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VAT No. necessary?
Thread poster: eva75

eva75
English
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Jul 16, 2005

A prospective client of mine in Germany requires a VAT no., as this is required by EU regulations. I was hoping that a VAT number would not be necessary as I am only starting out and don't want the hassle of hiring an accountant to do my books or registering for VAT.

Is there any way around this? Is it normal practice for translation agencies to ask for VAT numbers and why?

By the way, I am not resident in Germany.

Any help would be much appreciated.



[Edited at 2005-07-16 20:02]


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Ralf Lemster  Identity Verified
Germany
Local time: 19:33
English to German
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Not necessarily... Jul 16, 2005

...but IMO this is impossible to answer without knowing your background, in particular your country of residence.

You don't need an accountant or tax advisor to register for VAT - although I would argue that it is more efficient to use a professional than to try and do all that yourself. (This includes the decision as to whether it might, in fact, be advantageous to register for VAT straight from the beginning.)

A VAT ID is not 'some EU requirement', but under EU regulations you must provide a tax number or VAT ID on your invoices.

Unfortunately, knowing that you're not resident in Germany is not nearly enough.

Best regards,
Ralf


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Burkhard Ziegler  Identity Verified
Germany
Local time: 19:33
Russian to German
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At least a fiscal ID number for entrepreneurs is necessary on invoices to agencies and final custome Jul 16, 2005

eva75 wrote:

A prospective client of mine in Germany requires a VAT no., as this is a some EU requirement.

Hi Eva!

I wouldn't consider requiring a VAT no. as a requirement but very useful.

At any rate, you should state a fiscal ID number.

Where are you fiscal resident? (On this depends a lot.)

If in EU or European economical space a VAT Id is worth having at any rate.

In Germany having a VAT reg. number doesn't cause more paperwork - but I don't know what your legislation requires. But mostly translation services renderred to non-national customers are not taxable for VAT purposes in your country. But check your local requirements.

For any other questions, first of all, refer to your inland revenue but be well prepared, especially if translation services rendered to non-national customers are taxable for VAT or not.
eva75 wrote:
Is it normal practice for translation agencies to ask for VAT numbers and why?
It's normal. Even if I buy a pack of computing paper I ask for a tax receipt stating the VAT or local tax ID - for correct accounting. Furthermore, they want to be able to consider you as an entrepreneur who's repsonsible for taxes, social insurance payments by him-/herself what can be proved stating a Tax/VAT reg. No.

Regards, Burkhard


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eva75
English
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TOPIC STARTER
More info Jul 16, 2005

Pardon, my country of residence is France and I want to register my business in the UK.

Ralf Lemster wrote:

...but IMO this is impossible to answer without knowing your background, in particular your country of residence.

You don't need an accountant or tax advisor to register for VAT - although I would argue that it is more efficient to use a professional than to try and do all that yourself. (This includes the decision as to whether it might, in fact, be advantageous to register for VAT straight from the beginning.)

A VAT ID is not 'some EU requirement', but under EU regulations you must provide a tax number or VAT ID on your invoices.

Unfortunately, knowing that you're not resident in Germany is not nearly enough.

Best regards,
Ralf


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eva75
English
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TOPIC STARTER
Thanks! Jul 16, 2005

Thanks for your advice.

BTW, I am a fiscal resident in France.

Burkhard Ziegler wrote:

eva75 wrote:

A prospective client of mine in Germany requires a VAT no., as this is a some EU requirement.

Hi Eva!

I wouldn't consider requiring a VAT no. as a requirement but very useful.

At any rate, you should state a fiscal ID number.

Where are you fiscal resident? (On this depends a lot.)

If in EU or European economical space a VAT Id is worth having at any rate.

In Germany having a VAT reg. number doesn't cause more paperwork - but I don't know what your legislation requires. But mostly translation services renderred to non-national customers are not taxable for VAT purposes in your country. But check your local requirements.

For any other questions, first of all, refer to your inland revenue but be well prepared, especially if translation services rendered to non-national customers are taxable for VAT or not.
eva75 wrote:
Is it normal practice for translation agencies to ask for VAT numbers and why?
It's normal. Even if I buy a pack of computing paper I ask for a tax receipt stating the VAT or local tax ID - for correct accounting. Furthermore, they want to be able to consider you as an entrepreneur who's repsonsible for taxes, social insurance payments by him-/herself what can be proved stating a Tax/VAT reg. No.

Regards, Burkhard


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Ralf Lemster  Identity Verified
Germany
Local time: 19:33
English to German
+ ...
Tax advisor necessary, methinks... Jul 16, 2005

Thanks, Eva,
Pardon, my country of residence is France and I want to register my business in the UK.

It's your decision, of course, and I know some examples involving that structure (mainly financial traders living in or around Paris work in Kent - you can see them getting off the Eurostar in Ashford). However, given the cross-border tax issues involved, I would strongly suggest getting tax advice before starting out.

Best regards,
Ralf

[Edited at 2005-07-17 07:29]


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Rina LS  Identity Verified
Serbia
Local time: 19:33
English to Serbian
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Specify: I am not a VAT payer Jul 17, 2005

Dear Eva,

You can specify in your invoice that you are not a VAT payer. According to social policies of many non EU countries, you are charged VAT only if you have your own agency, company etc.
Besides, it is not true that you must provide VAT No. Our fees are often too low, so many translators are not VAT payers.

If you own the agency, then you have to provide VAT. If you do not, you should tell the agency/client you work for that you are not a VAT payer.

Good luck,

Rina


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Ralf Lemster  Identity Verified
Germany
Local time: 19:33
English to German
+ ...
Slight correction, if I may... Jul 17, 2005

Hi Rina,
Just a couple of issues...
You can specify in your invoice that you are not a VAT payer.

Quite.

According to social policies of many non EU countries, you are charged VAT only if you have your own agency, company etc.

Not quite. In principle, everyone is charged VAT - businesses registered for VAT must charge VAT for goods and services (but can deduct VAT paid on business expenses). Note that a business does not have to be a company: there are many sole traders who are VAT-registered.

Besides, it is not true that you must provide VAT No. Our fees are often too low, so many translators are not VAT payers.

Correct. In many jurisdictions, however, you can opt to be VAT-registered - this may be sensible even if your revenues are below the threshold.

If you own the agency, then you have to provide VAT. If you do not, you should tell the agency/client you work for that you are not a VAT payer.

Right again (in which case you can still provide a tax number) - but owning an agency is no condition for being VAT-registered.

Best regards,
Ralf


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RobinB  Identity Verified
Germany
Local time: 19:33
German to English
Register business in the UK? Jul 17, 2005

Pardon, my country of residence is France and I want to register my business in the UK.


Presumably you want to establish a limited company or LLP in the UK - you're hardly likely to go for self-employed status in the UK, as you'd then be liable for National Insurance contributions even if you're a French resident and would continue to be a French taxpayer.

There is a myth that you *have* to have an EU VAT ID No. for intra-Community (cross-border) transactions. What you *do* have to demonstrate is that you're a business, not a private individual. Certainly the most common - and convenient - way of doing this is to have a VAT No., and you're going to save yourself a lot of hassle and tedious correspondence with cross-border clients (which will then be clients in France too, of course), if you have one. However, incorporated status in itself is proof that you are a business, and as a UK registered company, you will have to give your registration number on your invoices anyway (and simply note "Not registered for VAT" on your invoices.

To round off what Ralf has written, this whole issue isn't to do with whether *you* charge VAT or not in any case. Cross-border translation sales are *always* treated as VAT-exempt for the seller because the service itself is deemed to have been rendered in the (buyer's) target country, not the (seller's) home country. However, the buyer still has to record a VAT charge on the invoice amount at the target country rate and add that VAT charge to his own VAT liability (essentially this is import VAT in exactly the same way as if you import physical goods).

Provided that there is reasonable evidence that the seller is a business (and it's the buyer's responsibility to prove this, which is why for the sake of convenience they mostly want to see a VAT number), the buyer can then claim notional input VAT in the same amount, producing an offsetting transaction. If there's no proof of the seller's business status, however, the buyer is unable to deduct that notional input VAT, thus increasing the cost (of the translation) by the target country VAT rate.

In addition to the "business status" proof, certain EU member states (including Germany and Austria) also require a line or two of boilerplate on invoices for cross-border transactions (including services purchased from outside the EU). This is the "Hinweis" that must appear on the invoice (in German or English) and has been referred to on several occasions in past ProZ message threads. If you do not include this "Hinweis" on your invoice to a client resident in Germany, the client is entitled to reject your invoice (i.e. not to pay it until you submit an invoice containing that "Hinweis" - not a lot of people seem to know this peculiarly German rule).

EU cross-border VAT rules are not *that* complicated, but for some reason, there does seem to be an awful lot of confusion (at both translators and their clients) about these procedures, as well as some downright myths circulating around the industry.

But all businesspeople are obliged to inform themselves about all laws and regulations that apply to their business activities ("ignorance is no excuse"), and as Ralf has suggested, the most prudent and watertight way to go about doing this is to consult a tax accountant or adviser. After all, don't we use the same arguments to our own customers, i.e. that they should come to us for their translations and not do the translations themselves?

[Edited at 2005-07-17 10:27]

One slight qualification: cross-border translation services are only VAT-exempt for the seller if the buyer is a business. If you're registered for VAT and the client is a private individual in another EU country, or an EU institution, you always have to charge VAT at your home country rate.

[Edited at 2005-07-17 10:37]


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eva75
English
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TOPIC STARTER
Limited company Jul 17, 2005

Thanks for the very comprehensive answer. So it looks like I will have to set myself up as a limited company, which is more complicated than being self-employed, right? I've already written on my Tax Registration Form that I want to be self-employed. Is it necessary for me to trade under a business name and do I need a separate bank account?

Are there any special fees to pay for being a limited company?
The accounts are also different, aren't they? I don't want to hire an accountant as I'm only going to be freelancing part-time for the moment to supplement my income. I don't want too much hassle, as in the future my full-time job may take up all of my time.

There seems to be a real lack of information on the business side of setting up as a freelancer. Obviously not living and "working" in the same country probably complicates matters a little.

To sum up, basically what I need to do is

- Register as a limited company in the UK for tax purposes(don't have to be habitually resident there)

- I am not obliged to register for VAT or charge VAT to customers. However, it is advisable to register for VAT.

- This means that I will have to charge VAT (UK rate) on my invoices.

- It also means that I claim VAT on purchases I make for company.

- It's possible to do my accounts myself, but could be complicated.

I'd be grateful if any of you could correct me on the above points if I've misunderstood something.

[Edited at 2005-07-17 11:07]

[Edited at 2005-07-17 12:47]


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Ralf Lemster  Identity Verified
Germany
Local time: 19:33
English to German
+ ...
No straightforward answers, I'm afraid... Jul 17, 2005

Hi Eva,
So it looks like I will have to set myself up as a limited company, which is more complicated than being self-employed, right?

Not in principle, but given the issues Robin referred to, that's most likely going to be the preferred choice. Whether it's the best option for you is something only an advisor could answer, IMO.

I've already written on my Tax Registration Form that I want to be self-employed. Is it necessary for me to trade under a business name and do I need a separate bank account?

If you're going to set up a company or partnership, you're going to need a business name - using a separate account for your business is good practice (although getting a UK bank to open a business account can be difficult).

Are there any special fess to pay for being a limited company?

There are certain fees payable to UK Companies House, but these are minor in comparison (we're talking about 15 pounds for filing an annual return, for example). The ancillary cost of running a company (advisors, accounting, etc.) is almost certainly higher.

The accounts are also different, aren't they?

Don't know about LLPs, but UK limited companies must prepare accounts and financial statements, as these need to be filed with Companies House.

I don't want to hire an accountant as I'm only going to be freelancing part-time for the moment to supplement my income.

Fair enough - although in this case, you may want to re-assess your plan to establish a business in the UK as a French resident.

I don't want too much hassle, as in the future my full-time job may take up all of my time.

There seems to be a real lack of information on the business side of setting up as a freelancer.

I would argue that to the contrary, there is an abundance of information (there's lots of info on the websites of the UK Inland Revenue and HM Customs & Excise) - the main problem is finding out what is relevant for your.

Obviously not living and "working" in the same country probably complicates matters a little.

Indeed, particularly as far as VAT is concerned.

Just to illustrate the complexities in volved: I have managed a UK limited company as a wholly owned subsidiary of our German 'GmbH' for several years, during which period I commissioned two tax advisors/accountants - one in London, one in Frankfurt. Throughout that period, I felt both were necessary to properly manage both companies. Of course, this only makes commercial sense if you have a certain minimum level of revenue.

Best regards,
Ralf


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eva75
English
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TOPIC STARTER
What's the worst that can happen? Jul 17, 2005

Ralf,

What's the worst that can happen if I register as self-employed, is it really necessary for me to pay social security contributions in the UK. If so, this would probably be less complicated than setting up as a company.

Is it possible for the UK governement to find out that I am payig social security contributions in two EU member states at the same time?


[Edited at 2005-07-17 12:48]


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Ralf Lemster  Identity Verified
Germany
Local time: 19:33
English to German
+ ...
Sorry... Jul 17, 2005

...these are questions I would have put to my advisor(s). I honestly don't know.

I also think that giving you advice on such detailed issues without knowing your circumstances in detail might be dangerous.

Best regards,
Ralf


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RobinB  Identity Verified
Germany
Local time: 19:33
German to English
Open issues Jul 17, 2005

I don't want to hire an accountant as I'm only going to be freelancing part-time for the moment to supplement my income. I don't want too much hassle, as in the future my full-time job may take up all of my time.


In which case I really don't think it would be worthwhile pursuing this particular route (UK business), especially as you evidently are unaware of a number of issues, in particular tax. The fact that you establish a UK company but are domiciled in France doesn't mean that you are no longer a French taxpayer, and you may well end up facing double taxation to a certain extent (because of differences in the tax systems regarding e.g. allowances). Also, if you are a director/officer of a UK company, but resident in France, you're still a French taxpayer.

Secondly, establishing a corporation (anywhere!) without engaging professional advisers, including an accountant, is an extremely dangerous move. You may be able to get away without an accountant if - as you say - you are only freelancing part-time at the moment. But the moment you go full-time, or start a registered business, you'll need an accountant. Period. The risks are otherwise too high.

- Register as a limited company in the UK for tax purposes(don't have to be habitually resident there)


Don't confuse tax with ease (and low cost) of incorporation in the UK. You'll really have to consult a tax adviser in France who's experienced in these matters.

- I am not obliged to register for VAT or charge VAT to customers. However, it is advisable to register for VAT as the EU requires you to put a VAT ID no. on your invoice.


As Ralf says, check the relevant (UK Inland Revenue) websites.

- It's possible to do my accounts myself, but could be complicated.


Don't do it yourself firstly if you're going to have a company, and secondly if you're living in France but the business is registered in the UK.

Cross-border incorporations are becoming increasingly common in the EU thanks to some landmark rulings by the ECJ. Just look at the number of "Ltd. & Co KG" limited partnerships being established here in Germany. However, tax is not the factor driving this trend, but rather ease of incorporation and a (very) low-cost way of limiting liability.

To put it in a nutshell: if you are tax-resident in France, you cannot escape your tax liability by forming a company in the UK. You may merely complicate it unnecessarily.

Now's the time to take professional advice before the situation gets uncomfortable, and possibly very expensive.


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eva75
English
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TOPIC STARTER
Not a French taxpayer Jul 17, 2005

RobinB,

I'm only going to be living in France until October and thus will not be earning enough to pay tax in France for this tax year. Then, I either hope to resume my studies while working part-time in either Belgium, Austria or Germany. It is unlikely that I will be liable to pay taxes for the next year or so in these countries either.

I can't see any danger in registering myself as being self-employed in my home country. In any case, I'll not be earning enough to pay VAT. According to one government source, I am not liable to pay social security contributions in my home country as my income from freelancing will be below the threshold.

Surely, the EU should favorise my kind of set-up, especially since my income will only be a couple of thousand pounds a year. It's quite unlikely that Inland revenue will check that I am resident in the UK. I'm not a home owner and thus have no bills to pay, so my family cover my whereabouts as they have done in the past, when I have claimed unemployment benefit back home while waiting to be made permanent here in France.


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