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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.

 

Regards, 

 

 

 

 

 

2 REPLIES 2
ryanbarrett00
Member

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!

aocumen
Community Manager
Community Manager

Hi Vaibhav, 


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


~ Avery
Upwork
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