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VAT....
Thread poster: fionainrome
fionainrome
Local time: 03:11
English to Italian
+ ...
Dec 17, 2007

I've just recently had an ugly surprise. I've been working translating subtitles into English for an Italian company (on a very regular basis). They have now asked me to get registered for VAT and I've discovered this will take a huge bite out of my income and the company is refusing to pay me more (we're talking 30% less here). How do things work in your country? Are there short term contracts (or what we call "project contracts" in Italy) that allow you to work a non-fixed aumont of hours? That was the kind of contract I had before, but they have now been abolished and it seems like the only solution is getting registered for VAT. I talked to a qualified accountant and he told me that when you get registered for VAT you are supposed to get paid more because you are paying extra taxes ( or rather youn pay them out of your own income at the end of the year).
I don't know what to do.
What kind of contract do you have?
Are you registered for VAT?
Thanks to all of you.

[Edited at 2007-12-17 15:07]


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RobinB  Identity Verified
Germany
Local time: 03:11
German to English
No income shortfall Dec 17, 2007

If you charge VAT, your clients pay it to you and you forward (remit) it to the tax people after deducting the VAT you pay on your own outgoings (input tax). It is basically income-neutral, because you simply add it to the amount you charge for your subtitle translations, and it's a pass-through transaction for you, so there's no loss of income whatsoever. In fact, it helps your cash flow because you can charge input tax paid against the VAT received from customers that you nominally owe to the tax people.

There have been so many ProZ posts on VAT it's difficult to know where to start. Just search the archive.

Robin


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Lawyer-Linguist  Identity Verified
Portugal
Local time: 02:11
Dutch to English
+ ...
Robin is right, but ... Dec 17, 2007

.... if I understand you correctly, the client is asking you to register for VAT, but still charge the same after you've registered (i.e. absorb the VAT yourself and have your current rate become a VAT inclusive rate).

Is this right? If so, are you absolutely sure that is what they are proposing? Because if it is, it's not on.

I'd clarify it with them before assuming it's what they mean.

As Robin explained, it makes no difference (or shouldn't make any difference) to them to pay the VAT as they can deduct it from what they have to pay the tax department as output VAT on their side.

Something isn't right here - check with them, it may just be a misunderstanding on your side.

If it really isn't, drop them like a hot potato, there's no way you can agree to that ....

Good luck
Debs


[Edited at 2007-12-17 19:33]


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xxxMarc P  Identity Verified
Local time: 03:11
German to English
+ ...
VAT.... Dec 17, 2007

fionainrome wrote:

I've been working translating subtitles into English for an Italian company (on a very regular basis). They have now asked me to get registered for VAT


I'm not familiar with Italian tax law, but I'm surprised that your customer should have any say in whether or not you should register for VAT. I understand that in some EU countries, all self-employed translators have to register; in others, there is a revenue threshold above which registration is mandatory, and a lower threshold above which it is optional. One of these two situations is likely to apply in Italy. The Italian colleagues here will know the details.

and I've discovered this will take a huge bite out of my income and the company is refusing to pay me more (we're talking 30% less here).


As Robin has explained, this should not take a bite out of your income, because if you register for VAT, you then begin charging VAT on top of what you are already charging, and pass it on to the tax authorities.

On the other hand, if your customer is expecting you to charge VAT but to maintain the same end price, this is just a devious ploy, playing on your ignorance of tax matters, to get you to reduce your prices.

How do things work in your country?


I could tell you (Germany), but you really need to get sound advice about the Italian situation rather than guessing from the situation in other countries.

Are there short term contracts (or what we call "project contracts" in Italy) that allow you to work a non-fixed aumont of hours? That was the kind of contract I had before, but they have now been abolished


The vast majority of work done by self-employed translators, within the EU at least, is done on a project-by-project contract basis (in many cases, without a formal written contract), and on the translators' own responsibility - i.e. it is irrelevant to the customer how many hours the translator spends on the job (provided the deadline is met, of course). I find it difficult to believe that this kind of arrangement has been "abolished" in Italy.

and it seems like the only solution is getting registered for VAT


Either you are employed by this "customer" (in which case he is not a customer, but an employer), or you are working on a self-employed basis. If you are an employee, you will not need to be registered for VAT. If you are self-employed, it is between you and the tax authorities whether you should/must be registered for VAT, and none of your customer's business.

I talked to a qualified accountant and he told me that when you get registered for VAT you are supposed to get paid more because you are paying extra taxes ( or rather youn pay them out of your own income at the end of the year).


If that's the way your accountant explained it, I suggest you fire him and find another. What he says is correct, but is a *very* bad way of explaining it. You are not supposed to get paid more because you are paying extra taxes; rather, you are supposed to receive more because you are charging the VAT on top of "your" fee. And you don't pay more out of your own income: you receive VAT on behalf of the tax authorities, and you pass it on to them, i.e. it's not yours in the first place. At the end of the month (or quarter, or year, whenever it is due), it may appear to be the same thing in terms of the impact upon your bank balance, but there is a difference of principle here which is crucial to understanding the process.

HTH,
Marc


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Giles Watson  Identity Verified
Italy
Local time: 03:11
Italian to English
Do have a word with another accountant Dec 17, 2007

As Robin says, VAT registration shouldn't make any difference to your taxable income in Italy or anywhere else and, as Marc says, your personal tax profile is none of your customer's business. The "30% less" that is scaring you is probably the substantial Italian national insurance contribution that one way or another you should be paying anyway, whether or not you are registered for VAT.

The point that is exercising your client, however, is the limit on the amount of work you can do for a single customer in a single tax year without registering for VAT, which is not very high. If you do a lot of work is for this client, it is quite reasonable that they should expect you to register for VAT, otherwise the social security people (INPS) might consider you to be a de facto employee of the company and sting it for hefty national insurance contributions.

On the other hand, if you have no other customers, INPS is unlikely to accept that you are actually self-employed (because you aren't, from the point of view of Italian legislation) and may attempt to recover unpaid national insurance contributions in any case.

But please have a word with another accountant and do be frank about the actual details of your relationship with this client.

FWIW

Giles


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xxxJPW  Identity Verified
Local time: 02:11
Spanish to English
+ ...
VAT Dec 17, 2007

VAT causes a LOT of headaches, and there is also huge scope for fraud in certain parts if the system too;

I would presume that, as in UK, Ireland, Germany or wherever, if your income is above a certain level (indeed, if you even THINK it might reach that level) then you MUST register for VAT. Below this, you can VOLUNTEER to register, if you think it will be of help to you; otherwise, at the end of the day you are simply collecting a tax for the tax authorities, without being paid for it....which is my principal objection to this horrendous tax; if the taxman can't be bothered to collect it, why should you do his job for him? And you have to do it for free.

I would steer clear of this tax as much as possible. In the UK the current threshold for mandatory registration is £61,000 I believe; in Euros this is about 85,000.

But in any case, if you are unsure, do seek advice from a competent accountant.


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Marie-Hélène Hayles  Identity Verified
Local time: 03:11
Italian to English
+ ...
Almost impossible not to register for VAT in Italy Dec 17, 2007

John Paul Weir wrote:


I would steer clear of this tax as much as possible. In the UK the current threshold for mandatory registration is £61,000 I believe; in Euros this is about 85,000.



In Italy there is no VAT threshold - everyone self-employed has to register.

Fiona, was your client previously paying you "nel nero" or was everything above board? It's the only thing I can think of which would explain their reluctance to pay you a higher rate after VAT registration. It's not the VAT which makes any difference, but the income and other taxes which, with your previous contract, they should have been deducting at source before paying you. If they weren't.... that might explain their refusal to accept a higher rate.

Edits: Giles' post has reminded me that there is a threshold - it's generally accepted to be EUR 5,000 per annum (not per client).

[Edited at 2007-12-17 21:28]


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Dana Rinaldi
Italy
Local time: 03:11
Member
Italian to English
+ ...
VAT Dec 18, 2007

Hi,

I have VAT since 2006 and I must say that it is a bit of a burden. When translating I always add the 20% VAT to the sum but when working for schools they consider it already included in the total they're offering me so I end up losing money.

To be honest VAT isn't the biggest problem when translating: what's worse is the INPS (23,5% gestione separata INPS because we are "professionisti senza cassa)

At the end of the day I pay around 43,5% taxes that is :

Inps 23,5%
Ritenuta d'Acconto 20%

VAT 20% is added so it's not coming out of our pocket we collect it for the state and then pass it on.

Check with your accountant and ask about the new norms that are being approved these days.
It's not worth it if you are working for one client.

Check www.atipici.net


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Ralf Lemster  Identity Verified
Germany
Local time: 03:11
English to German
+ ...
Forced to accept a proposal? Dec 18, 2007

Hi Dana,


I have VAT since 2006 and I must say that it is a bit of a burden. When translating I always add the 20% VAT to the sum but when working for schools they consider it already included in the total they're offering me so I end up losing money.

But can they force you to accept their proposal?
Why don't you quote them a price inclusive of VAT?

Best regards,
Ralf


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Catherine Bolton  Identity Verified
Local time: 03:11
Member (2002)
Italian to English
+ ...
look into the "forfettino" Dec 18, 2007

Hi Fiona,
You should look into the "forfettino". The government offers newbies a tax break for the first few years in business.
This is from the Agenzia delle Entrate (Italy's Internal Revenue Service) site:
http://www.fiscooggi.it/reader/?MIval=cw_usr_view_articoloN&articolo=18702&giornale=19281

Have your accountant look into it, because you may be eligible for it.
In any event, the VAT doesn't come out of your pocket. If you were charging 100 euro before, less 20% withholding tax (basically taking home about 83 euro), if you register for VAT you would charge:
100 + 4% towards social security (INPS) = 104 euro

+ 20% VAT = 20.80 euro = 124.80
- 20% witholding (20.80 euro) = 104 euro

You then pay the government 20.80 in VAT and your customer pays the same amount in withholding towards your income tax.

So you still end up with about 83 euro in your pocket. The big bite is social security, but you'd get that back when you retire.

By the way, this might also be a good opportunity for you to raise your prices!
Catherine


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fionainrome
Local time: 03:11
English to Italian
+ ...
TOPIC STARTER
Tricky situation Dec 18, 2007

[quote]Marie-Hélène Hayles wrote:


In Italy there is no VAT threshold - everyone self-employed has to register.

It's not the VAT which makes any difference, but the income and other taxes which, with your previous contract, they should have been deducting at source before paying you.

I had a project by project contract and that was when they were desperate for an Italian to English translator (I think their previous one had suddenly dumped them and it's not surprising!). When I went for the interview they said they would pay me 2.06 NET per minute of translation. To me net means "excluding taxes". Now I am forced to get registered for VAT because project by project contracts have been abolished here because employers were using them to avoid giving their employees continuing contracts (or long term contracts).

They are now saying my previous situation was "exceptional" and I will no longer be getting the same net amount as before. I'll be talking to the administrator tomorrow and she'll let me know exactly how much less I will be getting. There are other girls who are working there too (doing Italian subtitles from Italian programs) and they said they had the same problem when they were told to register for VAT.

I am upset and angry to say the very least. I am also pretty sure that if I left without notice they'd be in trouble, because all their work comes in at the last minute, so they have extremely tight deadlines and I am their only translator. I once told them I was busy and I couldn't do the job they were expecting me to do and they (well, the "boss") started yelling at me because I was leaving them in deep trouble and if the work wasn't handed in in time they'd have to pay a very high fine.

This leaves me wondering... if they "need" me so much, then why did they refuse and just say "take it or leave it" when I asked them to receive the same net as before?

I am so tempted to dump them, but that would leave me without a job and they are also owing me money for the past two months' work.

What should I do?


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Ralf Lemster  Identity Verified
Germany
Local time: 03:11
English to German
+ ...
Employee versus independent business Dec 18, 2007

Hi Fiona,

Now I am forced to get registered for VAT because project by project contracts have been abolished here because employers were using them to avoid giving their employees continuing contracts (or long term contracts).

I'm not familiar with the Italian tax system - but aren't you mixing the concepts of employment and running a freelance business here?


This leaves me wondering... if they "need" me so much, then why did they refuse and just say "take it or leave it" when I asked them to receive the same net as before?

Two possibilities: 1. they don't really need to so much; 2. they do, but try to get away with not paying up (perhaps because they know that they're your only customer?).

I am so tempted to dump them, but that would leave me without a job and they are also owing me money for the past two months' work.

If this means that this is your only customer, you should seriously start doing some marketing, to avoid being caught depending on a single customer.

Best regards,
Ralf


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Marie-Hélène Hayles  Identity Verified
Local time: 03:11
Italian to English
+ ...
Did they ever give you any pay slips? Dec 18, 2007

To summarise, for the benefit of those who haven't read your posts in the Italian forum and to make sure I've understood:

You worked for a company under a temporary contract. In this situation, the company was essentially your employer, not your client. They told you that the rate they gave you was "net".

Question: did they ever give you any pay slip, showing the deductions they'd made on your behalf? Or any other proof of payment of income tax, INPS, etc.?

This company now wants to carry on using your services but as a freelancer, not a temporary employee. At this point they become your client.
Unless the amount involved is under € 5,000 per annum you must now register for VAT (you don't have a choice about this, it is the law) and issue them invoices for your services. So, to get the same net amount, you would put out an invoice (indicatively) as:

X (your previous net sum [let's call it "a"] + about 20% (to cover the extra taxes which they should have been paying on your behalf)
+ 4% INPS
+ 20% VAT
= Y
- 20% retenuta d'acconto
= Z (i.e. about 24% more than "a").

The current problem, if I understand correctly, lies in the fact that they want you to issue your invoices so that the total does not equal Z but still equals "a". Or, even worse, that they want Y to equal "a".

And that's why I'm asking if they really were paying your taxes, as it's the only explanation that makes sense (other than that they're trying to force you to take a massive pay cut to boost their own profits).

In other words, either they have cheated the state in the past or they're trying to cheat you now.


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fionainrome
Local time: 03:11
English to Italian
+ ...
TOPIC STARTER
What can I say? Dec 18, 2007

[quote]Marie-Hélène Hayles wrote:


In other words, either they have cheated the state in the past or they're trying to cheat you now.

Dear Marie Hélène, they are sure cheating someone!
I spoke to my Italian colleagues and they told me they just basically refused to pay for their taxes when they got registered for VAT. In fact they told me they used to earn around 1.800 net per month and now earn around 1.200. They simply told them that now they were registered for VAT they had to pay their own taxes (they only added that 20% extra for VAT), take it or leave it. God knows why they "took it". I think most or all of their work comes from this client as they almost work full time (which is not my case, I work for them part time).
So what I'm going to do now is get this "partita IVA" and look for other clients and when I feel I have enough to keep myself afloat I'll dump this client with no notice whatsoever. I think this is the treatment they deserve.


[Edited at 2007-12-18 21:26]

[Edited at 2007-12-19 12:09]


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Mike Hunter
United Kingdom
Local time: 02:11
Member
English to Flemish
+ ...
VAT Dec 19, 2007

fionainrome wrote:

I've just recently had an ugly surprise. I've been working translating subtitles into English for an Italian company (on a very regular basis). They have now asked me to get registered for VAT and I've discovered this will take a huge bite out of my income and the company is refusing to pay me more (we're talking 30% less here). How do things work in your country? Are there short term contracts (or what we call "project contracts" in Italy) that allow you to work a non-fixed aumont of hours? That was the kind of contract I had before, but they have now been abolished and it seems like the only solution is getting registered for VAT. I talked to a qualified accountant and he told me that when you get registered for VAT you are supposed to get paid more because you are paying extra taxes ( or rather youn pay them out of your own income at the end of the year).
I don't know what to do.
What kind of contract do you have?
Are you registered for VAT?
Thanks to all of you.

[Edited at 2007-12-17 15:07]


Hi Fiona

Like many of the other posters I'm puzzled by your situation. As a translation agency, we are registered for VAT. It makes no difference to us whether translators are VAT registered, because we can reclaim the input VAT. Our end clients are normally in the same position. As most of our clients are companies, they are also registered, and simply reclaim our VAT charges. When we quote for work, most companies ignore the VAT in comparing quotes.
It gets more complicated when trading internationally. Most of our EU based translators outside the UK don't have to charge us VAT, providing they have our VAT number, as its classed as an inter-community transfer. Its the same for us with end clients in other EU countries.

As VAT rules are generally complicated and vary between member states, you should get some good advice from your accountant. If your client is trying some kind of trick (as sounds possible here) be very careful.

Kindest regards

Mike


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