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Frequently asked questions about VAT for EU freelancers

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Community Manager
Garnor M Community Manager Member Since: Oct 29, 2014
1 of 316

Hi all,

Those of you currently residing and working in the European Union have received our email about VAT, or you’ve seen our Announcement post here.

 

Below are the common questions/concerns we’ve heard since this announcement. We’ve consolidated our responses here to give you an easier way to find these answers. We’ll also be updating our Help Article here with some of this information so you can have a streamlined view of how VAT works, whether or not it impacts you, etc.

 

 

FAQs/Comments:

 

1. Why are you doing this? Why is VAT being collected now?

 

Upwork is an online platform that brings freelancers and clients together. As our membership and activity has continued to grow in the EU, assessing VAT is an important element to continue providing services there. Based on Directive 2006/112/EC (“EU VAT Directive”) Upwork’s services qualify as electronically supplied services, which are subject to VAT at the place where the customer (i.e. the freelancer) is established or resides. Therefore, the services supplied by Upwork to freelancers who reside, have a permanent address, or are established in the European Union are subject to VAT there. Upwork is responsible for charging, collecting and remitting this VAT when providing services to our  EU customers.

 

Note, when freelancers have submitted a valid EU formatted VAT number to Upwork, Upwork will not be charging VAT. In these cases, the VAT will still be due but will be subject to a so-called reverse charge to this VAT registered freelancer. In other words, these customers of Upwork will have to report the VAT due on Upwork’s service fee themselves.



2. When do I NOT pay VAT?

If you provide us with a valid VAT number in the EU format listed here, that substantiates the fact that you are a VAT-taxable person.

 

In this case, Upwork is not required to charge VAT on the electronically supplied services (ESS) we supply to you; instead, we will print “VAT Reverse Charged” on your invoice and you will be required to self-assess (report on your own) VAT on your VAT return under the reverse-charge mechanism applicable to ESS. Additionally, if you are working with a client that also has a VAT number and does not operate in your same country, Upwork will print “VAT Reverse Charged” to the invoice from you to your client so that your client can determine whether to self-assess VAT on their return.



3. What am I paying VAT on? Will my earnings to-date be assessed VAT by Upwork?

 

VAT is not being charged on your earnings from your clients. That is a separate question and you should consult your tax advisor whether to charge your client VAT for your services. Upwork will only charge VAT on the electronically supplied services (ESS) we provide to you, which are comprised of the following:

 

  1. The service fee you pay to Upwork.
  2. Your purchase of add-on Connects.
  3. Your freelancer membership fee (if you’re on a Premium plan).

 

Here’s a simple example of how it works on one of your contracts:

  1. Your contract is for a total amount of $1,000 and you are paid $100 this week
  2. The Upwork service fee on that $100 payment is 10%, or $10
  3. Your country’s VAT rate is 19%
  4. Upwork will charge VAT in the amount of $1.90, which is 19% of the $10 service fee
  5. This amount, $1.90 will be shown in your Transaction History reports

 

 

4. How do I know you are remitting this tax to EU governments?

 

By law, Upwork must not keep the VAT that we collect; your government requires us to collect it and remit it to your tax authorities. Upwork will remit the collected VAT amounts to the EU tax authorities via the Mini One Stop Shop (MOSS) mechanism. This is an electronic system created by the EU, through which Upwork can remit the VAT due for all 28 EU member states. The VAT return submitted by Upwork through this system, will reflect which amount goes to which country. The member state of Upwork’s MOSS registration will subsequently distribute the remitted VAT amounts to each of the respective EU member states. That way all member states receive what they are legally entitled to.

 

Your government is entitled to thoroughly audit our books and records at any time to verify that we have properly accounted for all electronically supplied services (ESS) we provide to EU persons, as well as all invoices appearing on our website, all VAT amounts collected, and all amounts remitted to the government through the MOSS.

 

 

5. How are you actually remitting this tax to my government?

 

We remit your VAT payment to your government through the Mini One Stop Shop (MOSS) mechanism instituted by the EU.

 

 

6. I entered my VAT number and it’s not going through, what gives?

 

We are currently experiencing longer processing times than expected but it typically takes up to 3 business days for Upwork to validate your VAT number.  Your VAT number should be in the format provided by the VIES website here. Please go to the VIES validation tool here to confirm whether you have a VAT number in the format that Upwork can validate. If your VAT number cannot be validated, you may need to obtain an EU VIES VAT number. Your local tax advisor may be able to assist you with that.

 

6b. Where do I enter my VAT number and what format should it be in?

 

You can enter your VAT number in your Upwork Tax settings. Please note that all VAT numbers provided to Upwork must be in the VIES format listed here.  If the tax ID you submit is not in the format provided by VIES, Upwork will not be able to validate it.  You can check if your VAT number will be validated on the VIES website here.

 

 

7. I’m exempt from paying VAT in my country. Are you still going to charge me? (example: I am a declared autoentrepreneur in France. I have a number, but I do not pay VAT)

 

If you can provide a VAT number in the EU format listed here, Upwork will not charge VAT. In all other cases, VAT will be charged.  Upwork is responsible for charging, collecting and remitting VAT when providing electronically supplied services for our EU customers.

 

When Upwork is audited by your government, we are required to substantiate that we have charged VAT to all VAT non-taxable persons, and that we have reverse-charged VAT to all taxable persons. The only way we can confirm and prove to your government that you are a taxable person is by collecting and validating your VAT number. Otherwise, your government will assume that Upwork is providing services to a non-taxable person and will require us to assess VAT, regardless of your personal status as an autoentrepreneur.

 

 

8. How are you charging VAT on my behalf?

 

We’re not. VAT is being assessed on services provided by us, not on services you provide your clients.

 

 

9. Doesn’t this conflict with Upwork’s Terms of Service that states the user is solely responsible for tax?

 

No, this change is in accordance with our Terms of Service. Again, VAT is being assessed on services provided by us, not on the services that you provide to your clients.

 

 

10. I need to have full visibility into how this is being calculated on my account.

 

When this is implemented, we will provide you with the details of your VAT invoice in Reports by clicking through to Transaction History, under “More Reports.” The example below assumes a VAT rate of 20%.

 

Vat calculation.png

 

11. What is my country’s VAT rate?

 

You can find the current VAT rate for your country here.

 

 

12. This isn’t legal. Show me the documentation that EU governments are requiring you to collect VAT.

 

Based on Articles 58 and 357 and onward of EU Directive 2006/112/EC (“EU VAT Directive”) the services rendered by Upwork qualify as electronically supplied services. For these services, Upwork must charge EU VAT unless the Freelancer is held to self-assess VAT itself.

 

 

13. The VAT rules in my country vary. I pay a different amount if I’m a sole proprietor versus a small business, if I’m earning below a certain amount or above. What amount is Upwork selecting here?

 

Your tax percentage will depend on your country’s VAT rate. You can find the current VAT rate for your country here. Again, we are assessing VAT on services provided by us, and these services are not different based on whether or not you’re a small business, earn above a certain amount, etc.

 

 

14. Why are you collecting/paying VAT in my country when I don’t have to?

 

Upwork is responsible for charging, collecting and remitting VAT when providing electronically supplied services to our EU customers.

 

15. I’m a "digital nomad" and I don’t have an established address. Why do I have to pay VAT?

 

Upwork is required to assess VAT on services provided by our company. This applies even if you are a digital nomad and temporarily residing in an EU country. Every time you officially register in an EU country you should update your address information on Upwork. So, if you spend 6 months in South Africa, you are entirely subject to South African laws. When you move to Germany for example, and you are officially registered there, you update your Upwork address, and VAT will be assessed accordingly.  

 

 

16. I live in an EU country but I pay taxes somewhere else (example: I live in Germany but pay taxes in the US). Shouldn’t I be exempt?

 

Upwork is required to assess VAT on services provided by our company in an EU country, based on where you currently reside. If you are living in an EU country and your profile is registered there, as it should be, then VAT is assessed. 

 

17. Why doesn't Upwork's VAT number show up in the VIES system?

 

Companies registered via the MOSS system (like Upwork) receive a uniquely formatted VAT ID from the European tax authority. This number isn't verifiable in the VIES system. 

Active Member
Andre B Member Since: Oct 28, 2015
2 of 316
Hello,

In Portugal, a VAT number is the same as the número de identificação fiscal, which is not provided by thr Portugueses government to EU VIES database, unless you're a company/ a business. Thus, how are you going to validate my VAT number, which is the number I've been using all my working life? I've already checked on in and it retrieves no results, as I'm not a company. I'd suggest you to read how this VAT number works in every single country to avoid charging VAT to freelancers who actually have one, but its not available at VIES database.
Community Manager
Garnor M Community Manager Member Since: Oct 29, 2014
3 of 316

Hi Andre,

If you don't enter a valid VAT number we will be required to assess VAT as you are considered a VAT non-taxable person. So, if you have been using something different for this purpose, you should contact your tax inspector to upgrade to the EU format for VAT.

Active Member
Denislav V Member Since: Jun 22, 2015
4 of 316

Hello Garner,

 

Digital Nomads part is a bit unclear to me. I travel a lot to non EU countries, do I have to change only here in Upwork where I am as I cannot register and have address registration for short time visits but I do keep my EU bank account. ( as it's impractical and in many cases impossible to open accounts elsewhere if you don't stay there for certain time). What will be the best for me to do in order to give accurate information ( and how do you require this information to be provided) and when I am not in EU country not to be charger VAT?

Active Member
Louise P Member Since: Feb 27, 2017
5 of 316

I live in thee UK and I have just joined Upwork. I cannot understand how to claim the money for my first job as I am constantly being asked for a VAT number which I do not have. There doesn't appear to be anywhere to say this. I am going round and round in circles. Can somebody help me please?

Moderator
Valeria K Moderator Member Since: Mar 6, 2014
6 of 316

Hi Louise,

 

If you don't have VAT number, you don't have to enter it. Note, however, that in that case you'll be charged VAT on Upwork Service Fee, Membership and Connects purchases. You can find more information about it here.

 

You do need to complete your W-8BEN form under Settings> Tax Information in order to access your earnings.

~ Valeria
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Active Member
Justyna H Member Since: Jun 11, 2016
7 of 316

Hi Louise,

 

I  also live in UK, am not rgistered for VAT and Upwork collected VAT (about $50) from my earnings. I don't understand how VAT can be collected if there is no VAT number. 

 

I also wonder why every time when I go in my profile, click Tax information and then "edit" there is default setting for "I have VAT number". Thsi is very worrying, 

 

 

I wasn't able to contact Upwork Centre via email. I will contact HRMC to clarify this in order to avoid potential problems. 

 

Justyna 

Moderator
Avery O Moderator Member Since: Nov 23, 2015
8 of 316

Hi Justyana, 

 

As shared on this announcement post, the platform will not collect VAT from freelancers who will be able to provide a valid VAT number.

I checked your account, and while the default choice is "I have a VAT number," not supplying a VAT number renders the VAT field as invalid. Only when you supply a VAT number will this be taken into consideration.


-Avery
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Active Member
Justyna H Member Since: Jun 11, 2016
9 of 316

HelloAvery,

 

Thank you for the prompt response.

 

 

I don't have to register for VAT unless my turnover is above £83,000,https://www.gov.uk/vat-registration, which is why I don't have the VAT number and I will not provide it. 

 

 

I still don't understand why the default setting is on "I have VAT number"  if this is not truth. Also:

 

1) What exactly is the VAT collected for?

2) What is the EU ID VAT Number on the invoice for the fees you have charged me? Where does it come from? 

3) Is the servifce fee 20% plus VAT? Am I seeing this right?  

 

Best regards

Justyna

Moderator
Valeria K Moderator Member Since: Mar 6, 2014
10 of 316

Justyna,

 

 

1) Based on Directive 2006/112/EC (“EU VAT Directive”) Upwork’s services qualify as electronically supplied services, which are subject to VAT at the place where the customer (i.e. the freelancer) is established or resides. Therefore, the services supplied by Upwork to freelancers who reside, have a permanent address, or are established in the European Union are subject to VAT there. Upwork is responsible for charging, collecting and remitting this VAT when providing services to our  EU customers.

 

2) Upwork VAT number will show on the invoice for Service Fees and Connects & Membership purchases.

 

3) You'll see two separate transactions. One for Upwork Service Fee, another one for VAT for that fee charge.

 

You can find more information in the original post on this thread as well as in this help article.

 

~ Valeria
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