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Lower tax rates in some EU member countries
Thread poster: Tim van den Oudenhoven

Tim van den Oudenhoven
Germany
Local time: 17:15
Member (2006)
English to Dutch
+ ...
Oct 12, 2006

Hi,

I would like to get a rough idea about the total taxes freelancers pay in other EU member countries. Having once again read that Belgium has the third highest tax rates in the world I started to wonder about moving my business abroad (and also being aware of how much of my earnings go to the state (for which I don't get much in return in comparison to a regular employee who earns the same- e.g. expensive health insurance (as opposed to free health insurance), no right to unemployment benefits if I would "go bankrupt" or if I would decide to "quit" my job (unlikely, yet still not very fair to me), etc...).

I've read some things about the UK or Spain being more fair towards us freelancers, but I don't know if there's any country in the EU in which I could pay less taxes, and maybe still get something in return...

I'd love to hear some other translators' opinions on this matter, maybe from someone who made the move abroad (physically or maybe even just administratively).

A million thanks in advance,

Tim van den Oudenhoven


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CathyFS  Identity Verified
Local time: 16:15
German to English
+ ...
Irish tax rates - what are the Belgian rates?? Oct 12, 2006

Hi Tim,

The standard Irish tax rates are as follows:

32,000 @ 20%
Balance @ 42%

Plus a whole host of stealth taxes (government stamp duty on an average 100 sq.m. 3-bed semi detached home priced at €320,000 would be around €16,000. Welcome to the backlash of the "tiger economy"!

The above rates double for my husband me, as we've chosen to be assessed jointly. Therefore, €32K for one person becomes €64 for a couple. If one of us earns under 32K, the other can take the remaining tax credit at the 20% from that spouse before they have to pay 42%.

I think you'd find it difficult to move your business here for administrative purposes only, you'd need to be living here to pay tax here. Plus I don't see the point in paying taxes to Ireland if you don't live here, as you'd also have to pay pay-related social insurance and money towards the state pension.

To move here physially - well, you can count on what's supposed to be the 2nd highest cost of living after Japan. You might pay high taxes in Belgium, but from what I remember you have great infrastructure and probably a lot of other benefits that some other countries don't have ......

By the way, you didn't mention what the Belgian tax rates are?


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Clare Barnes  Identity Verified
Sweden
Local time: 17:15
Swedish to English
+ ...
Sweden Oct 12, 2006

Off the top of my head, this is what I pay in Sweden as a freelancer:

31% social costs (national insurance)
about 35% income tax

So, for every SEK 100 I earn I keep about SEK 44 - assuming I have no expenses whatsoever. VAT is 25%, by the way.

I also pay property tax on my house at 1% of its estimated taxable value every year and pay a certain amount into an unemployment insurance scheme (not compulsory, but advisable and state regulated). Health care is not free - it's reasonably cheap, but not free (nothing makes you appreciate the NHS like not having it any more). I also have a private pension as I am no longer covered by employment pension schemes - this is approximately 10% of my income after NI contributions but before income tax (and it's also my choice whather or not to have it).

I think I scared off a Chinese agency today with my prices - it is simply impossible for Swedish translators to live off prices that are relatively standard in central Europe, let alone further east. The dollar exchange rate also makes the US unfavourable at the moment too...

Not to mention the things that aren't tax deductible for freelancers working from home unless there are very special circumstances... office space, broadband, membership fees...

On the other hand - I have clean air and I can drink the water from the river (should I want to!), and the social security system is still more or less reliable. I may pay a lot of tax, but I have no desire to move!


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Angela Dickson  Identity Verified
United Kingdom
Local time: 16:15
French to English
+ ...
UK taxes Oct 12, 2006

Self-employed people are taxed on their profits (i.e. total income minus business related expenditure - I'm sure this is a common concept but I've never been self-employed anywhere else so I wouldn't know).

First £5,035 is tax free. Next £2,150 is taxed at 10%. Anything above that is taxed at 22%, until you earn over £33,300, at which point anything above this amount is taxed at 40%.

That's just income tax - National Insurance is charged at a flat rate for all self-employed people and is currently £2.10 a week. This eventually (if you contribute for enough years) gets you a basic state pension that isn't enough to live on, maternity benefits (might not be applicable to you!), incapacity benefits if you become ill and various bereavement benefits. Additional National Insurance at 8% is payable on a sliding scale on profits that are above the income tax threshold (£5035) and below an upper limit of £33,540 per year.

VAT is 17.5% here, and stamp duty on houses (payable when buying one, as I am at the moment) is 1% on houses worth over £125,000, 3% on houses worth over £250,000, and 4% if it's over £500,000.

On balance, I think Ireland has higher taxes. But there are presumably compensations?

[Edited at 2006-10-12 17:29]


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Andrzej Lejman  Identity Verified
Local time: 17:15
German to Polish
+ ...
Poland Oct 12, 2006

Linear tax 19% - you may earn 100 000 €, but your tax rate is still 19% only (still much too high).
Social insurance will cost you some 200 €/month (flat rate, your income does not matter), but don't expect too much. Well, you are entitled to get medical care, but you should organize funds for pension by yourself. The state pays you too much that you pass away, but not enough to stay alive.

Apart from this, Poland is a beautiful country. Caution: don't turn the TV or radio on. Stay away from newspapers. Take care of yourself only.

Best regards

Andrzej


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RobinB  Identity Verified
Germany
Local time: 17:15
German to English
Moving your business, or moving you? Oct 12, 2006

Tim van den Oudenhoven wrote: I started to wonder about moving my business abroad


Quick question, Tim. Are you thinking of relocating just your business, or of physically moving to another country? As a translator, you'll be taxed where you are ordinarily resident, not where your business is registered.

Robin


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Marie-Hélène Hayles  Identity Verified
Local time: 17:15
Italian to English
+ ...
Italy Oct 12, 2006

my accountant told me just last week that my total taxes (income tax plus pension/national insurance) amount to 42% of my gross income (I imagine it would be about 50% of my net income after deduction of expenses). Medical bills and vet's bills are both tax-deductable (the latter is good news for me, my cats have cost me about €1000 this year alone! Ageing cats are expensive!) Life insurance policies taken out after 2000 are not tax-deductable, although those taken out before 2000 still are.


VAT in Italy is 20%, council tax is fairly low (at least in comparison with the UK) at a few hundred euros a year but you also have a "rubbish tax" per household member to take into account (don't know how much it is though).


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Williamson  Identity Verified
United Kingdom
Local time: 16:15
Flemish to English
+ ...
Fiscally more lenient countries.... Oct 12, 2006

Andorra, San Marino, Gibraltar, Lichtenstein are nice places to live. In those healthy mountains or under the sun.
They have another advantage too: they are not a part of the E.U. and are more advantageous from a fiscal point of view. Many Belgians go to the Dominican Republic. Some of our colleagues have their residence there too: guess why?
My former neighbour is a (Belgian) architect designing a holiday village on the Dominican Republic for Belgian entrepreneurs. When he finished this assignment, he intends to navigate between Belgium and the D.R.
Canada is the only place on earth where the title of translator is a protected title. It has good social security and fair taxes.
In Luxemburg, you have companies called "fiduciaire" (-->google)
--
With regard to Belgium: Taxes are 20% if you earn peanuts, 30% if you earn something and 50% if you earn more than an average person.
You have to register for VAT if you earn more than 5.500 euros. If you have ever been registered as a self-employed, have been an employee for a while and decided to become self-employed again, then you not only will have to pay VAT for the quarter, but you will also have to pay 1/3 of VAT in advance for the next quarter. VAT you do not yet have.
You also have to pay taxes in advance or at the end of the fiscal year you will get a fine of 5% on the total amount earned. Social security contributions amount to 500-600 euros per quarter.
On the other side of the balance are declining rates and late payment terms. However, the Belgian state has a huge debt to its own banks and is always short of money. It takes 55% of the salary of an employee and forces self-employed to pay taxes in advance.
Yes, the entire country is lit and health-care for employees is of good quality, but who pays???
As a self-employed honest translator at Belgian rates paying Belgium, you are steering towards bankruptcy. The more you earn the more you will have to pay in advance.
Good luck finding a solution. May the web be with you.


[Edited at 2006-10-12 20:16]


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Tim Drayton  Identity Verified
Cyprus
Local time: 18:15
Turkish to English
+ ...
Low taxes in Cyprus Oct 13, 2006

The Republic of Cyprus (EU member since 2004) has low tax rates.
Income tax: Based on annual declared earnings, you pay nothing on the first 10,000 Cyprus pounds, 20% of earnings between 10,001 and 20,000 Cyprus pounds, then it moves into a 40% band (which is unlikely to apply to a freelance translator).
Social insurance: This is compulsory for self-employed people and the rate varies by profession. Translators have to pay 229.22 Cyprus pounds per quarter. Unfortunately the benefits are not as attarctive as in Western Europe. The free state health service is apparently of low standard, and to qualify for free treatment you have to earn less than 10,000 Cyprus pounds per year.
VAT Threshold: This is very low at 9,000 Cyprus pounds annual turnover.
Under Cyprus's EU accession treaty, a number of rights for EU nationals from other countries have been suspended until 2009. You can only buy one property, you cannot let out your property and you can't vote in national elections. Apart from this, EU nationals are now free to settle in Cyprus and become employed or self-employed or set up a business with employees.


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Tim Drayton  Identity Verified
Cyprus
Local time: 18:15
Turkish to English
+ ...
Low municipal taxes also in Cyprus Oct 13, 2006

Sorry, one other thing has to come to mind that I would like to add to my previous post. Municipal taxes here are also very low. I pay 100 Cyprus pounds ANNUALLY to my local authority.

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Angela Dickson  Identity Verified
United Kingdom
Local time: 16:15
French to English
+ ...
VAT for businesses Oct 13, 2006

I should also add that it is only compulsory to register for VAT in the UK if your taxable turnover is £60,000 or more.

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xxxLatin_Hellas
United States
Local time: 17:15
Italian to English
+ ...
US For Comparative Purposes Oct 13, 2006

I know you didn't ask for the US, but some data may be useful for comparative purposes.

Tax rates for the self-employed are based on net business income, after deducting allowed expenses (quite a few are allowed).

Taxes for Social Security (government pension) and medicare (government healthcare after age 65) - known collectively as the self-employment tax - are about 14.13% of net business income.

After allowing for other generous deductions in addition to business expenses, income tax rates are 15% for up to $28,000 then 28% after $28,000, I believe. But, depending on the situation, the deductions can be so generous - standard deduction (depending on number of dependents), standard exemption, one-half the self-employment tax, private pension contribution, private health savings account contribution, education credits, moving deductions, and a whole host of others (not to mention itemized deductions, including mortgage interest) - that the actual income tax can be reduced to virtually nothing, or at least a single-digit percentage of gross income.

State income taxes vary from nothing, notably Florida and Texas, to as high as 10% in California. In contrast, property taxes in Florida and Texas range from 2%-3% of assessed value. So a good deal for a self-employed translator, for example, is to rent in Florida and contribute as much as possible to a private pension scheme (several different types are available).
There are various other local taxes, such as a business licenses, but in most cases they are not onerous if you are not a property owner.

There is no such thing as VAT in the US; states and some municipalities impose sales taxes on retail purchases, ranging from around 3.5% to 8%.

The downside to being self-employed in the US is health insurance before the age of 65. Basically, you are on your own and private health insurance rates are sky high. Most US residents run into financial problems because of health insurance costs and consumer and mortgage debt. So, to keep your head above water, do not get sick or in any way require health care until age 65 and do not consume above your means; contribute to private pension and health savings accounts instead.

Someone mentioned combining business in connection with Belgium and residence in the Dominican Republic. For the adventurous, it is a good idea to introduce an element of Latin America, or some other developing region, into your scheme. With the spread of global communications, it is increasingly possible.

It would be interesting if someone who knows the Japanese situation could provide data, also for comparative purposes. Thank you.

[Edited at 2006-10-13 13:40]

[Edited at 2006-10-13 13:50]


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RobinB  Identity Verified
Germany
Local time: 17:15
German to English
Don't forget Germany.... Oct 13, 2006

Tim,

Odd though it may sound, you really ought to take a look at Germany, which offers a pretty competitive operating environment for freelance translators.

Personal income taxes are (still) at the upper end of the mid-field in the EU, with a top marginal rate of currently 42% (not likely to be cut any further). There's a now evidently permanent "solidarity surcharge" of 5.5% on the tax liability on top of that, giving an effective top marginal rate of around 44.4%. However, personal allowances are good.

Business deductibles are pretty generous by international standards, including a "low-value asset" threshold of EUR 410 net of VAT, meaning that all individual acquisitions up to that limit can be written off in the year of purchase, provided that they are stand-alone assets. Apart from car usage (different rules apply here), the basic rule is that all business expenses are fully tax-deductible. Depreciation rates for capital goods in excess of EUR 410 net are also quite generous.

Where Germany really comes into its own, though, is the almost total lack of regulation of the profession. The only registration that freelance translators need to do is with their local tax office. That's it. Freelance translators pay no social security contributions (healthcare, unemployment, pension) whatsoever. You mentioned that you wanted some sort of "unemployment insurance" - the most effective way is to pay a certain amount into a high-interest account every month. (To be honest, I find the concept of social "unemployment insurance" inconsistent with the status of self-employment.) Healthcare insurance and pension provision are also private for freelances (again with quite generous tax allowances), and private pension arrangements in particular should ensure you a decent retirement pension, as opposed to the state system.

Otherwise, what else does Germany have to offer, other than Europe's largest translation market? Still excellent transport and communications infrastructures, a (still) high standard and low cost of living by international standards, an increasingly multicultural society and a pretty safe place to live. OTOH, it can get rather boring sometimes, but that also has its upside. To rehash the old saying: If the end of the world is nigh, move to Germany, because everything there happens 20 years later...


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Andrzej Lejman  Identity Verified
Local time: 17:15
German to Polish
+ ...
We would appreciate some comment/feedback, Oct 13, 2006

Tim van den Oudenhoven wrote:

Hi,

I would like to get a rough idea about the total taxes freelancers pay in other EU member countries. Having once again read that Belgium has the third highest tax rates in the world I started to wonder about moving my business abroad (and also being aware of how much of my earnings go to the state (for which I don't get much in return in comparison to a regular employee who earns the same- e.g. expensive health insurance (as opposed to free health insurance), no right to unemployment benefits if I would "go bankrupt" or if I would decide to "quit" my job (unlikely, yet still not very fair to me), etc...).

I've read some things about the UK or Spain being more fair towards us freelancers, but I don't know if there's any country in the EU in which I could pay less taxes, and maybe still get something in return...

I'd love to hear some other translators' opinions on this matter, maybe from someone who made the move abroad (physically or maybe even just administratively).

A million thanks in advance,

Tim van den Oudenhoven


or even better, a clear statement where to go

Regards

Andrzej


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Tim van den Oudenhoven
Germany
Local time: 17:15
Member (2006)
English to Dutch
+ ...
TOPIC STARTER
thanks Oct 13, 2006

Thanks very much to everyone who gave me such an extensive answer, it has been very enlightening to find out about all these different tax systems. It appears the UK will be a feasible option for me to go to in one or two years (I've always wanted to live there for a while anyway). The 60.000 pound roof seems high enough to live off.
It's good to be able to compare between different countries within the EU (and even with the US actually) and in a globalising world, it seems a logical choice even to look for a more advantageous tax system for us.

I would like to know about Spain and Portugal too though (and why not some Latin American country? Since we're globalising anyway, why not include them?).

again thanks for the replies, they've been most helpful!

cheers,

Tim


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