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Tax between EU and the Americas
Thread poster: Gary Smith

Gary Smith  Identity Verified
Local time: 18:46
Member (2007)
Spanish to English
+ ...
Mar 7, 2009

I need to know if US (or Latin American) agencies or freelancers need to put VAT on their bills to European agencies or freelancers, and vice-versa.
I'm a Brit resident in Spain with a Spanish NIE tax number. In the past when I've bought products or services from US companies, sometimes they put "Spanish VAT" on top (though I don't know if the Spanish government actually gets this in the end!) and sometimes they simply don't bother. Come to think of it, Proz issues bills with VAT itself, but I guess they have a European office, right?
(I'm thinking of setting up a US company, if this actually works out cheaper than being a freelancer from the UK).
I've been combing the forums for a while now but still haven't found the exact simple answer to this (maybe this holy grail is in fact lost in the depths of the Atlantic); if somebody has already given the answer just point me to it. Thanks.

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sokolniki  Identity Verified
United States
Local time: 11:46
English to Russian
+ ...
No Mar 7, 2009

I've been working with numerous European agencies for several years as a freelancer and never put VAT in my bills. This has never caused a problem.

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Williamson  Identity Verified
United Kingdom
Local time: 17:46
Flemish to English
+ ...
Euroguideline Mar 8, 2009

According to a European guideline (I don't know its number) VAT has to be paid on services from the US to the EU. The US-company must choose a European country where it chooses to have a VAT-number. In the case of at the address of one of its stakeholders in Germany. This stakeholder pays VAT to the German tax-authorities.
In your case, your company would be exporting services to the EU and according to this guideline has to pay VAT in a country of choice, i.e.the UK.
If you really want it cheap, move to Cyprus or the UAE, with a tax-rate of 0% and no VAT or to any freeport.

[Edited at 2009-03-08 10:11 GMT]

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Kaiya J. Diannen  Identity Verified
Member (2008)
German to English
WOAH, watch that wording... Mar 8, 2009

Williamson wrote:

According to a European guideline (I don't know its number) VAT has to be paid on services from the US to the EU. The US-company must choose a European country where it chooses to have a VAT-number.

This is not entirely accurate - the OP should definitely do his homework and/or consult an accountant specializing in international tax law!

If you see Council Regulation (EC) No 792/2002, which amends Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT), and discusses Directive 77/388/EEC, it states:

"(4) The rules laid down in Directive 77/388/EEC require the non-established taxable person supplying services referred to in the last indent of Article 9(2)e of the Directive to charge VAT to his customer, established or resident in the Community, unless he is satisfied that his customer is a taxable person."

[Council Directive 2002/38/EC of 7 May 2002 amending and amending temporarily Directive 77/388/EEC:
"(5) To facilitate compliance with fiscal obligations by operators providing electronically supplied services, who are neither established nor required to be identified for tax purposes within the Community, a special scheme should be established. In applying this scheme any operator supplying such services by electronic means to non-taxable persons within the Community, may, if he is not otherwise identified for tax purposes within the Community, opt for identification in a single Member State."]

When reviewing the laws and opinions expressed about their provisions, you will find that this is interpreted to mean that the tax scheme thus only applies (for the time being) to B2C (business to consumer) transactions, consumers being considered "non-taxable persons", and in reverse, that business to business transactions are not affected.

I had several references in another thread from last year, but I'm unable to find them just at the moment. For one, although this is rather old, you might want to read:

One site I looked at said that further amendments were being considered for 2010, so check back and hold on to your hats.

That having been said, I don't believe you can set up a legitimate "US company" if your place of residence and business is not located in the US. Additionally, "single-member" companies are increasingly being analyzed by the IRS for potential tax evasion (whether the company is legitimately entitled to exercise "pass-through" taxation options, for example), and when filing as single-member entities, they also owe self-employment taxes.

There may be businesses that look the other way in helping you to establish such a "US company", but whether it would withstand scrutiny by the tax authorities is an entirely different matter. Personally, I would not want to take the risk, considering how aggressive some of those tax authorities are becoming in chasing lost revenue in these difficult times.

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Gary Smith  Identity Verified
Local time: 18:46
Member (2007)
Spanish to English
+ ...
Thanks Mar 9, 2009

OK, I'm getting there...thanks for your your time and advice. :.)

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