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Cross border business. Less indirect taxation (VAT) but also less pension; what do you think?
Thread poster: Jason Willis-Lee

Jason Willis-Lee  Identity Verified
Local time: 00:49
Spanish to English
+ ...
Sep 7, 2005

Dear collleagues.

Just another thread here to generate some discussion about the pros and cons about working for domestic and foreign clients. I am resident in Spain and most of my clients are national, hence I charge VAT and deduct income tax off all invoices. These clients then contribute this deduction from each invoice into the National Social Security Treasury which will turn into pension money for me when I retire)....I have the odd client however in France and of course do not charge VAT since this is an indirect tax levied at the point of sale and not "off-shore" but nor do I have to deduct any income tax and therefore the off shore client is not obliged to contribute into any SS system since we are conducting a cross border transation. I simply charge the taxable base on all invoices.

My question is whether you think the slight increase in price for "off shore" clients outweighs not getting any social security contribution for the labour concerned? If I told you that the price difference I have noted is €0.01/word (or to put it another way, €10/1000 words), is this a suitable play off, ie. financially more lucratrive but no additional social security?contribution (I say additional because all freelancers are obliged to pay into national SS coffers each month).

I would be interested to hear any views on this one.

Jason.


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Samuel Murray  Identity Verified
Netherlands
Local time: 00:49
Member (2006)
English to Afrikaans
+ ...
You should never skimp on your pension Sep 8, 2005

Jason Willis-Lee wrote:
I am resident in Spain and most of my clients are national, hence I charge VAT and deduct income tax off all invoices. These clients then contribute this deduction from each invoice into the National Social Security Treasury which will turn into pension money for me when I retire. ... My question is whether you think the slight increase in price for "off shore" clients outweighs not getting any social security contribution for the labour concerned?


I think it's never a good idea to unnecessarily reduce one's pension for the sake of short-term benefits. However, I speak from a South African point of view here. Our VAT contributions are not converted into state pension payouts at all. In fact, the so-called state pension fund is simply something that'll keep you from dying when you're old... it is not connected to the amount of work you did during your lifetime. In ZA we have voluntary private pension funds, and anyone earning any type of living would be stupid if they didn't contribute to such a pension fund.

If you have many foreign clients, then I would suggest you off-set the loss in pension fund with a savings plan into which you pay a percentage of your foreign earnings.

You can never have too much money when you retire... but you can always have too little.


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Cristóbal del Río Faura  Identity Verified
Spain
Local time: 00:49
Member
English to Spanish
+ ...
A little misconception Sep 8, 2005

Hi Jason,

What you deduct from your invoices is the income tax which, via your clients, goes to the public finance, not to the social security. It has therefore no direct effect on the pension you will receive in future. Your pension depends on your monthly contribution to the social security. This contribution is a fixed monthly payment which is independent from what you invoice, whether domestic or foreign – you have to pay it even if one month you have no earnings. Therefore, the amount of money you earn “off shore” has no effect on your social security pension.

You can, of course, open a private pension program with your bank or insurance company, and contribute a monthly portion – this will be tax deductible – of your local and/or foreign earnings to this plan. Then, when you retire you will have the social security pension plus your private pension.

Regards,
Cr


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Anjo Sterringa  Identity Verified
Spain
Local time: 00:49
Member (2003)
English to Dutch
+ ...
Double misconception Sep 8, 2005

As Cristobal already pointed out, you are deducting the IRPF (income tax) 'at source' in Spain. When you invoice a European client, you pay this afterwards (your IRPF every quarter), and only based on the income minus costs. If anything, you should charge your Spanish clients more.... The IVA you charge your Spanish clients and do not charge your European clients is neither here nor there as it's only the IVA you are or are not collecting for the government. Ways to get a higher pension are a private pension plan or pay in more social security: based on a higher fictional income. Don't forget, you are now (probably)paying about 28% of a fictional income of about EUR 760.

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Cross border business. Less indirect taxation (VAT) but also less pension; what do you think?

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