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.
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!