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dyumnin
Community Member

Rant: Lost a major contract because Upwork has no clarity on it's compliance with GST rules!

I was the contractor favored by the engineering team for an urgent task, we have negotiated an amount of 10K USD/Month and I had sent a proposal to the client.
While negotiating the NDA, their management came back with significant concerns regarding Upwork's compliance with the GST norms. Their CA informed them that there will be a significantly higher tax liability of doing business with me via upwork vs doing business directly with a different Indian sub-contractor.
Tickets raised with upwork for clarity on details of their compliance with Indian laws were closed with unhelpful answers.

Not willing to wait any longer the client closed the project and awarded it to a non-upwork contractor 😭

Here's the details
When two companies Vendor & Client do business in India

  • Vendor raises a GST invoice to  Client and charges 18% GST Tax.

If Vendor and Client do business via upwork.

  • Upwork is required to provide a valid GST bill to Client with Vendors GST ID as the vendor ID. If it does not provide a valid GST ID,
    • The client is required to pay 18% GST under RCM (Reverse Charge Mechanism) as invoice was raised by Upwork without a GST number.
    • I am required to pay 18% GST because the end client is in India. (+ another 10% as Upwork commission.)
  • Plus I am told that the client has to pay a percentage of the amount transferred as a card processing fees(merchant fees?)

So on a contract worth 10K USD, If the project is done via upwork we end up paying;

  • 1.8K USD by client under RCM.
  • 1.8K USD at my end.
  • 1.3K to 1.5K USD to Upwork as its commission, fees and taxes

i.e. I receive approx 50% of total spend by client instead of 82% if the project was done without upwork!

At this point until Upwork resolves its GST policy for Indian Clients to Indian Vendors, I do not see such contracts working out😥
Hopefully someone at upwork has a discussion with their accountant and legal team and resolves this asap.

6 REPLIES 6
bf97c28c
Community Member

Hi, Vijayvithal. Bad news. Hope it'll solved.

AndreaG
Moderator
Moderator

Hi Vijayvithal,

 

Apologies for the delay in our response. I would like to clarify that if both you and your client provide a valid GSTIN on your accounts, we will not have to collect this tax from you. The team shared this and some more information regarding local invoices with you in your support ticket. While I understand that it is frustrating to see the ticket as Solved after our team replied to you, please review their reply as they did clarify that if you require additional assistance, you can simply respond to that message's email notification and the ticket will be reopened.

 

I highly encourage you to continue asking any questions you may have about this to our team of experts as they are the ones who can best assist you. In the help articles linked here, you can also find some information about how India GST works on Upwork for freelancers and clients.

 

~Andrea
Upwork
dyumnin
Community Member

Andrea,

The solution from upwork was "we acknowledge that our invoices might not satisfy local reporting requirements. Freelancers are urged though to use the data on Upwork's invoice to create their own invoices that adhere to their local laws." Translation "We know it is messed up, you are on your own!!" Which neither me not my client found to be either satisfactory or worth the legal trouble.
Until upwork talks to their indian accountant(E & Y) and brings their billing system inline with the legal norms, I have been advised by my accountant to avoid taking indian clients via upwork

For e.g. For an INR100 transaction I would expect the invoice to look like this.
From: Vijayvithal(GSTIN:1234)
To: Client(GSTIN:abcd)
Coding Service INR 100
Upwork fees INR20
CGST 9.6
SGST 9.6
Total: INR 139.2

dyumnin
Community Member

Andrea,

Based on your advice I reopened the ticket and it was again closed with a "scripted answer" about GST collection on membership fees, connects etc.
Given that the Issue is pending since over 10 days, and the front line helpdesk is not able to understand the issue, Can it be escalated to someone who has the authority to pickup the phone and call me.

dyumnin
Community Member

Final post on this topic as it looks like the issue will not be resolved.

For other Indian Freelancers and Clients facing the same problem, here is the problem description and current status.

As a GST registered entity when I make a sale of service to another GST registered entity, the rule says I should charge an 18% GST and deposit it in the govt account.

So If I have provided a service worth $100, I should charge $118 of which $100 comes to me and $18 goes to the govt.

When I do business as a seller on Amazon, Amazon takes care of generating the proper GST bill for both the client and me and it keeps its commission and fees separate from the taxes.

With upwork, we faced the following issues.

Note: Upwork positions it-self as an escrow service who also provides "Payroll and billing service to freelancers". Upwork makes it clear that the contract is between freelancer and client.
Now here are the issues we faced.

  1. Even though both the client and I are in india, the payment is routed via USD, I am not sure whether it is legal for an Indian client and vendor to do business in a foreign currency. The only way it works is we are not doing business with each other, we are doing it with upwork. i.e. client is doing business with upwork, and upwork is independently doing business with me and I and the client have no direct business relationship.
  2. The current INR USD conversion rate is around 82, The client informed me, that the only payment method upwork allows is via credit card, and the Creditcard vendor charges them a conversion rate of 87! Similarly once the amount reaches my bank I am charged a rate of 81
  3. Since upwork does not provide a valid GST bill, the clients accountant pay's a GST under RCM of 18% i.e. INR 1566
  4. For a $100 service the expected outflow for the client should have been 100*82*1.18 i.e. 9676 INR instead of 10266 INR, i.e. the client is paying an extra 7% for doing business via Upwork

Upwork's solution for this issue is I should send a separate invoice to the client to fix this issue. The issues here are

  1. I am already paying upwork 10% of my income to handle invoicing and billing among other things.
  2. I and the client will now have to pay a 3rd party (our accountants) their hourly rates to get on a call with each other every week to figure out what was the INR amount paid by the client, calculate the GST and raise an appropriate invoice. Any time i spend in managing this interaction is unbilled expense. (Since I am a small fry for my accountant, he does not want this extra burden.)
  3. Since upwork will have taken its 10-20% cut from this payment, I will actually endup paying the difference amount out of my pocket.
  4. The USD INR conversion rate for me is 81, So while I will issue an invoice for 8700+18% GST i.e. 10266  I receive only 8602 from upwork while I can show a commission of 10% to upwork, I am still left with a missing INR 708/- on my books. Since I have issued an INR invoice to the client, I can no longer attribute this difference to exchange gain/loss in my books! And for large deals, this missing amount(INR 70K/month) becomes significant enough to raise red flags in the tax department and open us up for legal liabilities.

tldr,

  1. The legal and financial cost of doing business with GST registered Indian entities, for both freelancers and clients are significantly high. 
  2. Until Upwork works towards fixing this, I will avoid taking up Indian clients.
  3. This cost also explains why there are very few Indian corporate clients on upwork.
bf97c28c
Community Member

Wow, this is an interesting task. I wonder what the solution will be.

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