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Are your rates taxes-included?
Thread poster: Livia Formisani
Livia Formisani  Identity Verified
Italy
Local time: 05:05
English to Italian
+ ...
Aug 21, 2008

Hello everybody.
I got my first work here on Proz and I have a problem. I quoted my rate, but now that I did the work my client said he has to get off VAT from the price we agreed. I never thought my rate was VAT included; maybe I am too naive...
Also, it's a huge amout of work, and I am really pissed of seeing such a part out of it!!
What should I do? Do you usually include VAT in your quotes? I mean, I obviously can't charge him more...But he should have told me before I did the work, no?

Please tell me if I am wrong; I am beginning and of course mistakes are highly likely.

Thanks in advance!


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ViktoriaG  Identity Verified
Canada
Local time: 23:05
English to French
+ ...
Your country's tax act Aug 21, 2008

I think you would need to consult your country's tax act. The answer should be in there somewhere.

In Canada, you are required to charge taxes only if your yearly revenue as an independent worker is above a certain amount. You can voluntarily opt to charge taxes before you reach that amount, and some people prefer to, because then they are also credited taxes they paid on business-related expenses. If your client is within Canada, then they have to pay the invoice, including taxes, in its entirety. In Canada, we pay taxes to two governments - federal and provincial. If I make a sale within my province, I charge both federal and provincial taxes. If I make a sale within Canada but in another province, I can only charge federal tax. If my client is outside of Canada, I can't charge any taxes - and my governments will not require me to, either. However, in all cases, your invoice has to include taxes as separate items. So, you would write the total invoice amount, then the federal tax amount, then the provincial tax amount, and finally the total including all those three amounts. If you are charging tax in Canada, you can't include the taxes in the quoted price.

This may be different in your country, but I would be surprised if the tax act in your country weren't similar to what I described above. You would need to check - maybe you can call the government and explain your situation over the phone. That could speed up the solution to your problem.

All the best!


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KSL Berlin  Identity Verified
Portugal
Local time: 04:05
Member (2003)
German to English
+ ...
Leave no room for misunderstanding Aug 21, 2008

ALWAYS specify that VAT (if relevant) is added to prices quoted. To be doubly sure, itemize your quotations and include it. Make sure that you understand little details like the need to charge private individuals in other EU countries VAT but not companies in those countries and that VAT is not applicable for clients outside the EU. When dealing with companies in the EU, you must also get and verify their VAT numbers to protect yourself if you do not charge them VAT. Your tax advisor or local tax office can surely provide you with the relevant details, or take a look at the EU directive on invoicing. That will have other important information for you.

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xxxUSER0059  Identity Verified
Finland
Local time: 06:05
English to Finnish
+ ...
How VAT works for me Aug 21, 2008

livializ wrote:

I quoted my rate, but now that I did the work my client said he has to get off VAT from the price we agreed. I never thought my rate was VAT included; maybe I am too naive...


Here is how value-added tax (VAT) looks from my point of view.

As a general guideline, I am required to withhold VAT, at 22%, if I deliver a service to a business client’s office in Finland, or if the domicile of a consumer client is within the EU. Thus, I need not withhold VAT if the client is a business outside Finland, or a consumer outside the EU.

In the case of the business client’s office in Finland, that business will deduct the VAT from the VAT they, in turn, withhold from their clients. The VAT I charge is therefore not a loss to the business. However, in the case of the consumer client within the EU, that client will lose the VAT, since they do not pay (and hence cannot deduct) any VAT.

Your local tax authority should be able to advise you on whether you need to withhold VAT. Maybe they even have a web page aimed at people in your situation? Businesses usually are liable to pay VAT, but there are certain exceptions, for example in the case of small-scale operations. Again, the rules for your country may differ.

My quotes and my terms of service make it clear that my rates do not include VAT. There is a twist regarding consumer clients; since they do not pay VAT, businesses are not allowed to quote or otherwise advertise VAT-exclusive prices to consumers. In other words, consumers must always see the final price. Since I primarily provide business-to-business services, my web site states VAT-exclusive rates, but when quoting to a consumer client within the EU, I must remember to quote VAT-inclusive prices.

The VAT I withhold goes to the tax authority. Before paying, I am allowed to deduct the VAT I have paid myself, such as for services and supplies. This has the effect of taxing only the value I add (turnover minus costs), hence the term value-added tax.

I hope this shed some light on European VAT from a translator’s viewpoint.


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Iza Szczypka  Identity Verified
Spain
Local time: 05:05
English to Polish
+ ...
To expand on Kevin's Aug 21, 2008

First of all, the customer is not in a position to deal with your VAT - you and only you are the party responsible.

Intra-EU transactions:
If your customer is a company located in another EU country, you don't charge him any VAT even if you're VAT-registered. That's a regulation of the VAT Directive, which also makes you responsible for being able to present his VAT registration number to the tax authorities you pay your taxes to. (It's advisable to mention the VAT Directive in a note on your invoice, and required to include his VAT number in his data on the invoice))
If you're unable to specify the customer's VAT number (usually that happens if your customer is an individual or a business not registered for VAT), OR your customer is in the same EU country, you must charge VAT on your side if you're VAT-registered.
If you neglected to specify beforehand that this will be on top of your fee, in the invoice you'll have to reduce your fee so that the fee+VAT total is the amount you agreed with your customer.
Of course in any situation you charge VAT ONLY IF you're registered for VAT. If you're not, nobody can withhold it from your payment.

Customers from non-EU countries:
No VAT applicable, so your customer is a story-teller. He won't have to pay any VAT whatsoever and is just trying to cheat you out of your money.

I'm not sure about the rules for the EEA, but non-EU countries, but I suppose the EU rules apply.

[Edited at 2008-08-21 19:05]


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Giuseppina Gatta, MA (Hons)
Member (2005)
English to Italian
+ ...
Yes, you are too naive (or, to put it in other words, the client is trying to cheat you) Aug 21, 2008

livializ wrote:

Hello everybody.
I got my first work here on Proz and I have a problem. I quoted my rate, but now that I did the work my client said he has to get off VAT from the price we agreed. I never thought my rate was VAT included; maybe I am too naive...
Also, it's a huge amout of work, and I am really pissed of seeing such a part out of it!!
What should I do? Do you usually include VAT in your quotes? I mean, I obviously can't charge him more...But he should have told me before I did the work, no?

Please tell me if I am wrong; I am beginning and of course mistakes are highly likely.

Thanks in advance!


Livia, first thing the best way to discuss this is to start a thread in the Italian forum.

I am Italian, have been working in Italy for many years, and my rate had nothing to do with VAT, that is to say, VAT is calculated on top of what you charge for your translations.

I am convinced that the client is trying to confuse you and save a good 20%.


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Daniel García
English to Spanish
+ ...
Different countries, different practices? Aug 21, 2008

Is your customer based in Italy like you?

Is your customer a company or an individual?

If it is a private individual, he or she might not be used to getting quotes without taxes.

I am asking because, for instance, in Spain, there are different practices when quoting prices.

For instance, if a professional or a company quotes a price to another company, normally it is understood by both parties that VAT and Taxes are NOT included and will be charged separately. This is however then usually stated explicitly in work orders or contracts.

On the other hand, price tags in shops for private customers include the VAT, of course. Quotes from professional to private customers (the plumber coming to fix something) often are meant to be including VAT (although it is always good to clarify).

If your customer is in a different country or if they are a private customer not used to dealing with professional services, it could be the case that they genuinely assumed that taxes were already included in your price.

At the worst, you can take it as "lesson learned" experience... Next time, make sure that YOU tell your customer.

Daniel



[Edited at 2008-08-21 20:29]


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Astrid Elke Witte  Identity Verified
Germany
Local time: 05:05
Member (2002)
German to English
+ ...
Just issue your invoice and add the VAT Aug 21, 2008

It is understood among business people, when discussing prices, that they do not include VAT. VAT is added to them, and can usually be reclaimed by a business customer.

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Philippe Etienne  Identity Verified
Spain
Local time: 05:05
Member
English to French
First and foremost: where does your customer operate from? Aug 21, 2008

Do you mean you charged VAT on your invoice and the customer won't pay it?
If you charged VAT to a non-EU customer and you're registered in the EU, then your rate was indeed VAT-included since you wouldn't charge VAT on your invoice (see Iza's very useful information).

Anyway, as Kevin mentioned, it is good practice to ALWAYS state incl. or excl. VAT and VAT rate in ANY quote.
To wander off-topic: here in Morocco, certified interpreters and translators (those who have a stamp) charge 10% of VAT, whereas I, as a non-certified translation provider (i.e. a translator to speak poshly), charge 20% because I am catalogued as a service provider by the tax law, just like a Web designer or an accountant. Since I state my VAT rate everywhere here in Morocco, I am often challenged to explain why I charge 20% if they know that translators charge 10%. But this kind of conversation, if any, always happens before any deal is struck.
As far as I understand this VAT rate difference between certified and non-certified translators, it is likely because certified translation is mostly aimed at individuals (consumers) in their relationship with foreign (consulates) and local administrations (passports, birth certificates, judgments, etc.). Since I translate for businesses only, I am a mere service provider and charge the usual rate for services. Does this difference exist in Europe?
I am not sure I can get certified: certified means you mostly translate to and from Arabic, the official language, so I would venture that you have to write Arabic in order to be certified, which I don't.

And preferably state Excl. VAT to businesses and Incl. VAT to individuals for the reasons beautifully explained by Thor.

Regards,
Philippe


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Livia Formisani  Identity Verified
Italy
Local time: 05:05
English to Italian
+ ...
TOPIC STARTER
Ok I made a mistake Aug 22, 2008

First of all thank you everybody.

I actually re-read everythign carefully and I am sorry, it's not about VAT, it's a withhold tax, so I suppose things are different?

My client is Italian and it's a company.


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Daniel García
English to Spanish
+ ...
Yes, it is probably different Aug 22, 2008

livializ wrote:

First of all thank you everybody.

I actually re-read everythign carefully and I am sorry, it's not about VAT, it's a withhold tax, so I suppose things are different?

My client is Italian and it's a company.


Yes, it is probably different.

At least in Spain, freelancers invoicing companies must include a deduction for income tax. I think it is about 15% now.

The customer takes this deduction not paid to the Freelancer and pays it to the Spanish Treasury.

Every three months, the freelance makes a tax statement including all the invoices he or she has produced pays taxes for that income. The ammounts already deduced from the invoices are discounted from the ammount due to the Spanish treasury.

In Spain, you normally quote a price without VAT and then in you invoice, you add the VAT and deduce the income tax (which you will recover later through your tax statement).

For Spain, things would look like this:

A) Your quote to the customer: "This job will cost: 100 euro plus VAT"

B) The PO from your customer: "Please perform this job at a cost of 100 euro plus VAT"

C) Your invoice for your customer: Agreed price: 100 euro. VAT +16, Tax deduction 15, Total: 101 euro.

D) Your income statement for the Spanish treasury: I earned 100 for which I should pay 20 euros. Because I have already paid 15 through deductions in my invoices, I own the Spanish treasury 5 euros.

Most likely, this tax deduction is anyway an advanced tax.

Nevertheless, I am talking from my experience with taxes in Spain. It is probably similar to Italy but by no means exact. You might want to check with your accountant.

Daniel


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nordiste  Identity Verified
France
Local time: 05:05
Member (2005)
English to French
+ ...
check Italian tax regulation Aug 22, 2008

So you work in Italy and your client is an Italian company - you have to get advice from your accountant if you have one or directly from your local tax authorities.

And maybe post the question in the Italian forum too.


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Livia Formisani  Identity Verified
Italy
Local time: 05:05
English to Italian
+ ...
TOPIC STARTER
I was actually reading the Italian forum... Aug 22, 2008

...And yes, everybody says it's included. So I guess I had my experience, and next time I will charge more, according to this.
It's just a pity because I really enjoy the work and I have already accepted further collaborations with the client. So now I feel unprofessional to just say: "Hey, for the next work I am going to raise my rates".

Thanks everybody anyway!!!
I guess all of you had some similar problems...Have a nice day you all!!

Livia


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