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Charging VAT from Italy to US Customers?
Thread poster: LATAM Agent

LATAM Agent  Identity Verified
United States
Local time: 09:27
English to Spanish
+ ...
Nov 17, 2008

An Italian translator is sending us traslations by e-mail, and is sending invoices adding VAT and making us withhold the VAT amount.
We guess we owe that withhold tax to somebody?, which is making our product more expensive.

1. Shall the Italian translator charge VAT to a US based person or company?
2. Shall a US Person/ business withhold VAT?
3. Who shall the US person / business pay the withhold to?


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Marie-Hélène Hayles  Identity Verified
Local time: 17:27
Italian to English
+ ...
If your Italian-based translator is charging you VAT... Nov 17, 2008

... then I've been getting my accounts wrong for the last two years - and my accountant hasn't picked up on it.

I only have one US-based client, but it's my understanding that VAT shouldn't be charged.

[Edited having read Tom's far more informative post, checked my accounts and realised that the only VAT no. on my invoices to my US client is mine]

[Edited at 2008-11-17 19:23 GMT]


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Tom in London
United Kingdom
Local time: 16:27
Member (2008)
Italian to English
Italian-American invoicing Nov 17, 2008

Spanish doc wrote:

An Italian translator is sending us traslations by e-mail, and is sending invoices adding VAT and making us withhold the VAT amount.


As there is no VAT system in the US, the Italian translator should not be asking you to pay it.

Withholding tax is not the same as VAT.If the Italian translator is also asking you to retain a certain amount as withholding tax, then you would be required, later in the year, to pay that withholding tax to the Italian authorities, and this would involve you in nightmares with the Italian fiscal system. [/quote]

We guess we owe that withhold tax to somebody?


NOt unless the US and ITaly have a reciprocal withholding tax agreement.

which is making our product more expensive.


No. the witholding tax (if applicable) should be deducted from the amount on the Italian translator's invoice.

Shall the Italian translator charge VAT to a US based person or company?


AFAIK that would be illegal

Shall a US Person/ business withhold VAT?


No. And if you're getting VAT confused with withholding tax, maybe you should ask an accountant who knows the Italian set-up.

Who shall the US person / business pay the withhold to?


You are clearly an honest person who wants to do the right thing, but your Italian translator is simply treating you as though you were an Italian client. I would suggest you reject their invoice. Point out to them that Italian laws do not apply in the US, and that they should either consult their accountant, or consult the local American consulate or embassy in their city in Italy. THe onus for getting their invoices correct should be on them, not on you !



[Edited at 2008-11-17 18:57 GMT]


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LATAM Agent  Identity Verified
United States
Local time: 09:27
English to Spanish
+ ...
TOPIC STARTER
We want to do the righteous thing. Nov 17, 2008

Hello Colleagues, I am a freelancer myself and I have established my own company. I shared the project with my Italian colleague. I assume is a righteous person and just we need some help to learn about the taxes experiences you have.
Your quick response will be appreciated:

Here is the specific case, numbers and names are changed to protect her privacy:



The supplier quoted without specifying gross or net regarding taxes / VAT:
...."I confirm .....the rate of 10.000 words at $ 0,1." .....

The supplier invoice include following sentences among others:

"Rome, November 2008
Income Tax Withholding Invoice"
Word count: 10000
Agreed Compensation: $ 0,1 net / word
Gross Total: $ 1200
20% VAT Withholding: $ 200
Net Total Due: $ 1000
Fiscal Code: xxxxxx
Please provide the payment by the agreed date to the following paypal account:


I assume that I will be owing the 20% of withhold VAT if I take the invoice as it is.

I want to do the right thing here, as I always get an excellent reference in my blue board, my "Willingness to work again with", and Translator likelihood of working again (LWA)....so we are expecting this supplier to honor us with non less than excellent rating, as we are working hard to obtain it always.

1. Shall the agreed price be increased in 20% and we shall withhold the 20% and pay it to the VAT authorities (Which implies we have to spend time and funds to register...and continue with the extra work of reporting zeros ($.00) monthly when we don't have more vats...)

2. Shall we just pay the extra 20% and let the supplier deal with VAT Authorities ( I don't know how will she report income from us, if we are not registered in VAT - we don't want to get involved in that cumbersome process)

3. Shall we just pay the agreed $1000, and the supplier don't charge VAT because is for exports, or charge it and request refund under the scheme of: self-invoicing according to next article:
http://www.pianificazionefiscale.co.uk/conseguenze_omessa_autofatturazione.html

[Edited at 2008-11-18 00:00 GMT]


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Kaiya J. Diannen  Identity Verified
Australia
Member (2008)
German to English
US-based? NO VAT Nov 17, 2008

Spanish doc wrote:
Hello Colleagues, I am a freelancer myself and I have established my own company to manage my taxes in the US conveniently.


I'm not sure what "...to manage my taxes in the US conveniently" means. I would presume your company has a legal, registered office in the US and no "branch" of your company is domiciled in the EU.

If so, as you have been told, there is no VAT or withholding between the two (US and EU).

Please see:
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/index_en.htm

"VAT on imports and exports

For the purpose of exports between the Community and non-member countries, no VAT is charged on the transaction and the VAT already paid on the inputs of the good for export is deducted - this is an exemption with the right to deduct the input VAT, sometimes called 'zero-rating'. There is thus no residual VAT contained in the export price."

Your translation colleague is "exporting" a good/service to you, and has no standing to charge you VAT or make you responsible for withholding taxes and paying these to Italian authorities. You can simply inform this person that her invoicing procedure for your company will be different than for her EU clients and she should not include VAT or withholding taxes.

If you have any further doubts, you should speak with an accountant in the US familiar with international transactions. If you believe this relationship will be ongoing in the future, it will be worth a few hundred dollars to clear up the matter now with a professional.


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Uldis Liepkalns  Identity Verified
Latvia
Local time: 18:27
Member (2003)
English to Latvian
+ ...
I've never charged VAT on cross-border transactions Nov 17, 2008

and had no problems so far with our Taxes.

The only difference between "within EU" and "other countries" is that in our within-EU invoices we do mention VAT, but if both Parties are registered as VAT payers, the rate is zero. With all other countries neither we nor the other Party does mention any VAT at all in our mutual invoices. I cannot quote according Law Articles (probably my accountant would be able to do so), but so it goes.

And yes, AFAIK, situation is different when the client is the US registered Company and the Service Provider is in EU and is not registered as a VAT payer - or vice versa - VAT emerges in some of these cases - but I know close to nothing about that (I've been a VAT payer since the term was invented ).

And we pay invoices received from our freelancers just as they are (and up to the moment they all have been precisely as specified in our POs) - nobody yet has added any VAT there...


On the other hand - these issues are VERY complicated and differ wildly depending on your product and State you're in - what goes for translation, is not applicable for tractors or oil - I recall my accountant telling me that she asked our Taxes about some unclear VAT issues and was not able to receive any comprehensible answers - so my advice is - ask advice from your local Taxes, get an answer in writing, act by it and have undisturbed sleep ever after.

Uldis

[Edited at 2008-11-17 21:49 GMT]


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Marie-Hélène Hayles  Identity Verified
Local time: 17:27
Italian to English
+ ...
[deleted] Nov 17, 2008



[Edited at 2008-11-18 07:32 GMT]


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Sonia Hill
United Kingdom
Local time: 16:27
Member (2010)
Italian to English
The invoice is incorrect Nov 18, 2008

As Tom says, withholding tax is different from VAT. I think your Italian colleague has made a mistake on the invoice.
Withholding tax ("ritenuta d'acconto" in Italy) is only charged to Italian customers and the customer is responsible for paying it to the Italian government. As you are outside Italy, your colleague should simply pay this amount herself and it should not be withheld from the payment total.
Also, withholding tax is not added to the agreed amount, but deducted from the total owed. VAT is added to the agreed amount, but it does not apply in this case as you are outside Italy.
I am not sure what the translator means by "VAT withholding", as they are two different things. I think she has made a mistake on her invoice, so I suggest you double check this with her.


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LATAM Agent  Identity Verified
United States
Local time: 09:27
English to Spanish
+ ...
TOPIC STARTER
New Receipt instead of invoice Nov 18, 2008

Hello folks:

I wrote to the translator and she answer as follows:

"...About the bill, I checked with the accountant, and for this small amount I can send you just a regular receipt, which is...."

Receipt
Italian - English Translation
Text: Immigration documents “Gubellini”
Word count: xxxxxx
Agreed Compensation: $ x,xx / word
Total Due: $xxxxxx


Now folks, I don't have an invoice, but a receipt....and I am afraid this receipt could be filed together with the invoice she made before to be presented to the authorities without my acknowledgment...
In our e-mail invoicing system any translator could, remove a printing and make a new one as you want it and the other party don't have to know ever...this is frightening.
Shall I ask for an INVOICE instead a RECEIPT...or ...?


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Raffaella Panigada  Identity Verified
Switzerland
Local time: 17:27
Member (2007)
English to Italian
+ ...
VAT Registration number? Nov 18, 2008

Hi,

was the translator's VAT registration number present on the original invoice?
I may be wrong, but from all the invoicing mistakes it appears he/she is very inexperienced and might very well be a beginner. If this is the case he/she might not be VAT registered at all (in this case you only need his/her tax number), so he/she's not allowed to send out invoices but only receipts acknowledging your payment (absolutely legal, so no worries about that).
I tend to believe this is your translator's first international assignment, so he/she didn't know how to properly invoice (the confusion between VAT and Witholding tax is quite revealing).
If on the other hand he/she mentioned his own VAT registration number ("Partita IVA" in Italian) on the original document, you have every right to demand a proper invoice. Invoicing has nothing to do with the amount charged: if you are VAT registered you are expected to invoice every penny you receive.

My advice is to clarify his/her VAT status, then you'll know what is acceptable.

Raffaella


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