Affiliate income/commission received from a foreign company as export of services or not?

Affiliate income/commission received from a foreign company as export of services or not?

I’m an affiliate marketer and I promote computer software developed by two foreign companies based outside India (China and Netherlands).

I have created few websites where I provide/write content to promote software of this company. From my website, I redirect potential customers to this software company site. If someone buys software from the company website through me then they pay me a certain commission. At the end of the month, I receive my commission for the web marketing activities I do in my Indian bank account in USD. I also get FIRC from my bank related to these payments.

My main role is to give information about their software and redirect customer to their website. The company itself creates the invoice and collects payment from the customer. I do not collect any payment from the customer on behalf of company. I do not even have any information about the customers like their name as well. Company just tells me the order number and the commission amount. Company also handles the after sales service. 99.9% customers of these software are from outside India. I have no way to ask these companies to pay me 18% gst that I can deposit.

My turnover crossed 20 lakhs last year and I would like to get the GST registration. I think similar to the income from YouTube/Adsense, affiliate marketing also falls in OIDAR services and eligible as export of services. But at certain places I’m hearing this term “intermediary services” which makes me little worried. So, I have few questions about this like:

1. Will I be able to show this affiliate income as export of services and apply for the “LUT” to pay zero GST for the money I received from these foreign companies?

2. Can I start issuing invoices to these foreign companies as "web marketing services" If tax department have problem with the word "commission." I heard due to this "commission" thing they might treat my work as “intermediary services” and make me pay 18% GST. One company already use the word "web marketing services" in the monthly invoices they provide me.

3. Is SAC code 998361 appropriate for the work I do?

Hope experts can answer my queries.

Asked 5 months ago in GST

- Intermediary is a person who arranges or facilitates the supply of goods or services or both between two or more persons

- The purpose of your website is to promote the software of the foreign companies with the sole purpose to facilitate the sale of software of the foreign companies

1. No

2. GST is applicable @18%

3. 9971

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Vivek Kumar Arora

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Dear sir, thanks for the reply. As per the Circular No. 159/15/2021-GST there are some basic pre-requisites to identify a service as "intermediary services." One of the main pre-requisites is that Intermediary service provider must have the character of an agent, broker or any other similar person.

As per Circular No. 57/31/2018-GST The term “agent” has been defined under sub-section (5) of section 2 of the CGST Act as follows:

"Thus, the key ingredient for determining relationship under GST would be whether the invoice for the further supply of goods on behalf of the principal is being issued by the agent or not. Where the invoice for further supply is being issued by the agent in his name then, any provision of goods from the principal to the agent would fall within the fold of the said entry. However, it may be noted that in cases where the invoice is issued by the agent to the customer in the name of the principal, such agent shall not fall within the ambit of Schedule I of the CGST Act."

Now, as I informed earlier, I do not have any direct contact with the customers who buys software from the foreign company. I also don't issue any type of invoice to the customers. I do not interact with them at all on behalf of this foreign company. Would you still classify me as "agent" and my business support service as intermediary services?

Asked 5 months ago

Affiliate Income as Export of Services and LUT:
- Given that your primary role is to promote software developed by foreign companies and you receive commissions from outside India, your service can be categorized as 'export of services'.
- The essential criteria for a service to be considered as an export are that the supplier (you) is located in India, the recipient is located outside India, the place of supply is outside India, payment is received in convertible foreign exchange, and the supplier and recipient are not merely establishments of a distinct person.
- You can apply for a Letter of Undertaking (LUT) to supply these services without payment of integrated tax (IGST), which means zero GST.

Invoicing as 'Web Marketing Services':
- To avoid being classified as an intermediary, it's advisable to issue invoices under the term 'web marketing services'. This aligns with the nature of your work and steers clear of the 'commission' terminology, which could imply an intermediary role.
- Since you don’t directly interact with the customers or issue invoices to them on behalf of the foreign company, it supports the argument that you are not functioning as an agent or intermediary.

Appropriate SAC Code:
- SAC (Services Accounting Code) 998361 specifically relates to 'Advertising Services'. However, considering your role involves more than just advertising, but promoting and redirecting customers, the SAC code 9971 might be more appropriate as it covers 'Other professional, technical and business services'.
- It's important to choose the SAC code that best describes your services to ensure proper compliance with GST regulations.

Hope you find the information helpful. You are free to contact me for further discussion.If you could spare two minutes of your time to write a review, It would be really grateful and very happy to read it.

Thank you.

Shubham Goyal

CA, Delhi

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The circular mentioned by you covers only supply of goods within Schedule I

Vivek Kumar Arora

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Thank you CA Vivek Kumar Arora and CA Shubham Goyal for your valuable advice. I still feel that we affiliates don’t directly acquire customers for these foreign companies. We just refer potential customers (who might or might not) buy their products and services. So putting all not us in “intermediary category” and asking us to pay GST from our own pocket is little unfair. Other than that, they always promote/refer the GST as destination based tax so how come even intermediary providing service to a foreign client is liable to pay tax. Cases like “Dharmendra M. Jani Vs Union of India And Others (Bombay High Court)” give us some hope, but this topic GST applicability to affiliate who works for a foreign client is still debatable.

I’d be great if you can clear my confusion regarding SAC code. I’m little confused here as per annexure classification of services SAC code 9971 is related to “Financial and Related Services. I do not think I provide these type of services to client. Group 99839 is related to “ Other professional, technical and business services.” I’m looking at the wrong SAC codes? Hope someone can comment.

Asked 4 months ago

Export of Services and LUT: You may qualify your affiliate marketing income as 'export of services' under GST, provided it doesn't fall under 'intermediary services'. Applying for a Letter of Undertaking (LUT) could allow you to export services without GST, but ensure your role isn’t interpreted as that of an intermediary.

Invoicing as 'Web Marketing Services': Changing the invoice description to 'web marketing services' might better represent your activities and align with GST requirements, distinguishing your role from an intermediary.

SAC Code: For your activities, SAC code 998361 (Online advertising and sales promotion services) seems more appropriate than 9971 (Financial and related services).