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Thread poster: Paul Carmichael
VAT nonsense

2G Trad  Identity Verified
Italy
Local time: 13:59
Partial member (2000)
English to Italian
+ ...
EU Intrastat and EU VAT numbers Jan 10, 2012


Williamson:
Yes, but each country in the EU has set a threshold. Even France. In some countries the threshold is low (Cyprus: 5000 euro turnover p.a.), in others, it is higher: in France 35000 euro p.a. turnover- Pour les entreprises dont le chiffre d'affaires est inférieur à 32 000 €, une exonération de TVA est possible. On appelle cela le régime en franchise de base : la TVA ne doit donc pas facturer sur les factures.), in others, it is high(er), Germany: 50.000 euro turnover and the UK has the highest threshold at 73.000 euros turnover p.a. Explain that to a Spanish company, when in Spain, there is no threshold and registration is obligatory.


In Italy there is no threshold. If you work as a freelance continuously, regularly for your living you MUST be VAT registered.
When you register for VAT you can opt also for EU VAT registration (VIES database) if you think you're going to work with EU clients.

In my opinion, Spain businesses require EU VAT registered freelancers in pursuance of EU directives when filling periodical Intrastat forms to send to each fiscal and custom national entities.

These forms must be correctly filled when you buy and/or sell services from/to EU businesses with their EU VAT numbers.

Bye!
Gianni


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Giles Watson  Identity Verified
Italy
Local time: 13:59
Member
Italian to English
Oh yes there are Jan 10, 2012


2G Trad wrote:

In Italy there is no threshold.



There is (I think its €5,000 but I'm not sure). The problem here is not so much VAT as social security (INPS), which fixes a high minimum contribution even for very low-earning self-employed workers. There are various tax regimes for the young, the part-time and so on but registering for VAT generally puts you squarely on INPS' radar, as well as the Fisco's.

The situation is pretty fluid, though. Italian regulations keep changing because governments want to encourage new entrants to the labour market but fear the potential loss of revenue that any concessions over social security contributions might entail.



I
f you work as a freelance continuously, regularly for your living you MUST be VAT registered.



That is true!

Giles


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2G Trad  Identity Verified
Italy
Local time: 13:59
Partial member (2000)
English to Italian
+ ...
OT: Italian VAT registration and social security threshold Jan 10, 2012


Giles Watson:

2G Trad:
In Italy there is no threshold.


There is (I think its €5,000 but I'm not sure).


5000 EUR is the threshold for registering to social security freelance section (INPS's gestione separata) for those who don't work regularly and continuously (lavoratori autonomi occasionali).
VAT registration (partita IVA) has no minimum threshold. If you work regularly and continuously you must register to VAT.



The problem here is not so much VAT as social security (INPS), which fixes a high minimum contribution even for very low-earning self-employed workers.


There is no minimum social security contribution if you work as a freelance: that is proportional (26,72% of your taxable income).
Maybe you are referring to those few translators who register to Chamber of Commerce and pay contributions to a different social security section (INPS's commercianti). There is a minimum contribution of ~ 2900 EUR/year corresponding to ~ a 14.500 EUR income. If you earn more than that, the contribution is proportional (21%).

If you register for VAT (no threshold) you immediately register for social security contributions (INPS's gestione separata).

Ciao!
Gianni


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Neil Coffey  Identity Verified
United Kingdom
Local time: 12:59
Member (2009)
French to English
+ ...
Invention of schemes for fun and frolics Jan 10, 2012


Charlie Bavington wrote:


Neil Coffey wrote:
(a) allocate a unique, standard-format number to every trading entity in the EU

You'd think a) might be quite easy. Ten years ago, I had the pleasure of working on a project which needed exactly that. The variety of national identifiers in Europe alone was mind-boggling even then. Bureaucracy being what it is, I can't imagine the situation has improved any.


It doesn't particularly matter what format local identifiers are in, provided that an individual country has actually allocated some unique identifier or other to each trading entity and can decide unequivocally at any time what that single identifier is. Provided that condition holds, then you just use some hash function or other that is strong enough to map any arbitrary input to a unique number without collisions (pretty much any of the secure hash functions currently in wide use would be fine).

Where things break down is where authorities have been too incompetent to manage to allocate a unique identifier to each business in the first place. In principle, you just need to add 1 to a number each time a new entity registers, but the NHS managed to mess this up fairly royally with the allocation of NHS numbers, with thousands and thousands of duplicates having been allocated. Scale this incompetence up to several tax authorities in several EU countries...

But in principle, that's just a problem with cleaning up existing data, not the "new" mapping/registration scheme per se.


Charlie Bavington wrote:
I don't really know why they don't just bring the VAT reg threshold down to £25-30k and be done with it.


I actually think the UK threshold is about right. VAT makes sense when there is actually some kind multi-stage "value chain" involved in a product/business. But for many simple activities like translation, window cleaning, private tuition etc where there's no actual manufacture/value chain involved, and where the turnover pretty much equates to one person's income minus a few minor business expenses, it actually makes sense to set the threshold at just above the level of a decent salary for a single person.


Charlie Bavington wrote:
How exactly would you see b) working ?


Well, essentially that's what they're doing currently with VAT numbers, isn't it? Either way, I imagine it would work with the same degree of billion-pound-black-hole-incompetence as any other public IT project...


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IanDhu  Identity Verified
France
Local time: 13:59
Member (2005)
French to English
VAT-exempt: make it clear to your clients Jan 10, 2012

On my stationery, advertising material and especially invoices, I put the French and English for "VAT-exempt pursuant to Article 293 B of the French General Tax Code". I suggest you find out which section of which British Act provides for VAT exemption in your case, and plaster the relevant form of words over all your documentation, so as to satisfy the Spanish agencies in question. Agencies are basically afraid of getting "done" by the VAT authorities for VAT kiting and the like, particularly in the current nasty economic climate in Spain and other distressed countries. They want to do everything to present a clean profile to the authorities, even at the expense of overdoing it with small-business suppliers.

If you are in the uk, one source for such information is the ITI. When I was a member, they were extremely obliging and helpful, and I think you ought to discuss the issue with the relevant department there.

I hope this will help.

With kind regards,
Adam Warren
(IanDhu - 41189)


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Williamson  Identity Verified
United Kingdom
Local time: 12:59
Flemish to English
+ ...
Notice 700/1 Jan 10, 2012

Here we go again :
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageExcise_ShowContent&id=HMCE_CL_000086&propertyType=document#P224_22474

and the most recent version:

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&propertyType=document&id=HMCE_CL_001596

Before you start working for a Spanish client, it might be a good idea to refer to this page or to download it and send a pdf-copy.
Basically, a Spanish company/agency is buying a service from you, which you export to Spain. If you don't have a VAT-number they have to pay VAT on that service, given that they are the end-customer. If they are not and they charge VAT to a Spanish end-customer with a VAT-number, they don't have to charge VAT..




[Edited at 2012-01-10 20:48 GMT]


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Texte Style
Local time: 13:59
French to English
the French are pretty normal too... Jan 10, 2012

however a few years ago when I was working here as a PM in an agency, the boss suddenly announced that we had to get VAT numbers from all our translators to comply with a new ruling (this was before 01/01/2010, more like 2007 or 2008).

Being in charge of all translations into English I had to deal with quite a few people in the UK, none of whom had a VAT number. They explained that they didn't earn enough money.

The boss got increasingly irate with my inability to produce the numbers and told me it was to prove that we were not outsourcing to illegal immigrants or on the black market and it would be all my fault if he went to jail over this.

At one point a translator suggested she gave me her National Insurance number. The number seemed to fit the space on the form so I asked everyone else for theirs. For those who didn't respond I cobbled together a likely looking number with the same number of figures based on their birthday and phone number.

BTW an inspector came shortly afterwards to examine all our paperwork and we passed with flying colours!


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RobinB  Identity Verified
Local time: 13:59
German to English
Who pays VAT? Jan 10, 2012


Williamson wrote: Basically, a Spanish company/agency is buying a service from you, which you export to Spain. If you don't have a VAT-number they have to pay VAT on that service, given that they are the end-customer. If they are not and they charge VAT to a Spanish end-customer with a VAT-number, they don't have to charge VAT.


It's not quite as complicated as that. The Spanish agency has to pay VAT in any case ("import VAT"), regardless of whether the UK translator has a VAT ID number of not. It's exactly the same procedure for any VAT-registered buyer of translation services, and it doesn't matter whether the translator is located in another EU country or in a third country.

The Spanish agency can then claim the same amount as input tax, thus offsetting its VAT liability ("ouput tax"). The problem seems to be that the Hacienda will only allow the input tax to be claimed if the UK translator has a VAT ID number, so that's why Spanish agencies seem to want to reclaim their output VAT liability from the translator.

What I really don't understand is why this whole fuss should arise in the first place. It makes total economic sense for UK freelances to be VAT-registered, even if their revenue is below the threshold, because they then have a cash flow benefit for a minimal administrative outlay: they can reclaim the input tax they pay on their own supplier invoices soon after paying the invoices, rather than waiting for well over a year to reclaim the gross amount as a tax deduction. And the time value of money indicates that a pound today is worth more than a pound next year. Business 101?


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Alex Lago  Identity Verified
Spain
Local time: 13:59
Member (2009)
English to Spanish
+ ...
No that's not right Jan 11, 2012


RobinB wrote:
It's not quite as complicated as that. The Spanish agency has to pay VAT in any case ("import VAT"), regardless of whether the UK translator has a VAT ID number of not. It's exactly the same procedure for any VAT-registered buyer of translation services, and it doesn't matter whether the translator is located in another EU country or in a third country.


Sorry but you are wrong, business to business (or in this case business to independent freelancer) transactions are VAT free when done across EU-borders, VAT is a consumer tax and only consumers pay it, however for the transaction to be entitled to be tax free both parties have to prove they are indeed businesses, in theory they do that by submitting their VAT numbers, that way the company issuing the invoice does not have to include VAT in the invoice, however if one of the parties is not VAT registered then by law they have to include VAT in the invoice it is as simple as that, the problem comes with countries like the UK which have such a high threshold for VAT registration that hardly any freelancers get a VAT number.

Transactions between companies of the same country are not VAT exempt, however because businesses are not subject to VAT they can then claim a reimbursement for the VAT they paid (they also have to make payments for the VAT the collected, so actually both amounts are offset leading to a payment or collection).


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Neil Coffey  Identity Verified
United Kingdom
Local time: 12:59
Member (2009)
French to English
+ ...
Burden of proof? Jan 11, 2012


Alex Lago wrote:
tax and only consumers pay it, however for the transaction to be entitled to be tax free both parties have to prove they are indeed businesses


I'm curious about this. As I understand, if I am not VAT-registered (and not required to be), then services I supply are not subject to VAT. That's pretty much it, full stop, as far as I understand from the HMRC description of things. Out of curiosity, can you point to where the burden of proof that you mention is actually enshrined in legislation?


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Williamson  Identity Verified
United Kingdom
Local time: 12:59
Flemish to English
+ ...
Paperwork. Jan 11, 2012


RobinB wrote:


Williamson wrote: Basically, a Spanish company/agency is buying a service from you, which you export to Spain. If you don't have a VAT-number they have to pay VAT on that service, given that they are the end-customer. If they are not and they charge VAT to a Spanish end-customer with a VAT-number, they don't have to charge VAT.


What I really don't understand is why this whole fuss should arise in the first place. It makes total economic sense for UK freelances to be VAT-registered, even if their revenue is below the threshold, because they then have a cash flow benefit for a minimal administrative outlay: they can reclaim the input tax they pay on their own supplier invoices soon after paying the invoices, rather than waiting for well over a year to reclaim the gross amount as a tax deduction. And the time value of money indicates that a pound today is worth more than a pound next year. Business 101?


Yes. But my office-supplies and second-hand computer parts (handy if you can assemble a PC yourself) or a second-hand laptop are so minimal that it is not worth the hassle of the paperwork or making a mistake against VAT.
VAT pad on those supplies and second-hand stuff is lower than any possible fine.

[Edited at 2012-01-11 08:23 GMT]


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RobinB  Identity Verified
Local time: 13:59
German to English
Yes, that's right Jan 11, 2012


Alex Lago wrote: Sorry but you are wrong, business to business (or in this case business to independent freelancer) transactions are VAT free when done across EU-borders


No, they're not "VAT free" at all. What happens is that the VAT liability is reversed, that's all.

If a company buys a translation from a translator located in another EU member state, and both parties have a VAT ID number, both numbers have to be shown on the invoice (there may also be some boilerplate required on the invoice by national tax law).

No VAT is shown on the invoice. However, the buying company adds VAT on the invoice amount at their national rate for output tax to their VAT return, and at the same time claims the same amount as input tax in their VAT return. So, although no cash VAT payment is made (the translator doesn't collect the VAT as would be the case for a purely domestic transaction), VAT is still accounted for in respect of the transaction. Cross-border transactions are neither "VAT-free" or "VAT-exempt".


VAT is a consumer tax and only consumers pay it


Not so. What is correct is that "only consumers cannot reclaim it". Businesses pay VAT, of course, and reclaim the amount of input tax they pay from the amount of output tax they collect from their customers.


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Alex Lago  Identity Verified
Spain
Local time: 13:59
Member (2009)
English to Spanish
+ ...
Paying but not "paying" Jan 11, 2012


RobinB wrote:

Not so. What is correct is that "only consumers cannot reclaim it". Businesses pay VAT, of course, and reclaim the amount of input tax they pay from the amount of output tax they collect from their customers.


OK it's true companies do "pay" VAT on their invoices but they can claim it all back so in fact they don't actually "pay" it to the government they have paid it in their bills and reclaimed it from the government. The easiest example would be a company/freelancer who does not invoice any clients in Europe but does pay invoices in their country, as none of their invoices have VAT they have not collected any VAT for the government, as any invoices they receive (suppliers, accountant, etc.) will have VAT on them they will have "paid" VAT but not collected any, so when they do their VAT declaration they will be able to claim back all the VAT they "paid", so in fact they will not have "paid" any VAT at all.

If they do issue invoices with VAT and therefore have "collected" VAT they have to calculate the difference between what they collected and what they paid, but in effect they will reclaim all the VAT they "paid" back, so they will have "paid" the VAT but will get it all back, so in effect companies do not "pay" VAT because they claim it all back.


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chris durban
Local time: 13:59
French to English
Being VAT-registered makes sense Jan 11, 2012

I agree with Robin on this one.
In the one-day "Getting set up as a translator in France & building a client portfolio" course that the SFT runs regularly in France (next one is Jan. 21 in Marne-la-vallée, see www.sft.fr) we also make an effort to explain to participants *why* being part of the system benefits them. Translators being largely literate (thank goddess) but often not particularly numerate, it's an uphill battle.
To be perfectly clear, I figure freelance translators should be spending their time translating, not doing endless admin. But it really is not all that complicated to make monthly or quarterly VAT declarations.
I've also observed that full-time translators tend to get their heads around issues like this more easily than part-timers. Ultimately, it's whatever you are comfortable with, of course...


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RobinB  Identity Verified
Local time: 13:59
German to English
Sorry Jan 11, 2012

Hi Alex,

Sorry, but I'm not quite sure I've understood what you wrote. I appreciate it may be difficult to write clearly on complex tax issues in a foreign language, but I'm afraid I'm still not sure if you've understood the basic mechanics of input and output tax. Businesses pay input tax (for which they must expend cash), and collect output tax (which is a cash receipt), and then forward the net amount to the tax authorities.

BTW, if I have understood you correctly, you think that a supplier whose clients are all outside their own country, but whose own suppliers are in-country, will be able to reclaim all the input tax they pay because they don't themselves charge any output tax. That's the theory, certainly, but in very many cases, tax authorities will deny a business the ability to reclaim input tax if that business does not generate a sufficient volume of matching output tax receipts.

Robin


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