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How much of your money goes on taxes, VAT and contributions?
Thread poster: Fiona Grace Peterson

Fiona Grace Peterson  Identity Verified
Italy
Local time: 04:28
Member
Italian to English
Mar 20, 2006

This point came up in a recent discussion on opening a VAT position here in Italy. Here it is advisable to put aside 50% of one's earnings to cover taxes, VAT and social security contributions. I just wondered how it is in other countries.

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Timothy Barton
Local time: 04:28
French to English
+ ...
100% Mar 20, 2006

I've not had much work this month (and I work part-time), which may mean that this month I'll earn less than I pay (since Social Security has a minimum amount in Spain). But obviously this month is not a normal month. I normally spend about 40% on income tax and Social Security. I do not include VAT in this, since it is not the translator who pays VAT. The client pays the VAT and we pay it on his behalf.

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Clare Barnes  Identity Verified
Sweden
Local time: 04:28
Swedish to English
+ ...
Lots! Mar 20, 2006

Basically, my Swedish taxes are as follows (and VAT is 25%):

31% social costs and then probably 35% income tax on top of that. For every SEK 100 I earn I expect to keep about SEK 43-45 (not taking my expenses into consideration). My social costs may in fact be slightly lower than 31% as I live in a rural area that qualifies me for lower contributions, but anyway these are the approximate figures.

Whenever I mention the level of taxes and contributions to freelancing friends in the UK their chins hit the floor...


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LuciaC
United Kingdom
Local time: 03:28
English to Italian
+ ...
Sweden-UK Mar 20, 2006

Whenever I mention the level of taxes and contributions to freelancing friends in the UK their chins hit the floor...
[/quote]

In Sweden you pay a lot but you get a lot back from the public sector.

In the UK you pay a lot less taxes and NI contribution and you get a lot less back. For instance, nursery schools are free... for two and a half hours every morning. Which doesn't help working mothers very much. If you need full-time day care, then you pay between 600 and 800 pounds a month.
Hospitals are free - if you feel like waiting 7 years for a hip replacement. People with cancer have to wait months to receive chemiotherapy and be operated on (experienced through my British family).
Universities are being privatised - as of next academic year, fees will rise to £ 3000 a year and are set to rise again after 2010. If you have children it's another big burden.

So the point is not 'how much we pay' but where it ends up.


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Surtees
Spanish to English
+ ...
30-32%? Mar 20, 2006

VAT - nothing: VAT (16%) is added to invoices, the client pays it to me and I pay it to the Tax Man (or, quite often, I pay the Tax Man and then the client pays me), minus any VAT I've paid on business expenses.

Income Tax - around 24-25% (of earnings after having deducted business expenses). Depends on earnings over the year and exemptions such as mortgage repayments.

Social Security - fixed amount, which works out at around 6-7% of my earnings.


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Heinrich Pesch  Identity Verified
Finland
Local time: 05:28
Member (2003)
Finnish to German
+ ...
Depends on income Mar 20, 2006

Here in Finland I now pay 250 euro each month for my pension (I should be paying more but don't care). Health care is free, but I mostly use private health care. If I earn about 30 000 euro yearly taxes are about 25 % from that, but if I earn more I have to put aside half of each euro earned for tax.
So if I get lots of jobs at the end of the year I have to reckon, if its worth doing - working half of the time for the tax office.


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RobinB  Identity Verified
Germany
Local time: 04:28
German to English
None of "your" money goes on VAT Mar 20, 2006

Fiona,

Please note that none of "your" money goes on VAT. You only pay VAT that has been paid to you by your customers, less any input tax you have paid yourself.

VAT is a pass-through (transitory) item, in other words it doesn't come out of your own pocket. You're just collecting it on behalf of the government.

Robin


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Kristine Sprula (Lielause)  Identity Verified
Latvia
Local time: 05:28
English to Latvian
+ ...
Situation in Latvia Mar 20, 2006

Hi, Fiona!
In Latvia a self-employed person has to pay 30,2% social tax in a month starting from a certain sum and 25% income tax from net income for the whole year. If the income amounts at or exceeds 10000 LVL (local currency) = about 15000 EUR, a person has to pay 18% VAT.

[Edited at 2006-03-20 14:52]

[Edited at 2006-03-20 14:53]


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Clare Barnes  Identity Verified
Sweden
Local time: 04:28
Swedish to English
+ ...
A misconception. Mar 20, 2006

Lucia Cavalli wrote:

So the point is not 'how much we pay' but where it ends up.



Sorry if this is off the point of the original question, but I do want to clear up a misconception. I've seen the Swedish/UK system from both sides and can find nothing about the Swedish system that justifies the level of tax compared to that in the UK (I'm not grumbling - it's my choice to live and work here). To take your examples - health care is more expensive here than in the UK (each doctor's visit costs almost £10, and there is no flat rate for prescriptions) and we do have to pay for our childcare (local authority-provided) though not as much as in the UK. There are long queues for medical treatment here too... Like Heinrich I am definitely going to start private health care insurance and a private pensions plan is a must...

Yes, some things are better here (parental leave is a good example), but not that much!!! Life in the Swedish welfare state shouldn't be idealised, it's not what the rest of the world thinks it is.


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Williamson  Identity Verified
United Kingdom
Local time: 03:28
Flemish to English
+ ...
Cash-flow Mar 20, 2006

Isn't how much there is left over at the end of a fiscal year the determining factor whether or not to continue with your activity as a self-employed?
If that sum equals the sum gained by an employee, wouldn't it be better to be an employee.
Of course, you can always go and live outside the E.U.
Somewhere in a sunny fiscal paradise such as the Jebel Ali Free Zone in Dubai. Avarage temperature 40 degrees C


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Tim Drayton  Identity Verified
Cyprus
Local time: 05:28
Turkish to English
+ ...
Low tax in Cyprus Mar 20, 2006

Here in the Republic of Cyprus everyone has an annual personal allowance of 10 000 Cyprus pounds (about 17 384 euros) and after that the first tax band is taxed at a rate of 20% - this band covers the next 10 000 Cyprus pounds. So low earners like freelance translators pay little or no income tax. I certainly do not expect to make it into the tax bracket this year.
The VAT threshold here is low, however, at an annual turnover of 10 000 Cyprus pounds.
Social Insurance payments for translators are fixed at about 220 Cyprus pounds per quarter (about 383 euros)
I think this is must be the most favourable tax regime in the EU. Local authority taxes are also low - I pay 50 Cyprus pounds annually to my local municipality by way of property tax.


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Philippe Etienne  Identity Verified
Spain
Local time: 04:28
Member
English to French
Go expatriate! Mar 20, 2006

Here in Morocco there are fiscal incentives for exporters: we bring hard currency to the country and as a fair compensation, the country is fiscally nice to us.
I pay about 20% of my earnings in revenue taxes, after 5 years of tax honeymoon where I paid NOTHING (except 150 euros of minimal contribution after 3 years of business)! If I were to work only locally, up to 44% would go to revenue tax only. The top revenue bracket starts at less than 500 euros a month.
And I pay no VAT since I bill no VAT to my overseas customers.
And it is sunny 300 days a year.
And oranges are 0.3euros/kg during the season.
Doesn't it sound extremely tempting businesswise?

Oh yes, there is a catch: as contributing to any form of social security, public pension scheme or whatever other tax is not compulsory for self-employed professionals, I do have to save money for my old days. This is not a tax, but the purpose is the same.
If you pay taxes and contributions and all these things, you're entitled to some rights (child allowance, discounted healthcare, pension cheque, free education, unemployment benefits and so on).
As I pay nothing, I am entitled to nothing. So covering my back in case of heavy impairment and ensuring a decent retirement/end of life is entirely up to me...

Hapy tax-paying,
Philippe


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Fiona Grace Peterson  Identity Verified
Italy
Local time: 04:28
Member
Italian to English
TOPIC STARTER
You are right, Robin Mar 20, 2006

RobinB wrote:

Please note that none of "your" money goes on VAT. You only pay VAT that has been paid to you by your customers, less any input tax you have paid yourself.

VAT is a pass-through (transitory) item, in other words it doesn't come out of your own pocket. You're just collecting it on behalf of the government.



You're right of course. But I pay 20% witholding tax, so I feel as if the VAT is coming out of my own pocket I go and pay my VAT "physically" by going to the bank, the witholding tax is more "invisible"...


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RobinB  Identity Verified
Germany
Local time: 04:28
German to English
Withholding tax? Mar 20, 2006

Fiona Peterson wrote:
You're right of course. But I pay 20% witholding tax, so I feel as if the VAT is coming out of my own pocket I go and pay my VAT "physically" by going to the bank, the witholding tax is more "invisible"...


Fiona,

You'll have to explain that to me. Do you mean a withholding tax that's not VAT? And surely you pay VAT by a cheque or electronic transfer to the tax authorities (or is everything still cash-based in Italy?)

Thanks for the clarification!

Robin


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Fiona Grace Peterson  Identity Verified
Italy
Local time: 04:28
Member
Italian to English
TOPIC STARTER
Two separate things Mar 20, 2006

RobinB wrote:

Do you mean a withholding tax that's not VAT? And surely you pay VAT by a cheque or electronic transfer to the tax authorities (or is everything still cash-based in Italy?)

Robin


Hi Robin,
here VAT and witholding tax are two different things - witholding tax is a tax at source (therefore I invoice the client my job amount + 4% social security, plus 20% VAT, minus 20% witholding tax. If opening a VAT position for the first time I think there are measures at the moment whereby this tax does not have to be paid but I am not sure how this works). VAT is paid by way of a form called F24 which my accountant makes out and I pay at the bank, in good old cash!


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