As an europen registered freelancer, I am under obligation to charge VAT on all B2C transactions.
This is currently a problem here on Upwork.
Let say I provide a service to a client on Upwork for 100€. When the service ends, Upworks sends an invoice to the client on my behalf and it is only then I discover the client resides in the European Union and doesn't have a VAT ID. So I have to charge 23% VAT.
What happens next is this:
▶ Upwork takes 20% and I get 83.3€
▶ Since I can't charge 23% VAT on the 100€ like I normally would (outside of Upwork, the final value of the invoice for a 100€ service would be 123€), it means that it is now I who have to pay the VAT out of my own pocket. So, from the 100€ I need to take 23% off, which leaves me with 81.30€
▶ Summing both, out of 100€ I get 64.6€ (let's ignore for now that out of those that I keep, I will still have to pay other taxes).
I only makes sense that I should avoid these clients at all costs (pun intended), but there's really no way of doing it before getting access to the invoice (or asking the client about these details, which strikes me as a bit as a not very ellegant solution.)
Wouldn't it be a good idea for the freelancers to easily know, preferably in the application process, if they are dealing with a Business or a Final Consumer?
How do other european freelancers deal with this?
Thanks for posting your concern in the Community. Following up on your calculation, to clarify on Upwork VAT charge is applied on the services Upwork provides you directly (service fee, purchasing Connects and Plus membership plan fee) and not on payments you receive for the work you provide to your clients.
Regarding location, clients' location is displayed on job posts and freelancers can discuss this detail as well as other information about their status directly with clients in the interview, prior to discussing and agreeing on contract terms. Hopefully other freelancers located in EU countries will follow up and share their experience and advice with you, feel free to follow up and expand on your feedback and the information I mentioned here.
Hi Micael. I can't speak from personal experience, as I'm not registered for VAT (thank God!). However, I've seen this subject come up in the forum a few times, and you should be able to find some info by searching the forum. I found this discussion which might be useful:
(see the final comment)
Vladimir G wrote:
Following up on your calculation, to clarify on Upwork VAT charge is applied on the services Upwork provides you directly (service fee, purchasing Connects and Plus membership plan fee) and not on payments you receive for the work you provide to your clients.
Yeah, I am aware of that. In my calculation only 2 values are being subtracted from the 100 euros example, which are (1) the 20% fee Upwork takes and (2) the 23% VAT I have to pay my government.
Vladimir G wrote:
freelancers can discuss this detail as well as other information about their status directly with clients in the interview
Let me remind you that a new system of paid connects is going to be introduced. This means that just to get to ask those questions to the client, you literally have to pay money now. So even if I liked the idea of discussing taxes with my clients on my application process - which I don't - that no longer is a valid solution anyway.
Richard W wrote:
However, I've seen this subject come up in the forum a few times, and you should be able to find some info by searching the forum. I found this discussion which might be useful:
Thanks, that's the kind of thread I was looking for, but there are so many VAT unrelated entries on the forum that it can be hard to find somthing relate to my problem. But that's a good thread, thanks!
By the way, the solution would be simple to implent. Upwork already has the VIES-valid VAT information of the users who decide to provide it.
It could be as simple as adding a VAT badge or something like that, to the "About the Client" section, right next to his location.
Since such thing doesn't exist, I shall exclude all clients from the EU from my job searches from now on, to avoid paying VAT out of my own pocket again.