1/7/14

Claiming Foreign Earnings as Export Income for International Freelance Writers

A reader left an interesting comment on a previous post about international freelance writing income: http://ravens-writing.blogspot.com.au/2010/08/benefits-of-being-international-writer.html

Emma asked:
Hi Bianca, I was wondering how you claim income if it is not a full rights sale of an article and the income is from a foreign country? For example, if you earn residual income from a company like Hubpages where you do not sell them your article, or if you earn income from an affiliate sale that came from an article written on your own site about a product? Do you still claim these as export income, or as regular income?

Basically, if you earn any income from a foreign country in a currency that is different to your own local currency, it's instantly foreign income - regardless of where you earned it.

For example: if you live in Canada and you sell an article to a US client and you're paid in US dollars, you earned foreign income.

Now, Emma's questions was more about residual income, such as through HubPages. In this case, you're not selling your own article, but you ARE still earning foreign income. The amount you earned is still paid to you in US dollars and it still forms part of your freelance business's revenue.

Obviously, you'll need to convert that income to your own local currency in order to spend it. But the amount you earned was still derived from a foreign source.

Personally, the Australian Taxation Office asks that I report ALL income in Australian dollars. Yet I earn the vast majority of my income in US dollars, Canadian dollars, British pounds or Euros.

So I keep a spreadsheet that shows me exactly how much I received in which currency AND what that amount of money equates to after it's been converted to Australian dollars. I also take careful note of any fees charged for the exchange, as those are tax deductible for me.

Then I report the TOTAL income amount to the Australian Taxation Office - but the form includes two separate components: one is for locally earned money and the other is for export income earned. It's important to keep the amounts separated wherever you can.

While the total income may be shown in your local currency, one component of your income will be comprised of foreign earnings. Those foreign earnings are usually taxed differently within most countries' taxation laws. It pays to ask your accountant how this works for your own country's laws and how you should report it, just to be sure you're getting it right.

What If You're Paid in Local Currency from a Foreign Source?

One aspect of foreign earnings that can be very tricky is when you're paid in your local currency, but the source is still a foreign client.

As an example, if you set up a Google Adsense account you can change the currency you receive to be the same as your local currency. I personally receive Australian dollars when I reach payout with Google.

However, the client is still American. The source of the income is still American, despite the fact that they pay my in Australian dollars.

Therefore, any income I earn from Adsense ads is automatically export earnings and is considered foreign income.

I hope this helps!

3 comments:

Emma said...

Hi Bianca, Thank you for taking the time to answer my question in so much detail. Your answer is extremely helpful and I really appreciate it!

Bianca Raven said...

My pleasure, Emma - I'm always happy to help

William Forrest said...

Being a freelancer, it was expected to be more effective when it comes to short projects. I have known some freelancers who earn better than the employee who works fulltime.