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Inappropriate information received on VAT (edited by staff)
Thread poster: David Moore
David Moore  Identity Verified
Local time: 02:01
Member (2007)
German to English
+ ...
Dec 28, 2010

One problem when working for yourself is the jungle of legislation - at least here in Germany - which you have to negotiate to stay on the right side of the law.

Over the years, I have transgressed this dividing line, and am now being made to pay. Unjustly, to my mind. Oh, yes, but "ignorance is no defence in law". Is this valid even if the law and its provisions happen to be - shall we say - unjust? As the German saying has it, "recht haben und Recht bekommen sind zwei verschiedene paar Schuhe". Or, to paraphrase, "to BE right and to GET your rights are two quite different things".

When I decided to start translating full time, my wife asked the tax office here what the regulations were regarding VAT, to be told "you don't need to worry about THAT!". The next year, she made the same enquiry, to be given the same answer. There comes a point where you don't bother to ask any more...

As a Brit, with the VAT registration level in the UK at that time being equivalent to some 60,000 EUR, I just assumed that the rate would be about the same here - the tax office being reticent about its level I took to mean it really was well out of what I, as a freelancer, was likely to reach.

BE WARNED!!! The VAT level here, as I understand it now, is 17,500 EUR for the first year, and as soon as two successive years total 50,000 EUR, you join the club. Or you pay the penalty...

In my case, the turnover was 10,000, 30,000 and 34,000 in the first three years, meaning I should have been registered at the latest in 2004. Despite now having submitted income tax returns since 2002, the tax office failed to advise me that the limit had been reached (of course, they say this is "not their responsibility" - well, they can say anything they like, can't they, they are "the government"???).

So in October 2010, we had a letter from the taxman saying we were to be subjected to e "Betriebsprüfung", or an "Official audit". Then we were told we should have registered all those years ago, and that the taxman wanted VAT from us. Not just for 2007, 2008, 2009 and 2010; these are the only years for which we are legally entitled to claim VAT retrospectively from our customers, but also for 2004, 2005 and 2006, for which years the tax office can apparently demand VAT from US (is this just, or not?).

Now comes the real stupidity: first of all, the tax I now charge retrospectively to all of my customers (well, 90% of them, anyway), who themselves are VAT registered, is offcharged against their own VAT, and effectively is just being moved from one government pocket into another. Secondly, all the VAT I myself have paid in connection with my business as a freelance translator is now repayable to me. This in turn means my tax figures have to be unrolled again over several years, because this affects my income, so my tax returns also require amending. Even though this is likely to be done by one of the tax office officials, I have a sneaking suspicion that his/her work would be rather better devoted to a somewhat larger fish than me.

Bearing in mind the fact that the work involved in correcting hundreds of invoices per annum is at the expense of other activities such as - you guessed it - translating, and that one of the officials at the tax office here said (and I quote): "Don't let the invoice correction interfere with your normal business", how the ********* is one supposed to carry this work out? It isn't even sensible to demand it is done, since it only costs the fiscus VAT, and the victim (me - and all the other companies for which I have worked) time and nerves unnecessarily.

Another point: If the taxman DOES demand VAT from me on my assessed turnover from 2004, 2005 and 2006, since most of the work done was for VAT-registered companies (who will have charged VAT to their customers, and would have offcharged any VAT I had made to them), does this not mean that the tax office is cheating, by effectively charging VAT TWICE on the work I have done?

Anyway, that's not the end of the story for me, since I yet have to correct all invoices for 2008, 2009 and 2010, but I hope anyone who is considering treading the waters of independence is warned: my advice is to REGISTER FOR VAT. It will cost you a comparatively little time, but you will get VAT remitted on any business purchase, to compensate for this time. And if like me you DON'T register, and after a few years are subject to an "Official audit", this will cost you far more time and nerves than registering in the first place would have done.

Since "IT" happened to me, I have heard of at least three similar cases, and I'm sure these aren't isolated. So as I said above, please... BE WARNED...

And before anyone mentions the good old tax advisor, I, like others, considered the tax office would be sure to tell me when I was to register for VAT, and felt that that was the time to look for a tax advisor. But (another warning!!!) unless you submit tax returns in electronic form, they are likely to be left until last - as ours obviously were - hence we had a bare six weeks (which included Christmas....) to go back over all of 2007.

Happy 2011, everyone....

[Subject edited by staff or moderator 2015-04-27 12:57 GMT]


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KSL Berlin  Identity Verified
Portugal
Local time: 01:01
Member (2003)
German to English
+ ...
Oh my. Dec 28, 2010

This does seem to happen with uncomfortable frequency to those accustomed to UK tax rules who start a business in Germany later. "Andere Länder, andere Sitten" applies to taxes as well, as we forget this at our peril. No comment on the "fairness" or sense of it all; we could sit in a pub all night trading Finanzamt stories and probably not find much occasion for disagreement.

There is one little thing I wanted to bring up here, which might save you a bit of trouble in the future. I'll be researching all the details myself and blogging it soon; fortunately, someone else has handled this matter for me since it became relevant at the start of 2010. That's the "zusammenfassende Meldung". If you have customers in other EU countries to whom you do not charge VAT, you will be concerned with this paperwork and related details. Previously it was enough to have their respective VAT numbers on file. So far almost none of the freelancers I have spoken with in Germany have dealt with this in 2010. This means a lot of trouble on the horizon.


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David Moore  Identity Verified
Local time: 02:01
Member (2007)
German to English
+ ...
TOPIC STARTER
"For all to find"? Dec 28, 2010

Two points, Tim:
1) Thanks for your insu... er, reply; I wasn't really expecting any replies like that - after all, what's the tax office FOR, if not to TELL us when we ask for relevant info?

2) The purpose of the thread, since I am obviously not, as stated, the only one in this position (two others, by the way, are German nationals) was to warn others who might fall into the non-information trap. Not to field what I consider an insult like that.


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Simone Linke  Identity Verified
Germany
Local time: 02:01
Member (2009)
English to German
+ ...
Insult? Dec 28, 2010

I'm afraid this isn't an insult..

I certainly feel with you, especially if the Tax Office misinformed you.

However, as someone with bureaucracyphobia, I can say that the VAT threshold was one of the easiest things to find - it more or less jumped at me without me actually looking for it.

Are you sure there's nothing else in your case that might have caused this misery?


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Anett Lindner
Germany
English to German
German tax authorities never give binding advice for free Dec 28, 2010

Hi David,

I am very sorry to hear this story which will probably translate into quite a loss and lots of hassles but which however serves as a good example to never rely on uncertainty. When I started my business I read as many books on freelancing and information material from the German Chambers of Trade and Commerce (IHKs) as I could (eg. concerning VAT, entering "UST" and "IHK" in google gives many useful results for the brochures of the German IHKs which are also much more concise and easier to understand than the respective codes of law. But also in those brochures liability for omission or misinformation is expressly rejected). Also I called the my local tax authority several times only to learn that it is my duty to know the laws or to hire someone who does and that only the chief officer of the local tax authority gives binding advice which is a costly service only used by larger companies in cases of doubt i.e. unclear legislation.

Concerning the VAT I was lucky to talk to two clerks on a calm early Monday evening in the office of the tax authority who took the opportunity to sit down with me over the rules for VAT registration (for turnover in the first year of business, current year and preceding year), one admitting she did not understand the rules either and explained / learned when to register for VAT. That was pretty much the only moment I felt some sort of sympathy for tax officers. But such advice can never be taken for granted and as a freelancer one is never exempt from duty to stay informed about the legal contexts we operate in.

Wish you good luck with recovering from all this.

Regards

Anett

[Bearbeitet am 2010-12-28 16:47 GMT]

[Bearbeitet am 2010-12-28 19:27 GMT]


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Heinrich Pesch  Identity Verified
Finland
Local time: 03:01
Member (2003)
Finnish to German
+ ...
Always register for VAT Dec 28, 2010

Even if you stay under the threshold you can deduct the VAT you pay.

So it is called "zusammenfassende Meldung" in Germany. My Finnish tax office noticed me about my new duty in June, after I had failed to deliver these for the first half of the year.
It does not require paperwork, only copying and pasting from my Excel chart to the web form. But the fun did not stop there. The tax office complained that some of the tax numbers of my customers are wrong. When I looked more carefully at the complaint I noticed that the numbers were right, only they had been transferred wrongly by the tax office's software. I told them about their mistake and never heard about it again.


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Charlie Bavington  Identity Verified
Local time: 01:01
French to English
Chinese whispers? Dec 28, 2010

David Moore wrote:

...my wife asked the tax office here what the regulations were regarding VAT, to be told "you don't need to worry about THAT!". The next year, she made the same enquiry, to be given the same answer. There comes a point where you don't bother to ask any more...


At the risk of sounding pedantic or offending the more fragile members of our jolly little community, it doesn't sound like you asked anyone. With the best will in the world, the mroe links there are in a communication chain, the less clear the message will be.

Anyway, since you do seem to be tragically mis- and/or under-informed, I'll offer a couple of titbits. One, as a general rule you don't need to charge VAT to EU customers outside Germany. That may or may not lessen your invoice re-generation burden (NB: there are exceptions e.g. non-business customers - do some research)*. Two, do a forum search for posts by a) RobinB and b) Marc Prior. They have both forotten more than most people ever learn about VAT regs in general and Germany in particular (the latter, at least, has left the site, so you'll probably need to search just for Prior)

* Actually, that is me assuming that the UK rule applies across the entire EU. You'd better check that too. Do the searches for Robin and Marc's stuff first, 'cos they really know their onions.

[Edited at 2010-12-28 15:51 GMT]


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JaneD  Identity Verified
Sweden
Local time: 02:01
Member (2009)
Swedish to English
+ ...
Sad but true Dec 28, 2010

I learned myself from bitter experience with bureaucracy that the only way to get correct information regarding taxes, planning laws, etc. is to get the person giving you the information to write it down and sign it. If they won't sign it, then you can't rely on it!

Sadly, you can't necessarily even if they do put their name to it, but at least they're somewhat less likely to lie just to make you go away.

Jane



[Edited at 2010-12-29 08:34 GMT]


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Lancashireman  Identity Verified
United Kingdom
Local time: 01:01
German to English
Thanks for sharing, David. Dec 28, 2010

I found this post very interesting. Unfortunately, it is now in danger of drifting off topic as people line up to justify the gratuitously insulting "beggars belief" comment.

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Charlie Bavington  Identity Verified
Local time: 01:01
French to English
Message from Marc Prior Dec 28, 2010

The man himself has been in touch and asked me to post this, which I am more than happy to do:

[starts]
Leaving aside whether I'm as knowledgeable on VAT issues as Charlie says (and I'm certainly not qualified to give advice), I suggest that you don't begin by reading my various comments here about VAT, because 1) most of them relate to very specific issues and extrapolation of general principles from them would be dangerous, and 2) the VAT legislation has changed since they were written.

Instead, I strongly recommend Per Döhler's information on VAT in Germany for freelance translators, which you can find at www.triacom.com/archive/umsatzsteuer.de.pdf. This doesn't constitute tax advice either, but it is widely regarded as being very reliable and if you follow it you are unlikely to be too wide of the mark.

For the record, I have an accountant, and he charges me around €1,500 a year. Draw your own conclusions from that.
[ends]


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RobinB  Identity Verified
Germany
Local time: 02:01
German to English
The good news about tax advisers (Steuerberater) Dec 29, 2010

Hi David,

I suppose the good news is that you seem to have realised that engaging a tax adviser is a good thing. There are so many good reasons for this, I'll just mention a few:

As Anett wrote, you can't get legally binding advice for free from the tax authorities here in Germany. If you want a legally binding opinion, you (now) have to pay for it (and you'll have to go through a tax adviser in any case). Another problem is that many of the staff at the tax offices are inexperienced and pretty overwhelmed by the sheer volume of tax rules, plus the staff turnover is very high. The tax people are *not* your friends and helpers! Which reminds me:

Q: What do you call Santa's little helpers?
A: Subordinate clauses.
(reader letter in the LRB, mid-December issue)

Tax advisers, on the other hand, are liable for the information they provide to clients (but get it in writing - that includes e-mail!). That doesn't mean that the advice they give is always correct - I recently had to correct our own tax adviser and his team twice on VAT-related issues, and they really are very competent indeed - but if their wrong advice costs you money, they may have to stump up for it. Still, the translation business is so invisible (and there is no case law on taxation for translators), that you will need to invest a certain amount of time and effort in educating your tax adviser about the nature of your business.

If you file through your tax adviser (every year, not just one-off) such that they can certify that your tax accounts are, to the best of their knowledge, correct and complete, your final filing date is later than would otherwise be the case (end-December of the year after the tax year; you can even get an extension to end-February relatively easily). And the later you file, the later you have to make any backpayments (which of course is a cash flow/cash planning issue).

If you do face a tax audit (income tax, VAT), this can be done at your tax adviser's premises, rather than having tax auditors crawl over your own office. In most cases, you yourself will only have to put in a token appearance. The peace of mind this brings is more than worth the tax adviser's fee.

On the subject of money, tax advisers are *not* expensive. Their fees for preparing your tax accounts, dealing with the tax authorities, handling tax audits, etc., are governed by a statutory schedule, and our experience is that there's always some additional room for negotiation there. And of course all the fees relating to your translation business are tax-deductible.

Finally, one of the arguments we as translators advance as to why corporates should use us rather than doing translations themselves (or running them through online machine translation systems) is that the professional services we provide not only save them time and money, but also deliver results they can rely on. Those are exactly the same arguments why translators should use tax advisers to handle their tax affairs.

To sum up: using a tax adviser offers a substantially higher degree of legal certainty in your tax matters plus the peace of mind this brings, allowing you to concentrate on what you do best.

In your case, my advice to you is to engage a tax adviser NOW. Meaning today, if possible. Certainly no later than the beginning of next week. The situation you have outlined cries out for professional advice and support. Apart from anything else, you're going to have much less time for translating over the next few weeks, and probably sleepless nights as well.

You already know that this tax audit is going to cost you money. Only a tax adviser can tell you exactly how much, and will be able to check any calculations the tax office does. And give you advice on things like how to approach clients to ask them to pay VAT on old invoices (I'm not sure what the legal position on this is, but that's what a tax adviser is there for). As well as the back-tax, you're going to have to pay (compound) interest on the outstanding balance. Maybe the tax adviser can help you reduce that amount. Also, the tax adviser should be able to negotiate with the tax office about any administrative fine they may want to impose on you. Finally, the tax adviser might be able to persuade the tax office to abandon any thoughts they may have about prosecuting you for tax evasion - yes, I'm afraid that failure to declare and pay VAT counts as tax evasion/Steuerhinterziehung, and that's not something you want to have hanging over you.

Overall, though, I think that freelance translators have a pretty good life here in Germany in terms of taxes and similar levies. Income tax is moderate and personal allowances are still quite generous, we're not subject (yet) to any trade or professional taxes, we don't have to pay social insurance contributions, there are no compulsory memberships of professional or trade associations, and VAT is actually relatively straightforward once you've worked out the underlying principles.

Good luck!

Robin


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Richard Bartholomew  Identity Verified
Germany
Local time: 02:01
Member (2007)
German to English
A twist for US citizens Dec 29, 2010

RobinB wrote:

... we don't have to pay social insurance contributions ...


As a US citizen, Uncle Sam hits me up for Social Security (FICA) withholding every single year. It's something like 14% of income; it's referred to euphemistically as "self-employed tax." Count yourselves lucky if you, as citizens of EU countries, can escape this scourge.


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