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VAT Cascading effect

Dear Community, 


During my few months of freelancing on Upwrok, I researched VAT topic here in community, I read almost all details on EU or DE VAT and I am grateful for all  excellent inputs shared by VAT masters and talents. 


However, I still have a question which I could not found here and that is VAT Cascading effect. 


Let me give an example, 

I understood that,


Per week Freelancer billing is                 $ 500   (same will be invoiced by UP to the client without any tax on it)

UPwork fees @ 20%                                   -$ 100 

VAT on services 19% in Germany      -$ 19 


Freelancer may get either $381 or $400 (depends on his VAT registration)


Now, as per local/country specific norms, I need to raise an invoice to client as below, 


Total Service charges earned   $ 500


Basic Amount                                   $ 420.2

VAT @ 19%                                        $    79.8                   (In case Freelancer hasn't convinced client earlier)


Total Billing Amount                   $ 500.00 


My questions are,

1) Does it correct that, UP should charge service fees on $ 500 instead of $420.2 

2) Does it correct that, UP should charge VAT of 19% even on the VAT amount (here $ 79.8) - which results in to cascading effect.


I am sure that many of you have already worked on that and I really appreciate your reply to undertsand it. 

Let me also know in case, I am making any mistake in understanding this calculation.









Hello Vaibhav,


From previously working on Upwork, I've found that without entering in a VAT number (not sure whether you've inputted yours or not, you didn't specify) a vat rate of 2.4% is charged. Upwork charges 20% fees up to $500 on total earnings, not weekly earnings. Once it reaches $500 and beyond, Upwork will charge 10% fees with that particular client on any contract.


My philosophy could be wrong as I have not inputted a VAT number but to answer your questions:


1) Upwork will charge fees on the gross amount (before VAT). 

2) I cannot answer properly as I don't have a VAT number inputted but they will charge 2.4% VAT as default which if you're registered as self-employed in your country, you should be able to claim back when submitting your taxes.


Hope this helps!

Community Manager
Community Manager

Hi Vaibhav, 

Here's a help article to know more about how VAT is charged on your Upwork earnings. 

~ Avery
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