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User
Thread poster: Paul Carmichael
VAT nonsense

2G Trad  Identity Verified
Italy
Local time: 06:34
Partial member (2000)
English to Italian
+ ...
How VAT works Jan 11, 2012

For those who want to understand this matter.

Here http://bit.ly/yhCX89 there's an explanation (EN, FR, DE) of how VAT works.

And here http://bit.ly/x2fXq0 an explanation on VAT and supplying services in EU.

Bye!
Gianni


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Alex Lago  Identity Verified
Spain
Local time: 06:34
Member (2009)
English to Spanish
+ ...
Thing is that is my case Jan 11, 2012


RobinB wrote:

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


The thing here is we are talking about an EU directive which has been inconsistently applied in different countries, so what you say may well be the case in your country, but I don't "think" what I said I "know" it's true because it is my own particular case, all of my clients are in the US or Australia, I don't have any clients in Europe but I pay VAT for my phone, accountant, etc.

Every 3 months I prepare my VAT statement (well my accountant prepares it) and as I have paid VAT but not collected any all of my VAT statements come back negative (i.e. the government owes me money), so I claim all the VAT I have paid back, I can assure you I have never had problems doing this and the Spanish government does pay me the money back (though they usually takes 6 months to do so), so in effect I don't pay any VAT because I claim it all back.


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Samuel Murray  Identity Verified
Netherlands
Local time: 06:34
Member (2006)
English to Afrikaans
+ ...
Time spent on VAT Jan 11, 2012


chris durban wrote:
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 spend about 3-4 hours per 3-month cycle doing my VAT declarations. And it is easy to make a mistake while inputting the information on the tax department's declaration web site.

Those who believe that there is any benefit to being VAT registered should say what that benefit is. I can't see any benefit -- it is just extra paperwork. If it wasn't compulsory here in NL (no threshold here, see), I would not have bothered.


RobinB wrote:
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.


What "supplier" invoices do you mean? Stationery, computer equipment, connectivity, that's it, isn't it? You'll get very little "cash flow" benefit from getting tax back on those items. Translators don't buy and sell -- they create and sell. There's very little cash flowing out in a translator's office.


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Jabberwock  Identity Verified
Poland
Local time: 06:34
Member (2004)
English to Polish
Yes, it's possible Jan 11, 2012


RobinB wrote:
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.


It's certainly possible, as I have done it in Poland for several years. Essentially, all VAT on my supplies (and these were not trivial amounts - think a new computer, backup unit, router, etc.) was returned to me, as at that time all my clients were outside Poland. Of course, the downside was that whenever I applied for the refund, the revenue office sent an inspection my way, but my accountants dealt with that.

Now, as I have joined forces with my beloved partner and have Polish clients, it has changed and I need to pay up.


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efreitag  Identity Verified
Germany
Local time: 06:34
Member (2006)
Dutch to German
+ ...
Benefits Jan 11, 2012


Samuel Murray wrote:

I spend about 3-4 hours per 3-month cycle doing my VAT declarations. And it is easy to make a mistake while inputting the information on the tax department's declaration web site.

Those who believe that there is any benefit to being VAT registered should say what that benefit is. I can't see any benefit -- it is just extra paperwork.



That's easy: The benefit simply is that every business related expense is effectively 19% (or whatever VAT rate applies) cheaper. PC Hardware, software, electricity, internet, heating, office furniture, training, books etc. - you name it. Just as an example: Many people complain how expensive CAT tools are (a view that I don't necessarily share, but anyway). The biggest saving they can make is probably by just registering for VAT: 672€ instead of 875 for Studio (just as an example).

At least in Germany, the necessary paperwork imho is negligible compared to the financial benefits - the situation may be different in the Netherlands.

As others have already confirmed, the right to reclaim VAT from your business related expenses does in no way depend on the amount of VAT you collect.


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Charlie Bavington  Identity Verified
Local time: 05:34
French to English
The single Europe-wide identifier issue Jan 11, 2012

Sorry, I've only just caught up with this.


Neil Coffey wrote:


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, ....


... and let me stop you right there

When I said "variety of national identifiers", I didn't just mean the format.

The project I was working on was in fact not dissimilar to the basic idea being discussed here - how acompany identifies its trading partners in another country (in my case for determining credit limits, but the underlying logic is the same). When I left that job, I was allowed to take with me a couple of spreadhseets for future reference, since it was already anticipated they would give me some translation work. I have just looked at the spreadsheet, which includes a list of national identifiers, or de facto national identifiers, that could potentially be used by a company to identify another. (Not the actual numbers, of course, just the names of the identifiers - CRO number, VAT number, Siren number, etc.)

Would you care to take a guess at how many identifiers are on the list? (In other words, the "variety" to which I referred earlier). Bear in mind this project only involved the UK, France, Benelux, Germany & Spain at this point.

OH, and the reason I stopped you where I did is that, naturally, the uniqueness of these identifiers cannot be relied upon in any way, shape or form.

(Edit to remove the US from the list of countries to keep it simple and relevant!)

[Edited at 2012-01-11 13:04 GMT]


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chris durban
Local time: 06:34
French to English
Yes, benefits Jan 11, 2012

Samuel, see efreitag's comments (thank you efreitag).
Here in France, all of my outlays on my business cost me 19.6% less. That's a chunk of change. And I think (I hope) we can all agree that investing in ourselves and our business is one way to build up a successful practice, no?
Chris


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xxxchristela
Benefits Jan 12, 2012

And besides, if you aren't registered for VAT, coworking or subcontracting (to one of your colleagues - or your accountant or bookkeeper) costs 20% more. Of course, if you have a small turnover and only 'create', this is not important, but as soon as you can grow and have some expenses, it is. And our main goal should be to grow, no?

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Janet Rubin  Identity Verified
Australia
Member (2008)
German to English
The chunk of change depends on the business Jan 12, 2012

It's been a while since I lived in Europe, and I'm not registered for GST here in Australia, mostly for the reasons expressed by the "I don't see the point" crowd - I don't have any Australian clients, therefore I don't bill any VAT.

I have business expenses, but the bulk of them are related to travel or office rent, which (AFAIK) doesn't include GST. I'm not a big company, I can only deduct for my home office and a small portion of the utilities proportionate to the amount of space my office takes up - the GST (VAT) would also have to be broken down (into a very small amount) accordingly.

I used to live in Germany, I was registered for VAT, and I did all my accounting. While I don't remember it as a particularly traumatic experience, what I also don't remember is a feeling that the pittance I may or may not have received credit for after all the paperwork was finished was worth the time spent. As far as I was concerned, I was simply supporting the government. That's what taxes do.

IMHO the answer to whether "registration for VAT makes sense" - especially for small businesses, which freelancers often are - is purely subjective and in the eye of the beholder - or in this case, the person stuck doing the paperwork.


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Lori Cirefice  Identity Verified
Local time: 06:34
French to English
refunds Jan 17, 2012


Jabberwock wrote:


RobinB wrote:
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.


It's certainly possible, as I have done it in Poland for several years. Essentially, all VAT on my supplies (and these were not trivial amounts - think a new computer, backup unit, router, etc.) was returned to me, as at that time all my clients were outside Poland. Of course, the downside was that whenever I applied for the refund, the revenue office sent an inspection my way, but my accountants dealt with that.


Robin's comment surprises me, this is certainly not the case in France! I used to work for a VAT-registered French company, whose clients were all outside France, but business expenses all inside France. We had huge quarterly VAT refunds, and were often bothered by the tax inspector, but never had any problems with the refunds. Never paid a cent of VAT, always had refunds, every single month!


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Quiddity
Local time: 06:34
English to Spanish
totally agree! Mar 13, 2012


Alex Lago wrote:

People blame the Spanish agencies but it is not them you should blame, it is Spanish tax law.

Spanish tax law says that in order for services provided inside the EU to be tax exempt they must be provided by/for an independent professional or a company, in order to prove that they are not an end consumer, Spanish law says you have to include their VAT registration number in the invoice, if you don't and you get audited by the tax authorities you would be back-charged and fined for all that VAT, you can't turn around and say "Oh sorry the person told me that in their country they don't have to be tax registered", they don't care, if there is no registration number they assume it was an end client and therefore VAT should have applied.

So don't blame Spanish agencies for obeying the law.


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Paul Carmichael  Identity Verified
Spain
Local time: 06:34
Member (2011)
Spanish to English
TOPIC STARTER
I just got back from Hacienda Jun 18, 2012


Alex Lago wrote:


RobinB 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, 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


They just told me in Hacienda (Spanish tax office) that it makes no sense for a translator to be on the register of intra-community suppliers, as they are selling a service, and not "selling on" ie; not buying goods that they want to claim VAT back on. They said all I have to do is invoice without charging IVA(VAT). That's it.

Simples.


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inkweaver  Identity Verified
Germany
Local time: 06:34
Member (2007)
English to German
+ ...
Benefit? What benefit? Jun 18, 2012

I would gladly do without the "benefits" of being VAT-registered, unfortunately I don't have a choice since the threshold for being VAT-exempt is so ridiculously low in Germany.

How often do I buy a new computer, office equipment or CAT tools? Not that often to make the "benefit" seem worthwile. If I had to pay VAT on equipment etc. it could still be set off against tax, and I would happily spend the time saved on things that seem more worthwile to me, but, alas, I have no choice.


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VAT nonsense







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