VAT on fixed-price contracts for outside EU clients

[maharshi14]

Hi,

I'm new to Upwork and am soon going to start a fixed-price contract with a non-EU client (August 2020). I'm based in Germany, and my VAT ID would arrive sometime around the third week of September 2020, after which I shall validate my VAT ID with Upwork. All milestones of my contract will be in a montly interval, i.e. the first milestone would be in August when the contract starts, then September, October...  and so on.

Since I won't have my VAT ID with me until the end of September (2 months of pay) and can't validate it on Upwork by then, I will be charged 19% VAT by Upwork on each milestone for August and September, since Upwork's services qualify as electronically supplied services (ESS). However, is that also the case if my client is non-EU? I ask this because after reading online and consulting with a few tax advisors, I do not need to charge VAT on invoices to non-EU clients. 

But after validating my VAT ID with Upwork, I won't be charged any VAT from Upwork but I have to declare it myself. Assuming I have zero expenses related to my business, do I then pay no VAT at all? If that's the case, then this contradicts Upwork's services qualifying as ESS. What am I missing here?

Then since I would be in a contract with a non-EU client, would Upwork not charge the 19% VAT to begin with?

Also, irrespective of me validating my VAT ID with Upwork or not, I can always transfer my Upwork milestone money to my bank account (or any other payment method), right? 

I've clearly not understood this crucial part since I'm new to understanding taxes. If anyone can shed a light on this I'd be really grateful. Thanks!

[g_vasilevski]

Hi Maharshi,

Upwork is an online platform that brings freelancers and clients together. As our membership and activity has continued to grow in the EU, assessing VAT is an important element to continue providing services there. Upwork's services qualify as electronically supplied services (ESS), which are subject to VAT at the place where the customer (i.e. the freelancer) is established or resides. Therefore, the services supplied by Upwork to freelancers who reside, have a permanent address, or are established in the European Union are subject to VAT there. For more details about this you can check out this Help Article. Thank you.

[feed_my_eyes]

If you are VAT registered, you won't have to pay VAT on your Upwork service charges, but you WILL have to charge VAT to your Upwork clients because you're providing them with a service. You need to get an accountant or tax adviser if you don't understand how it works, because you will need to charge and remit these taxes correctly.

In the UK, you only have to register for VAT if your income is over a certain threshold. It's a lot of extra hassle in terms of invoicing and bookkeeping and you have to charge your clients an extra 20 percent, so I always advise freelancers here not to do it unless it's required.

[martina_plaschka]

Now you are mixing up VAT and income tax. 

You need to get hold of a person like an accountant, controller, tax specialist or similar to explain this all to you. 

BTW, you might have been extremely ill-advised to apply for a VAT number in the first place. Unless your income is substantial (over a certain threshold) and you are obliged to have one, you really don't want to deal with all the paperwork and other reporting duties that come with it. You might have to register as a company, get mandatory insurance, and other implications. I hope this finds you not unaware!

[martina_plaschka]

I advised you yesterday that you don't need a VAT number to work on upwork or withdraw your earnings. Did you not believe me or are you looking for second opionions?