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Company overseas deducts taxes from my earnings
Thread poster: Kornelia Longoria

Kornelia Longoria  Identity Verified
United States
Local time: 16:40
Member (2007)
English to Polish
+ ...
Apr 4, 2008

Hello,

I did a project for a company in Latvia and after numerous emails back and forth regarding payment they finally send me an invoice (yes, they send me the invoice that I'm supposed to sign, even though it should be the other way round) The invoice has 15 % deduction, which is about $50.00. When I asked them what it was, they said it was for taxes. Now I do not have to pay taxes in their country, so why do they charge me. I will still have to pay taxes here and pay for the bank transfer, so the amount i will actually get will be quite small. Are they right to charge me the taxes? I told them i was not going to sign the invoice until they send me the corrected one without the deduction. Any view on this?
Thank you in advance.



[Subject edited by staff or moderator 2008-04-04 13:17]


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Marcus Geibel
Germany
Local time: 23:40
English to German
As far as I know... Apr 4, 2008

...you're right.
They have to pay your invoice without deductions PLUS the applicable VAT in their own country.
In no way can they deduct their VAT liability from your invoice, that's my opinion.

If I had to charge them, I would send an invoice without VAT, stating that the recipient is liable to pay VAT in his country.

These are, though, just opinions. I don't know wether there are any special rules for Latvia - but I believe not, as they are a member of the EU, too.

Good luck
Marcus


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Margreet Logmans  Identity Verified
Netherlands
Local time: 23:40
English to Dutch
+ ...
Don't think so Apr 4, 2008

Kornelia Longoria wrote:

Hello,

I did a project for a company in Latvia ..... Are they right to charge me the taxes?


Hi Kornelia,

I think you are right. I don't see why you should pay Latvian taxes either.

About the invoicing - it sounds strange to me. I do have a customer who wants me to sign a listing of the projects I did for them before I send them my invoice, just to make sure we agree on the number of projects and amounts of money involved. I've never had to sign any invoice that should be paid to me, but was not written by me. Not sure I'd agree to that. I think they just have to pay the invoice you would send, and that's it.

They should have told you about this deduction before agreement on the job and rates anyway.

I seriously doubt whether their construction will hold water, legally spoken, but I'm not an expert. The bad thing of course is, that this amount of money (am I right in calculating that the total amount is about $ 340?) is really rather small and taking legal action will probably not be worth the trouble....

Good luck!


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Kornelia Longoria  Identity Verified
United States
Local time: 16:40
Member (2007)
English to Polish
+ ...
TOPIC STARTER
Company's response Apr 4, 2008

[quote]Margreet Logmans wrote:

Kornelia Longoria wrote:
The bad thing of course is, that this amount of money (am I right in calculating that the total amount is about $ 340?) is really rather small and taking legal action will probably not be worth the trouble....

Good luck!


Yes, the amount I thought I was getting was $360. It's been nothing but trouble with this company and i'm pretty much done with them after this one time.

Here is what they wrote me as a reply to my e-mail refusing to pay taxes in their country.

Each translator has to pay Tax in our country as we are the employees and it is considered that You work for us! As we are located in Latvia, You have to pay Latvian Tax according to the legislation of Latvia! If we went to work in the USA, UK or other country of the world, we would have to pay their tax! We can send You the reference afterwards that the Tax is paid and You can go to the State Revenue Service and get the money back (I am telling from my own experience). Unfortunately, there is nothing we can do about it and these are not us who decide that. That is decided but the Government of the Republic of Latvia! L

I dont see how our department of revenue would exempt me from paying taxes here just because I already paid them in Latvia. What do they care? They revenue wants the share of the citizens income. No doubt about that.

[Edited at 2008-04-04 12:41]


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Jana Teteris  Identity Verified
United Kingdom
Local time: 22:40
Latvian to English
+ ...
They shouldn't be deducting anything! Apr 4, 2008

I also operate as a company in Latvia (although I'm not the one trying to swindle Kornelia) and unless you're actually an employee of this company (and a resident of Latvia) no deductions should be made.

You mentioned a 15% deduction. This is the percentage rate that Latvian companies have to pay on their annual profits, so it sounds like they could be trying to claw back the amount payable to the tax authorities. But again, this does not concern you.

Why not ask them to quote you the relevant section of the Commercial Law, and see what they have to say.

p.s. Ask them to also quote the relevant section of the Law on Taxes and Fees.

[Edited at 2008-04-04 13:01]


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avsie  Identity Verified
Local time: 23:40
English to French
+ ...
Freelancers are not employees Apr 4, 2008

Wikipedia quotes the existence of a treaty which covers avoidance of double taxation between Latvia and the United States :

Latvia and the United States have signed treaties on investment, trade, intellectual property protection, extradition, mutual legal assistance, and avoidance of double taxation. Latvia has enjoyed most-favored-nation treatment with the United States since December 1991.

http://en.wikipedia.org/wiki/Latvia-United_States_relations

But in general, I think they didn't understand the concept of freelancing and freelancers. Freelancers are not employees and should never be considered as such.


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The Misha
Local time: 17:40
Russian to English
+ ...
You are asking the wrong question Apr 4, 2008

There is no doubt that they are trying to rip you off. You are not a resident of their tax jurisdiction and thus are not liable. Even if there was a provision for a withholding tax, I doubt it would kick in on small amounts such as yours.

The question you should ask yourself is not whether they are right or wrong, but what kind of recourse you have against them. Since you are not going to bother suing them from across the ocean for $50, what else can you do? I would write them an official sounding letter with detailed description of what particular adverse actions you are going to take if they do not make you whole: BB feedbacks, complaints to ITI, ATA, Latvian tax authorities, etc. - whatever you can think of. That may sound like a lot of bad publicity to them over 50 bucks. Then again, if they are seasoned crooks it may not. In this case, just take what they give you and then try to do as much damage to them as possible - just for the heck of it, if for no other reason.

Oh, and do yourself a favor: next time, ask the right questions BEFORE you take on a job, not after. Cheers!


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Williamson  Identity Verified
United Kingdom
Local time: 22:40
Flemish to English
+ ...
Fairy tale Apr 4, 2008

For a starters:
1.You are based outside the E.U., so no VAT.
2.You do not have an employment contract, but are an independant contractor.
3. You are not subject to the tax laws of Latvia, but of the USA.


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xxxJPW  Identity Verified
Local time: 22:40
Spanish to English
+ ...
they haven't a clue... Apr 4, 2008

If you look carefully at the first sentence of the e-mail which they wrote to Kornelia you can see that they don't know really where they stand:

1. Each translator has to pay tax in our country [you are not in their country]....

2. We are the employees...

and 3. you work for us!

Anyone with half a wit can see that the first doesn't apply, as outlined above; and the second and third cannot stand together!!!!

My suggestions:

1. Get your money (all of it) ASAP.

2. Put an entry on the Blue Board if you think it is merited.

3. Don't go near them again.

Hope you sort it to your advantage, though, Kornelia


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Jurate Janaviciute  Identity Verified
Luxembourg
English to Lithuanian
If case Latvian company deducted you income tax... Apr 4, 2008

What was the tax they deducted from your payment?

If it was personal income tax (tax on your income), then it means that they have paid it for you.

Double Taxation Avoidance Treaty between USA and Latvia (quoted above) allows you not to pay income tax in your country on this amount. Check you income tax declaration for this option.


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Egmont
Spain
Local time: 23:40
Afrikaans to Spanish
+ ...
LATVIAN TRICK MAYBE... Apr 4, 2008

I translate for an Agency of Latvia and they never do that way... Maybe it is a trick to get some extra money from you...

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John Cutler  Identity Verified
Spain
Local time: 23:40
Spanish to English
+ ...
You need to find out about international tax law. Apr 4, 2008

My first thought on the 15% deduction is that it’s probably the withholdings. I pay 15% withholdings on every invoice I present here in Spain. In the spring, all the clients I’ve worked for in the past tax year send me a statement listing the amounts they withheld from my invoice (and which they’ve paid to the government). That’s a normal withholding amount, at least here in Spain. When it comes time for me to pay my income taxes I can deduct all that tax that has been paid in for me from what I owe the government. I think that’s all the agency is doing, i.e., withholding what they are legally obligated to do. You should ask them if they’ll send you the withholding statement next year. You may be able to deduct those withholdings from your US taxes. I’ve spent years balancing back and forth the taxes I‘m obligated to pay both in Spain and the US.

To me the question I would be asking is whether you are expected to pay taxes in Latvia for money you earned from there. You seem to think you’re not obligated to pay taxes in Latvia, but are you sure of that? If you do business in a country you have to follow their tax laws, not just the laws of the country you reside in. How much do you know about Latvian tax law? The post above says that Latvia has a treaty with the US. That probably does not mean that you’re not obligated to have the 15% deducted when you present an invoice but it may mean that perhaps you can deduct the taxes you pay in Latvia from what you have to pay in the US. (The US allows its citizens to earn a certain amount of money outside of the US that can be deducted from their income taxes.)

You can’t operate legally in any country in the world and just ignore their tax laws! Personally, instead of taking such a confrontational stance I’d ask for clarifications about Latvian tax laws and if there is anyone at the agency (accountant, tax preparer, etc.) who can explain these things clearly to you.

One last thought… after I pay the VAT (16%) and withholdings (15%) I have to include with every invoice, I only receive 69% of what I charged for my work. If you see that you take on small jobs from other countries and most of what you expect to earn gets lost in withholdings, transfer fees, etc., you may only want to accept large jobs from other countries so that you have some profit left over for you.


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John Cutler  Identity Verified
Spain
Local time: 23:40
Spanish to English
+ ...
Further thought Apr 4, 2008

Kornelia Longoria wrote:

We can send You the reference afterwards that the Tax is paid and You can go to the State Revenue Service and get the money back (I am telling from my own experience). Unfortunately, there is nothing we can do about it and these are not us who decide that. That is decided but the Government of the Republic of Latvia! L

I dont see how our department of revenue would exempt me from paying taxes here just because I already paid them in Latvia. What do they care? They revenue wants the share of the citizens income. No doubt about that.

[Edited at 2008-04-04 12:41]


I just saw your second post. I'm certain they're telling you the truth and that's really how things work. The "reference" they're talking about is the withholding statement I mentioned in my other post. You can use that to show you paid taxes in Latvia and deduct it from what you pay in the US. Just because Latvia has a treaty with the US doesn't mean you're not responsible for following the laws of both countries. What it means is that you only have to pay taxes to one country. Your 15% is withheld in Latvia but when the agency sends you the withholding statement include it with your US income tax forms as a deduction.

I'm American but I've lived in the EU for 23 years. This is really the way things work
By the way, this isn't a question of VAT, it's a question of 15% withholding tax.

I would suggest getting in touch with the local IRS office and see if they have someone who can explain all this to you.


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Noni Gilbert
Spain
Local time: 23:40
Member (2007)
Spanish to English
+ ...
Sounds like the "contrato mercantil" in Spain Apr 4, 2008

Both what this company appears to be trying to do and what John Cutler describes above seem to correspond to a system of payment used here based on the "contrato mercantil". I occasionally do lectures which are paid for in this way (the Ministerio de Educación insists), but otherwise since I am self-employed I issue my own invoices. In the case of colleagues who are not self-employed but working for another company there is no choice but to use the contrato mercantil system if they want to do occasional lecturing/examining work. And 15% is the amount that is kept back in this case. Within Spain this isn't a problem - the company has an obligation to send me a letter confirming that they have indeed paid this 15% to the tax office, rather than hanging onto it for themselves, and this is calculated into my tax return.

But for those not liable to pay tax in Latvia this seems absurd.... but then so does so much of what we come up against, doesn't it. How frustrating.


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Anindita Basu  Identity Verified
India
Local time: 03:10
English to Bengali
+ ...
Withholding tax Apr 4, 2008

I agree with John when he says that this is withholding tax. We (the company that I work for) does the same for payments that we make to translators. Why? Because according to the Indian Income Tax Act, all income accruing in and arising from India are taxable in India. For countries that have a DTAA (a double taxation avoidance agreement), all such deductions can be claimed as tax paid already. For example, if you need to pay $100 as tax, and a foreign company has withheld $25, you now need to pay only $75 in your company.

All such "withheld payments" are certified at the end of the financial year by the company that withheld the payment. This certificate is an acceptable document in the country where the translator resides (assuming there's a DTAA in place between the countries). My company, for example, sends out bunches of these certificates to our translators.

What the company is doing, essentially, is deducting tax at source. It is deducting a portion of your tax from your income and depositing the money with the country's tax authorities.


In India, if I remember right, it is under section 195 of the Income Tax Act, 1965 ( but I may be quoting the wrong section - I am not an accountant).


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