To Charge or Not to Charge VAT, and Taxation in General

A question asked me by one translator:

Have you ever worked for/heard of X? He/the company is a UK based sole trader.

I didn’t find any negative info on them and my first contact was rather friendly. So I expected a small proofread job but since I told him I had to charge him VAT as he has no VAT Id himself, there is no word from him except that he’s not accepting being charged VAT. 

I asked him to give the job to someone else but he just doesn’t respond either. So not sure what to do there.

Any bit of advise would be appreciated!! Also if you heard of others who had this experience.

Kind regards,
Katrin

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From my understanding, VAT is always only charged within a country, now perhaps within the EU and cooperating countries. If your customer is a VAT payer they can deduct your additional cost and it is okay for them,
but if they are not a VAT payer, then they cannot deduct the cost and it makes your service more expensive.
If a project manager (PM) does not answer your emails it probably means they are simply too busy with other work. I don’t think you need to worry about this (you both already stated your case, so he should not expect you to do the job), except to understand if you really need to charge VAT, because for that you usually need to have a high turnover requiring double entry accounting and file your taxes four times a year. This usually applies to larger companies. But even larger companies don’t charge VAT when exporting their services out of their country. VAT is generally an internal taxation issue and usually never applies to exports, because that would hurt a country’s economy.
Hope this helps,

Karel

Yes, that is correct. The Dutch tax authority explained that I have to charge him VAT because, fiscally, he is not treated as a company but as an end user.
Normally within the EU and also with other companies in the UK, I put the client’s and my VAT Id on my invoice, which reverses the charges. Never had a problem with that.

———-

Yes, but he said he was not a VAT payer, so he cannot write off this additional expense. I myself have moved my business to Beliz long ago, because I find the European taxation system utterly bloated and bureaucratic. My customers pay to my PayPal account, I issue them a perfectly legal invoice (Beliz charges a flat tax rate per year) and no one asks any questions.

———-

Oh, this is ideal! Katrin

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This and other pictures on this page from a beautiful drive along the Greek coast, from Athens to Bulgaria (more at travelgoof.com)

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In synopsis, if you work for a translation agency in your own country and payment is made by domestic bank transfer, these types of payments are something the government can confirm. The agency/customer will want an invoice so that it can write off the expense and reduce its income taxes. When you receive a payment onto your bank account, whether by domestic or international wire transfer, this again is something the government can check and will often want you to claim it as income so that you would pay taxes (when filing taxes you usually have to submit all statements of the bank account associated with your business, and explain all incoming and outgoing payments). If the agency gets audited, the government/auditor might confirm the payment made to you and that the invoice you provided is of a registered business and that you properly filed the payment as income (otherwise you could be subject to immense fines).

0007_0290If you are paid by PayPal or Moneybookers, for example, and are able to withdraw funds directly from an ATM machine (or make internet purchases without withdrawing cash), chances are the government will not be able to check it.

If you open a bank account in another country and are able to withdraw funds from a bank machine using their debit card, chances, again, are that the government will not be able to check it.

There are many countries, like Beliz, which allow you to set up a legal business and bank account there and where taxes are a flat, annual fee, regardless of the amount received to your account, and for which you do not have to fill annoying tax forms one to four times a year. Could be a worthwhile vacation in the sun! Otherwise, there are many agencies which intermediate this process of setting up such business or bank accounts there, but they charge an additional annual fee to keep the bank account and business legal and active.

Work at Home Translation Jobs 0007_0221However, you do not even need to open a bank account there. For more than a decade, I myself have received most of my payments by PayPal and used my Beliz business on my invoices, without any problems or enquiries whatsoever.

In the U.S. I have opened an account at Bank of America using my Czech passport and withdraw funds from my account from any number of bank machines as I travel around the world. The teller setting up my account asked their accounting department and informed me that they in no way collaborate with the Czech government concerning funds going through my account. For the Social Security number associated with the account, they assigned me the number 999999999. Just takes a little bit of research.

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madmin

Head Honcho at KENAX
After translating and managing translation projects for more than 20 years, I'm happy to teach others the ropes and move on to other interests. My greatest perk from this profession is that it has given me the freedom to work when and where I want, and eventually to loosen the straps and travel freely around the world.
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7 thoughts on “To Charge or Not to Charge VAT, and Taxation in General

  1. MartinJ

    Two comments, Karel:

    1. The U.S. are going to report bank account info on EU nationals to their respective EU Tax Offices starting from 2018.
    2. Bank of America charges a hefty 3% fee on any third party ATM withdrawals.

    Reply
        1. madminmadmin Post author

          I already registered my company in Belize, which I would guess might be a better option than Mexico, because they only charge around $400 in taxes a year, regardless of your income (and you don’t have to file anything or fill in bloody forms every year), but not sure about their bank accounts or if it is possible to hook up paypal to it, which is crucial for me. Which is why I was thinking of Hong Kong. Will need to research.
          For Belize, set it up remotely through another agency, but they charge every year and it is so expensive, so found it is better to just fly there, have a nice vacation, and set up everything locally. Much cheaper in the long run. Will keep you informed!

          Reply
  2. Yuko Saito

    Hi, Karel,
    I have read your article that you posted on Linkedin. I am also trying to do the same and it is very helpful that you share those variable information about being traveling translator! Would be nice if you visit me in India Bangalore and directly give me tips if you have any chance coming this side!!
    Thanks!
    Yuko (JapaneseEnglish Translator)

    Reply

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