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Re: Frequently asked questions about VAT for EU freelancers

Community Guru
Joachim M Member Since: Mar 23, 2015
281 of 316

@Sami K wrote:

Can't be bothered to surf through 20+ pages of comments to see if this has been handled. Probably not since it hasn't been updated to the FAQ.

 

I live in EU country X. I have a VAT number in country Y and do my business through that. You don't accept the VAT number because it's "invalid format."

 

This is a constant nuisance in living abroad. Every place expects me to have address in country Y or otherwise it's always the "you're wrong, we can't do this."

 

So, how do I handle this? How can I get you to accept my proper VAT ID even though I don't have an address in that country at the moment?


 Sami,

 

It's a pity you can't be bothered to read all that stuff. You might even have learned something.

 

Upwork verifies the VAT ID via the VIES system of the EU. If the VIES system doesn't recognize your VAT ID there's nothing Upwork can do about it. That's solely your responsibility.

 

With regards to living in one country and using the VAT ID of another country, you will have to discuss that with the tax authorities involved. This is nothing that concerns Upwork, see above about verifying the VAT ID. I can guess the tax authoritys' opinion though, they will just call that tax fraud. 

 

It might even be that that is the reason why your VAT ID won't verify. If e.g. you would leave Germany the tax office would cancel your VAT ID as you are no longer taxable in Germany i.e. your VAT ID would be invalid.

Active Member
Sami K Member Since: Dec 13, 2016
282 of 316

Umm, yes, it is UpWork's problem if they use a broken system. My VAT ID doesn't change based on my address. The registered entity is in country X and pays taxes there regardless of my address. There is no requirement to have an address in the same country, but for some reason this system decided to not allow addresses in other countries.

 

So there is no tax fraud anywhere to be seen or discussions needed with authorities because everything is in order. The only thing that is not is this site and the system they use, which assumes things based on address.

 

If they actually did a check they would see that the VAT ID is registered with the address in country Y and the authorities are fine with it. But clearly they don't actually check things, rather assume.

 

Do tell me how it is the problem of the VIES system when the UpWork website itself says the ID is incorrect based on the country selection? It doesn't even check VIES. If it did it would say the ID is correct. So please don't blame me or VIES if UpWork's website is wrong.

Community Guru
Joachim M Member Since: Mar 23, 2015
283 of 316

@Sami K wrote:

Umm, yes, it is UpWork's problem if they use a broken system. My VAT ID doesn't change based on my address. The registered entity is in country X and pays taxes there regardless of my address. There is no requirement to have an address in the same country, but for some reason this system decided to not allow addresses in other countries.

 

So there is no tax fraud anywhere to be seen or discussions needed with authorities because everything is in order. The only thing that is not is this site and the system they use, which assumes things based on address.

 

If they actually did a check they would see that the VAT ID is registered with the address in country Y and the authorities are fine with it. But clearly they don't actually check things, rather assume.

 

Do tell me how it is the problem of the VIES system when the UpWork website itself says the ID is incorrect based on the country selection? It doesn't even check VIES. If it did it would say the ID is correct. So please don't blame me or VIES if UpWork's website is wrong.


 Sami,

 

You should then enter the entities address into Upwork's system, not yours. The entity is contractual partner of Upwork and the tax authorities. The VAT ID is linked to the entity at a specific location not to you your location is irrelevant in your setting.

Active Member
Matija B Member Since: Jul 16, 2015
284 of 316

Dear Joachim,

 

I see that you are involved very much in these discussions. Would you be so kind to explain me this. I have a LTD company here in Croatia and I am a member of oDesk/Elance and now upWork for years now. Here is my case I want to withdraw the money I make over upWork through wire bank transfer to my companies bank account here in Croatia, now to whom, what and how should I invoice these withdrawn money?

 

From upWork I got this information for invoices which I assume to send to upWork:

 

Country code: Netherlands
VAT/GST ID: EU528002406

 

But when my accountant when tries to create so called "All Around Tax Application" and inserts that row with the above information above it says it's invalid. Then we tried to call also our local tax offices and they said that this VAT ID could be suspended or inactive, what the hell, right?!

Next let's says if I had in a month 3 clients with earned money like this:

 

1st client: $200
2nd client: $300
3rd client: $500

 

That is hypothetical calculation (disregard for now here the upWork fee). On my bank account I get $1000, to whom should I invoice this amount, please. What is the best practice here. Thank you in advance.

Community Guru
Joachim M Member Since: Mar 23, 2015
285 of 316
Dear Matija,
First of all I have to say, get in touch with a tax consultant versed in dealings within and outside the European Union. I'll try to answer your questions inline to the best of my knowledge and experience. But, I'm not a tax consultant.

@Matija B wrote:

Dear Joachim,

 

I see that you are involved very much in these discussions. Would you be so kind to explain me this. I have a LTD company here in Croatia and I am a member of oDesk/Elance and now upWork for years now. Here is my case I want to withdraw the money I make over upWork through wire bank transfer to my companies bank account here in Croatia, now to whom, what and how should I invoice these withdrawn money?

 

Nobody. Your withdrawl has nothing to do with invoicing. View Upwork in this case as a service provider for financial service or like a bank. You have a certain amount of money in your account with one bank and want to transfer it to your account with another bank.  Do you issue an invoice vor that? That's what you are doing with the funds you have available on Upwork.

 

From upWork I got this information for invoices which I assume to send to upWork:

 

Country code: Netherlands
VAT/GST ID: EU528002406

 

Upwork's VAT ID won't verifiy in VIES for the Netherlands. Just shows that Upwork still hasn't understood how the system works. There is only one place to enter an EU VAT ID, in the Requester Member State, see image. You'll have to enter you own VAT ID in the fields above. Upwork's VAD ID wasn't issued by a member state but by the EU itself as Upwork is located outside the EU. IMHO most tax consultants and most local tax authorities are not yet knowledgeable about the procedures with the EU VAT IDs. 

 

Unbenannt.PNG

 

But when my accountant when tries to create so called "All Around Tax Application" and inserts that row with the above information above it says it's invalid. Then we tried to call also our local tax offices and they said that this VAT ID could be suspended or inactive, what the hell, right?!

Next let's says if I had in a month 3 clients with earned money like this:

 

1st client: $200
2nd client: $300
3rd client: $500

 

That is hypothetical calculation (disregard for now here the upWork fee). On my bank account I get $1000, to whom should I invoice this amount, please. What is the best practice here. Thank you in advance.

 

You always invoice your clients, Upwork is not your client. I know this can be tricky as Upwork allows clients to hide everything (which is against the EU's practices). If your client is outside the EU you are fine if you have their full address. If your client is located within the EU you have to get his VAT ID or your invoice has to include your local VAT. You still need their full address though. If you have no address - quite possible with Upwork - use what you have. Your invoice has to include your local VAT though. That is why your proposals should always include you local VAT. Point it out to your prospective client and tell them that if they provide their full address and are located outside the EU before they award the job you'll amend your proposal and remove the VAT, same if they are located within the EU and have a valid VAT ID. No VAT ID and located within the EU you are obliged to charge your local VAT. If they tell you, they need not be VAT registered, that's okay. They can have a VAT ID and still be exempted from charging VAT.


Active Member
Matija B Member Since: Jul 16, 2015
286 of 316

Hi Joachim,

 

Thank you for your answers I was wondering about his. You are saying that I should invoice my clients directly right? But doesn't upWork charge them already on my behalf? So for instance I am telling my clients that I will send my own invoice from my own company to them and they already received the invoice from upWork, they will tell me that I am nuts. Or did I miss something here?

 

So what I am trying to say that my client will be practically charged two times for same thing one with the upWork instance and the 2nd one from me.

 

Can you please explain me this.

 

Thank you in advance.

Highlighted
Community Guru
Joachim M Member Since: Mar 23, 2015
287 of 316

@Matija B wrote:

Hi Joachim,

 

Thank you for your answers I was wondering about his. You are saying that I should invoice my clients directly right? But doesn't upWork charge them already on my behalf? Yes, but first of all you don't get access to these invoices and secondly these invoices are not compliant with EU legislation. If your client doesn't need a legal invoice that's fine - you need one. If your client is happy with Upwork's invoice just have it for your files. So for instance I am telling my clients that I will send my own invoice from my own company to them and they already received the invoice from upWork, they will tell me that I am nuts. Or did I miss something here? Depends. If your client needs an EU compliant invoice he will normally be happy. The amount will have to be identical (also the currency) and the payment has to be done through Upwork. But your client can then throw Upwork's invoice away or staple it to yours to make it clear that this is a single transaction.

 

The catch is that many of the small clients are not VAT registered and haven't understood how the VAT system really works. They always come up with the argument that they need not be VAT registered really meaning they are VAT exempted. The threshold can be pretty high in some countries. But, they don't understand that they can be exempted from charging VAT only. In all of Europe there is no exemption from paying VAT on your purchases.

 

So what I am trying to say that my client will be practically charged two times for same thing one with the upWork instance and the 2nd one from me.

 

Can you please explain me this.

 

Thank you in advance.


 

Active Member
Edward-Gabriel R Member Since: Feb 11, 2017
288 of 316

I am from the EU.

 

I have received an official reply on this from a customer representative. She stated we should invoice our clients directly (thus indirectly admitting that the invoice upwork sends to the clients are useless and we should ignore)

Furthermore she highlighted that upwork is an escrow, and does not actually receive direct payment, just forwards it to us, thus we can not invoice Upwork directly.

This is in direct contradiction with what a previous customer rep told me that I should invoice Upwork directly.

 

I guess the matter is settled, we have to ask our clients for the information ourselves and issue the invoices ourselves with VAT charged where appropriate (disclaimer, this is not legal advice, just the way I understand VAT law works in Romania and perhaps in the EU):

- if they're in the EU:

  - if they have a valid VIES VAT then reverse-charge them, you pay no VAT locally

  - if they don't have a valid VIES VAT then charge them your country's VAT, you pay the VAT locally in your country

- if they're outside the EU:

  - if they provide you with proof that they pay VAT on import locally/are a taxable entity (by providing you with their TAX id, which is EIN in the united states for example), then you do not charge them VAT, you pay no VAT locally, you reverse charge them

  - if they do not provide you with proof, then you charge them VAT, then pay the VAT locally in your country

 

The only problem is if you charge your client VAT through Upwork then Upwork takes 20% of that VAT, and then charges you VAT on that 20% out of the VAT you charge your client. This is hands down theft in my oppinion. How am I supposed to explain this ridiculousness to the client?

Moderator
Vladimir G Moderator Member Since: Oct 31, 2014
289 of 316

Hi Edward-Gabriel,

 

I'm afraid there's confusion regarding the invoicing process and the VAT Upwork is charging. The VAT Upwork is charging is for the services provided to you and not on services you provide to your clients.

 

Regrading the invoices, we announced last week that freelancers now have access to invoices sent to clients for payments they were billed for, which EU freelancers have requested for some time and you can use instead of creating your own invoices. The reason why you received different instructions regarding invoicing Upwork directly is due to the fact you communicated with our team prior and after the update. Please check these invoices and share them with your local tax advisor for a confirmation.

 

If you have any questions please feel free to follow up on this thread.

Active Member
Edward-Gabriel R Member Since: Feb 11, 2017
290 of 316

Hello and thanks for the quick reply, I wasn't aware of that announcement, and your customer representatives weren't either. I talked with both yesterday, after that announcement, and they offered me conflicting directions.

 

Regardless, I checked the new feature and it has some issues that make it unusable in the EU:

- you do not allow the freelancer to set up an invoice series, and the numbers upwork writes on the invoice are not sequential from the point of view of the freelancer, thus incorrect. Sequential invoices are required by EU law (European VAT Directive, Article 226, Paragraph (2) ) 

- you do not provide the full name and address for customers outside the EU because you make this optional. Full name and address are required by EU law (European VAT Directive, Article 226, Paragraph (5) )

- you do not allow for the freelancer to directly charge VAT (such as when the customer is in the same country as the freelancer or when the customer does not have a valid european VAT-ID)

 

Here is the reference to the European VAT Directive

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32006L0112&from=en

 

Here is the excerpt detailing all the information an Invoice should contain in the EU:

Spoiler
(1) the date of issue;
(2) a sequential number, based on one or more series, which
uniquely identifies the invoice;
(3) the VAT identification number referred to in Article 214
under which the taxable person supplied the goods or
services;
(4) the customer's VAT identification number, as referred to in
Article 214, under which the customer received a supply of
goods or services in respect of which he is liable for
payment of VAT, or received a supply of goods as referred
to in Article 138;
(5) the full name and address of the taxable person and of the
customer;
(6) the quantity and nature of the goods supplied or the extent
and nature of the services rendered;
(7) the date on which the supply of goods or services was made
or completed or the date on which the payment on account
referred to in points (4) and (5) of Article 220 was made, in
so far as that date can be determined and differs from the
date of issue of the invoice;
(8) the taxable amount per rate or exemption, the unit price
exclusive of VAT and any discounts or rebates if they are
not included in the unit price;
(9) the VAT rate applied;
(10) the VAT amount payable, except where a special arrangement
is applied under which, in accordance with this
Directive, such a detail is excluded;
(11) in the case of an exemption or where the customer is liable
for payment of VAT, reference to the applicable provision of
this Directive, or to the corresponding national provision,
or any other reference indicating that the supply of goods
or services is exempt or subject to the reverse charge
procedure;
(12) in the case of the supply of a new means of transport made
in accordance with the conditions specified in Article 138
(1) and (2)(a), the characteristics as identified in point (b) of
Article 2(2);
(13) where the margin scheme for travel agents is applied,
reference to Article 306, or to the corresponding national
provisions, or any other reference indicating that the
margin scheme has been applied;
(14) where one of the special arrangements applicable to
second-hand goods, works of art, collectors' items and
antiques is applied, reference to Articles 313, 326 or 333,
or to the corresponding national provisions, or any other
reference indicating that one of those arrangements has
been applied;
(15) where the person liable for payment of VAT is a tax
representative for the purposes of Article 204, the VAT
identification number, referred to in Article 214, of that tax
representative, together with his full name and address.


 

Also this that I mentioned above:

"If you charge your client VAT through Upwork then Upwork takes 20% of that VAT, and then charges you VAT on that 20% out of the VAT you charge your client."

 

In light of all this, I don't see how anyone can use Upwork's invoice, considering it does not follow EU law, and furthermore you penalize us for following it ourselves by taking cuts out of the taxes we are due