't want to live in poverty when you start receiving pension).

* "осигуряване" is little different than "застраховка". The latter is "insurance", but for the first I can't find english word. It is something like "insurance" but paid compulsory to the government (or private organization) with absurdly low ROI - you pay today and government is using these money to pay for the "needy" today. Tomorrow (after you start receiving pensions and get sick) when you are "needy" - there is no guarantee that someone will still pay "Mandatory Social Insurance". Only the part you pay to private entity ("compulsory private pension insurance") is legally yours but you can't receive it premature (in theory, you may receive the money you paid for "compulsory private pension insurance" plus profitability (or minus losses) minus "management fees" - it is like collective investment scheme but it is mandatory to "choose" between several private entities).

The private entity that receives your "compulsory private pension insurance" can invest your money in stocks, bank deposits, bonds. They decide how to speculate with your money. You can "choose" between several private entities. But you can't manage your own money like U.S. 401k.

2 comments :

  1. "In some countries anonymous payments to individuals are illegal because taxpayers can't fill out tax forms properly."

    Irrelevant laws of man shall parish under the laws of math.

    ReplyDelete
    Replies
    1. "Irrelevant laws of man shall perish under the laws of math."

      Delete

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