Does Latvian agency have to deduct 26% tax from freelancers?
Thread poster: EL Cavanaugh

EL Cavanaugh
Member (2008)
English to Finnish
Sep 24, 2010

Hi,

does anyone have knowledge of Latvian income tax - I have worked for a couple of Latvian agencies and never before came accross something the agency that I recently did a few projects - is that true?

"Residence certificate-application
Unless you can issue an invoice from a limited liability company, you will need a residence certificate-application in order to avoid double taxation in your country of residence and Latvia.

Income tax in Latvia is 26%. According to the double taxation avoidance convention signed between Latvia and your country of residence it is possible to receive permission not to deduct income tax in Latvia by receiving a residence certificate-application confirmed by the tax authorities of both countries. Therefore together with the framework agreement you will receive a filled-in residence certificate-application and instructions on how to proceed with it. The procedure of receiving confirmation from the tax authorities in Latvia may take up to one month. We can make a payment of the total sum of the invoice only after receiving the confirmed residence certificate-application.
If you prefer to receive the full amount without tax deductions, please do not invoice us before we have informed you on the confirmation of the residence certificate-application. If you prefer to receive payment earlier or decide not to apply for the residence certificate-application we will have to deduct 26% income tax from your invoice. In that case please inform us, as the sum of the income tax needs to also be shown in the invoice."

Just wondering if as the same agency tried to decline almost 900 eur payment saying that there errors and because of that the agencies reputation was detoriated and the collaboration with that specific company negatively affected. After asking for a clear feedback, it became apparent that the blame was not justifued. Not they are willing to pay but say that if I invoice as a private person, they will have to deduct 26 % income tax unless I provide the residence certificate issue from my country - which I can not do as I do not live there.icon_wink.gif


 

Lindsay Sabadosa  Identity Verified
United States
Local time: 21:43
Member (2004)
Italian to English
+ ...
Form 6166 Sep 24, 2010

I think you've misunderstood. I believe what the agency wants is proof that you are NOT an EU resident, hence the residence form request. I've had more and more agencies ask for proof of residence forms lately. One claimed that it has to do with a new EU law. I'm not sure because that would mean that ALL my clients in Europe would request this form and they certainly haven't.
It says under your name that you reside in the US. Is that true? If the US is your tax home, that you simply apply for one from the IRS using Form 6166. It costs $35 and takes about 45 days but you only need to submit it once.


 

Evija Rimšāne  Identity Verified
Latvia
Local time: 04:43
English to Latvian
- Sep 24, 2010

"Your country" means your country of residence (and not your country of origin). If you live in the USA, you actually have to provide this proof of residence in order to avoid double taxation, see: "Convention between the Republic of Latvia and the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income" http://www.likumi.lv/doc.php?id=215287&from=off
Your other clients from Latvia should have requested the proof of residence, too. It's weird they didn't...
I once had to get the proof of residence for a client in Poland because there is a similar Convention between Latvia and Poland.
I hope it helps.


 

EL Cavanaugh
Member (2008)
English to Finnish
TOPIC STARTER
they need it from all the transaltors, not only from those who live outside of EU. Sep 24, 2010

Hi Lindsay, this is not the case, they said they need it from all the transaltors, not only from those who live outside of EU.

 

Kaspars Melkis  Identity Verified
United Kingdom
Local time: 02:43
Member (2005)
English to Latvian
+ ...
Asking for this $35 form is nonsense. Sep 25, 2010

The Latvian company in question simply doesn't understand that it should not withhold income tax to self-employed persons who are paying the tax themselves thus is asking for Ltd. status. The treaty and the place of residence don't even matter.

In Latvia self-employed persons require registration with tax authorities so companies will usually ask for a proof that you really are self-employed and not just trying to do some gigs without paying taxes. In the US generally there is no need for self-employed person to register. When I lived in the US some EU companies wanted me to certify that I am really a US resident, mostly for VAT purposes. I simply sent them the signed application by mail from my US address and that was good enough.

Similarly, US companies usually require signed W-8BEN or W9 forms forms from US or foreign persons to certify that they are self-employed and paying tax themselves.

[Edited at 2010-09-25 05:53 GMT]


 

Evija Rimšāne  Identity Verified
Latvia
Local time: 04:43
English to Latvian
my bad... Sep 25, 2010

Kaspars Melkis wrote:

The Latvian company in question simply doesn't understand that it should not withhold income tax to self-employed persons who are paying the tax themselves thus is asking for Ltd. status. The treaty and the place of residence don't even matter.


Paldies, Kaspar, par manis palabošanu! Thanks, Kaspars!
Sorry, it seems that it was a very, very long day for me yesterday and I made a mess out of all this (I just realised it). Sorry!!

Of course, Kaspars ir right that you don't have to give any proof of residence to the Latvian agency because you are a registered tax payer in your country.
In my case with the Polish agency I mentioned above, they asked me to provide the proof of residence because I was not a registered tax payer back then (I worked with my first clients basing solely on royalty agreements). As soon as I got registered with our IRS, no more proofs of residence were necessary.

I am almost certain that the Latvian agency is basing their request on the Convention I mentioned above, but it indeed concerns only persons who are not registered tax payers.

So if you are a registered tax payer in your country of residence, Kaspars is right and you have to be firm here. Their request is not justified in this case.


 

GunitaP
Local time: 04:43
English to Latvian
+ ...
Income tax withholding requirements Sep 29, 2010

Hi, Eija,

I am a translator and also a certified Latvian tax consultant.

The answer to your question is YES, unless you can provide the Latvian agency with the requested "Residence Certificate - Application for Reduction of or Exemption from Tax". The Certificate proves that you are Finnish tax resident and as such may receive gross fee from the Latvian agency under the Latvian - Finnish tax treaty.

You have 2 options:

1) EITHER provide the Latvian agency with the Residence Certificate and avoid tax withholding under the treaty; OR
2) suffer the tax and later claim a refund of the tax withheld in Latvia on the basis of the Latvian - Finnish tax treaty, by submitting "Residence Certificate - Application for Refund" to the Latvian tax authorities.

I would go for option 1).

Hope this helps.

Gunita


 

Katalin Horváth McClure  Identity Verified
United States
Local time: 21:43
Member (2002)
English to Hungarian
+ ...
Use IRS Form 8802 for the application Sep 29, 2010

Lindsay Sabadosa wrote:

I think you've misunderstood. I believe what the agency wants is proof that you are NOT an EU resident, hence the residence form request. I've had more and more agencies ask for proof of residence forms lately. One claimed that it has to do with a new EU law. I'm not sure because that would mean that ALL my clients in Europe would request this form and they certainly haven't.
It says under your name that you reside in the US. Is that true? If the US is your tax home, that you simply apply for one from the IRS using Form 6166. It costs $35 and takes about 45 days but you only need to submit it once.



This is true, except that the form to use for the application is IRS form 8802, and what they send you in response, is the Form 6166.
Here is the link to the PDF of the application form (8802):
http://www.irs.gov/pub/irs-pdf/f8802.pdf

And here is the PDF with the instructions on how to fill and file the form:
http://www.irs.gov/pub/irs-pdf/i8802.pdf

I hope it helps.
Katalin


 

Kaspars Melkis  Identity Verified
United Kingdom
Local time: 02:43
Member (2005)
English to Latvian
+ ...
I am sorry, Sep 29, 2010

but the reference to the Treaty is meaningless because a freelancer who is living and working in the US is not considered a subject of Latvian personal income tax at all. The point of sale is translator's address and it is completely legal to issue a business invoice. That should be enough for any company in Latvia buying services from a US business. There is no difference whether this business is a self-employed person, a sole trader or a corporation.

Either this company considers all freelancers as employees or register payments to them as royalties. Both are uncommon practice with freelance technical translations but some Latvian agencies do this as they are mostly working with local freelancers who are too clueless or lazy to get a self-employed status.

I understand that the agency may want some proof that a service provider is really a US person and not some Finnish resident who pretends to be someone else to avoid paying taxes but asking for IRS Form 6166 is too much distrust and not necessary in this case.


 

EL Cavanaugh
Member (2008)
English to Finnish
TOPIC STARTER
Latvian agency withheld 23% income tax Oct 4, 2015

It happened again! First this agency sent the PO after I had delivered the project, then I had to fight to get paid and finally, I received an email saying they paid but deducted the 24% income tax. I had to provide all kind of documents but I was not asked for proof of certificate, they just told me this after the fact:

"Dear Eija,
We have paid you 1590,21 Eur and 386,43 Eur we paid to Latvian tax department. This is personal income tax (23%) that we as a company need to pay tax department for all persons that is resident of other country.
ar cieņu / с уважением / Kind Regards
Evija Rudusāne
Office administrator
Baltic Translations Ltd.
Adress: Brivibas Str. 85, Riga, LV-1001

Now, how can I claim the tax back?
I do not live in EU and certainly not in Latvia.


 

EL Cavanaugh
Member (2008)
English to Finnish
TOPIC STARTER
WHERE DO I GET THAT FORM? Oct 4, 2015

GunitaP wrote:

You have 2 options:

1) EITHER provide the Latvian agency with the Residence Certificate and avoid tax withholding under the treaty; OR
2) suffer the tax and later claim a refund of the tax withheld in Latvia on the basis of the Latvian - Finnish tax treaty, by submitting "Residence Certificate - Application for Refund" to the Latvian tax authorities.

I would go for option 1).

Hope this helps.

Gunita


Since they withheld the "tax", where can I get the form to claim a refund?


 

Katalin Horváth McClure  Identity Verified
United States
Local time: 21:43
Member (2002)
English to Hungarian
+ ...
Search for the form - no tax treaty...? Oct 5, 2015

So far, I found this, not the form, but it describes the procedures:
https://www.bmf.gv.at/steuern/int-steuerrecht/rueckerstattung/LatviaInfo.pdf?4t27jm

Noext, when I searched for proof of a treaty for preventing double taxation, I found the list of countries that actually have such treaties with Latvia.
If your residence is in New Zealand, it seems you are out of luck.
icon_frown.gifhttp://www.worldwide-tax.com/latvia/lat_double.asp

I am no tax expert, but if the two countries don't have a treaty to prevent double taxation then you won't be able to get back what they deducted.
If that is indeed the case, then if you want to keep working for them, the only thing you can do is to raise your rates accordingly (so that you would still get enough money after the tax deduction). I am not sure how feasible that is.

[Edited at 2015-10-05 02:35 GMT]

[Edited at 2015-10-05 02:35 GMT]


 

Ana Naglić  Identity Verified
Croatia
Local time: 03:43
Member (2005)
English to Croatian
+ ...
Not worth it Oct 13, 2015

GunitaP wrote:

1) EITHER provide the Latvian agency with the Residence Certificate and avoid tax withholding under the treaty; OR
Gunita


This costs money.
You have to wait in line at the Tax Office (i.e. waste my time, sometimes up to 1h + 1.5h of travel) and pay an administrative fee for this certificate and then pay for p&p (in Croatia). Latvia does have a treaty to prevent double taxation with Croatia.

No other country requires this. I worked for an agency and sent this once and then they asked for that again in a couple of years.
BTW. They were able to check my EU VAT No. online (and it is included in every invoice) + they had my local business registration number, but they asked for a certificate, too.

My USA-based customers sometimes asked me to complete the form and that was all. My other EU based customers never asked me for this form.

It is just not worth it.


 

LegalTransform  Identity Verified
United States
Local time: 21:43
Member (2002)
Spanish to English
+ ...
If this happened to me, I would demand that the agency send me... Oct 13, 2015

the 386.43 immediately and make a negative entry on the BlueBoard (I'm assuming you never intend to work for them again). Future translators should be forewarned that this agency deducts huge fees after the fact.

They should definitely have informed you before you started the job that this amount would be deducted and they most definitely knew you were not a resident of Latvia before they assigned the project. We have bills to pay and we shouldn't have to jump through lots of hoops in order to get paid.

I would also demand proof of payment to the Latvian tax authorities.

These terms should also be in your contract that the agency signs.



[Edited at 2015-10-13 13:10 GMT]


 

Bernhard Sulzer  Identity Verified
United States
Local time: 21:43
English to German
+ ...
Agree Oct 13, 2015

Jeff Whittaker wrote:

the 386.43 immediately and make a negative entry on the BlueBoard (I'm assuming you never intend to work for them again). Future translators should be forewarned that this agency deducts huge fees after the fact.

They should definitely have informed you before you started the job that this amount would be deducted and they most definitely knew you were not a resident of Latvia before they assigned the project. We have bills to pay and we shouldn't have to jump through lots of hoops in order to get paid.

I would also demand proof of payment to the Latvian tax authorities.

These terms should also be in your contract that the agency signs.



[Edited at 2015-10-13 13:10 GMT]


Agree. Withholding money from you that way is either a scam (they don't intend to send anything to the tax authorities) or this should have been cleared with you before the start. In any case, they have no right to withhold money from you. They must pay the full amount of your invoice. I sometimes write "VAT does not apply" on my invoices for EU customers. You are not liable for paying someone else's taxes anywhere. As a permanent resident or citizen of New Zealand who works in New Zealand, you pay tax to New Zealand, and that tax comes out of all of your rightful earnings based on your invoices. In the case of this invoice, you did not get paid in full.

[Edited at 2015-10-13 18:28 GMT]


 


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