Translation agency asking for certificate of tax residence
Thread poster: Naomi Long

Naomi Long  Identity Verified
United Kingdom
Local time: 04:40
Member (2014)
English
+ ...
Mar 5

Hi there,

A company has asked me for the first time for a tax certificate of residence (CoR). I have many clients for whom either my UTR or other ID have always been sufficient.
I imagine it's to avoid double taxation on the work that first comes to them and then is given to me, as we would probably both be paying tax on this. After reading around a bit, I see that I could be getting tax relief on foreign income earned.
So my questions are:
1. Has anybody else been asked for this, and did they provide the certificate?
2. Can we actually claim tax relief on our work from clients that aren't based in our country of origin?
3. Would I be in my rights to claim this tax back rather than the company that asked for the CoR?

Would much appreciate some help with this!


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Sheila Wilson  Identity Verified
Spain
Local time: 04:40
Member (2007)
English
+ ...
Where is the client based? Mar 5

I think there's a misunderstanding here, tho I'm no tax expert either. You're based in the UK, yes? And your client isn't?

If that's the case, your income is being earned in the UK. You write an invoice and it gives your UK address (your tax address) and the address of your client, who happens to be abroad. Assuming you're fiscally domiciled in the UK (resident there for tax purposes) there is absolutely no question of income earned abroad here. You earned it in relation to your UK business.

However, I know that Romania has some weird requirements. And countries such as Spain expect clients based in Spain to collect tax from suppliers based in Spain. Therefore these companies need to justify NOT retaining tax. They don't really need proof from you, but some think they do.


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Ali Bayraktar  Identity Verified
Turkey
Member (2007)
English to Turkish
+ ...
First contact? Mar 5

Is it your first contact with them?

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Inga Petkelyte  Identity Verified
Portugal
Local time: 04:40
Lithuanian to Portuguese
+ ...
Yes, it happens Mar 6

I have been asked to provide such certificate on several occasions, the agencies were/are based in two Baltic states.
You are taxed where you declare your taxes, so no need to worry about double taxation unless an agency would try to retain taxes in the invoice destination country.


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mariealpilles  Identity Verified
France
Local time: 05:40
Member (2014)
English to French
+ ...
asking for tax residence Mar 6

I start wondering if it is not just another way to procastrinate payment? A Spanish agency has been owing me payment since October. I work with various spanish agencies and only one is acting like that.

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lexical  Identity Verified
Spain
Local time: 05:40
Portuguese to English
Your customer is just trying to comply with the law in their country Mar 6

It is not a question of excessive bureaucracy or some whim on the part of the outsourcer, or even an attempt to avoid paying you - your customer is simply complying with the law on tax evasion. In many (most?) EU countries, outsourcers using foreign suppliers must obtain proof of their foreign suppliers' tax residence. Otherwise, they must deduct withholding tax (25% in most cases). Failure to obtain proof of a foreign supplier's tax residence or to deduct withholding tax makes them liable to a fine.

I am tax resident in Spain and have customers in various EU countries. To my knowledge, Portugal, Italy and Spain - and I believe several others - require outsourcers to obtain certificates of tax residence annually. If there are occasional cases where some outsourcers don't ask for them, it may just be that they are less au fait with tax law.

A certificate of tax residence is proof that you are not liable to double taxation as it is issued under the relevant Double Taxation Treaty. Getting one in Spain an be done simply online. Once a year I request one and send scans to all my foreign customers - problem done and dusted for another year. I'm not familiar with how you obtain one in the UK but a telephone call to the HMRC Helpline (01355359022 within the UK) would clarify that.

Good luck!


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Rosa Plana Castillón
Spain
Local time: 05:40
English to Spanish
+ ...
Yes, it is necessary Mar 6

I totally agree with what lexical said above. I used to get my certificate of residence in this link:

https://online.hmrc.gov.uk/shortforms/form/PT_CertOfRes


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lexical  Identity Verified
Spain
Local time: 05:40
Portuguese to English
just to add... Mar 7

... that if you present a certificate of tax residence, your customer will not (should not!) deduct income tax or withholding tax from your invoice. So you will pay no tax in their country and will receive the invoice amount in full. You declare the amount earned as foreign earnings in your UK tax return and pay UK tax on them as usual. There is therefore no double taxation, so there is no need to apply for tax relief on tax paid abroad.

@Rosa - very useful link that deserves to be more widely known!


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Sheila Wilson  Identity Verified
Spain
Local time: 04:40
Member (2007)
English
+ ...
I don't believe they need this proof Mar 8

lexical wrote:
In many (most?) EU countries, outsourcers using foreign suppliers must obtain proof of their foreign suppliers' tax residence. Otherwise, they must deduct withholding tax (25% in most cases). Failure to obtain proof of a foreign supplier's tax residence or to deduct withholding tax makes them liable to a fine.

I can't speak for other countries but, according to my accountant, Spanish companies are not fined for the above failure. They can be fined if they fail to collect tax from a supplier who is resident for tax in Spain, certainly, as they have an obligation to collect the tax (the 'retención') in that case. But when they receive an invoice from a supplier with an address in a foreign country then they don't have that obligation ***as long as they are confident that the supplier based abroad is acting in a professional capacity, i.e. as a self-employed freelancer or within some sort of company structure***. They aren't supposed to pay Joe Bloggs, who they only know has a PayPal account as joebloggs @ gmail.com, anything at all - that could be seen as possible tax evasion, money laundering, supporting terrorism, or whatever. This is where due diligence comes in - checking up on your client or supplier (it works both ways) to ensure that they are legitimate before agreeing to collaborate. But of course, it's always easier to pass the buck and get the "weaker" partner to do all the running around .

I am tax resident in Spain and have customers in various EU countries. To my knowledge, Portugal, Italy and Spain - and I believe several others - require outsourcers to obtain certificates of tax residence annually. If there are occasional cases where some outsourcers don't ask for them, it may just be that they are less au fait with tax law.

I've been tax resident in Spain for the last five years and in that time I've had clients from 28 'foreign' countries around the world. I've had just one demand for a certificate and that was from Romania, which does indeed have some bizarre protectionist outsourcing laws that demand it. My clients in Portugal (1) and Italy (2) haven't requested one.

A certificate of tax residence is proof that you are not liable to double taxation as it is issued under the relevant Double Taxation Treaty.

You declare the amount earned as foreign earnings in your UK tax return and pay UK tax on them as usual. There is therefore no double taxation, so there is no need to apply for tax relief on tax paid abroad.

I honestly don't believe this has anything to do with double taxation. You (freelance translators in general) aren't being employed by the client, nor are you physically resident in the client's country in this case. Double taxation treaties are for where both countries have a fiscal interest in the monies earned. But your client's country has no such interest. And AFAIK - never having freelanced in the UK - you shouldn't declare anything as foreign earnings. I certainly don't declare 99% of my earnings as "foreign". They're earned by my Spanish autónomo business. Foreign earnings - and double taxation issues - would only apply if a company registered abroad offered you an employment contract as a translator working remotely.


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Christel Zipfel  Identity Verified
Member (2004)
Italian to German
+ ...
Definition of "foreign income" Mar 8

Sheila Wilson wrote:


And AFAIK - never having freelanced in the UK - you shouldn't declare anything as foreign earnings. I certainly don't declare 99% of my earnings as "foreign". They're earned by my Spanish autónomo business. Foreign earnings - and double taxation issues - would only apply if a company registered abroad offered you an employment contract as a translator working remotely.


Sheila is right. Payment for translations done in the country where you have your fiscal residence is no foreign income, no matter where your customer is resident, but it would be if you worked in another country, AFAIK. Tipically, "foreign income" would also be interests you get for your money invested abroad, rents for real estates you own abroad and so on.


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lexical  Identity Verified
Spain
Local time: 05:40
Portuguese to English
it is about double taxation - it's all about getting paid Mar 9

I can only really speak about Portugal, where the majority of my customers are based (I am tax resident in Spain), though I believe there are analogous situations in some other European countries, though the details of the law obviously differ.

When paying foreign suppliers, Portuguese outsourcers must deduct 25% withholding tax, unless the supplier provides evidence of tax residence elsewhere. The legislation (Despacho 4743-A/2008 as amended by Despacho 2260/2009) stipulates that the supplier must provide the outsourcer with a signed Form 21-RFI (self-declaration of tax residency), countersigned and stamped by the supplier's local tax office, OR Form 21-RFI signed only by the supplier, accompanied by a certificate of tax residence. Until the amendment by Despacho 2260/2009, the outsourcer had to supply a copy to the Portuguese tax authorities; nowadays, they only have to retain it (together with the certificate of tax residence) for inspection.

As I said in my first post, there are always some (smaller) outsourcers - and suppliers - who are not up to speed on the legal requirements and think they don't need these documents. An address on an invoice is not PROOF of tax residence; it isn't even proof of address - it could be a mailing address or even faked.

With respect to Sheila, this is in fact about double taxation, because a foreign supplier to a Portuguese outsourcer could have withholding tax deducted in Portugal and be taxed again on the same amount in their own jurisdiction. Providing a certificate of tax residence avoids that situation.

I don't know the law in the OP's customer's country, but given how easy it is (as Rosa explained) to obtain a certificate of tax residence from HMRC in the UK where she lives, why would anyone advise her to get into a timewasting argument with the customer about the necessity for a certificate (and run the risk of delayed - or no - payment, or possibly being taxed on it), instead of taking the simple course? If nothing else, it's commendable as the path of least resistance.



[Edited at 2017-03-09 10:49 GMT]


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Sorana_M.
Romania
Local time: 06:40
English to Romanian
+ ...
Not only. Mar 10

Sheila Wilson wrote:
However, I know that Romania has some weird requirements.


Not only. Bulgaria asks for this certificate as well and I believe there are other countries that do it. This is to avoid double taxation.


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Sheila Wilson  Identity Verified
Spain
Local time: 04:40
Member (2007)
English
+ ...
Really? Mar 10

Sorana_M. wrote:
Sheila Wilson wrote:
However, I know that Romania has some weird requirements.

Not only. Bulgaria asks for this certificate as well and I believe there are other countries that do it. This is to avoid double taxation.

My very best client is in Sofia, and I did a lot of work for one in another part of Bulgaria this year. One I can imagine not knowing, but the other is an agency. Oh well, I'm not going to stir.


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Translation agency asking for certificate of tax residence

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