To charge VAT or not to charge VAT, that is the question

To charge VAT or not to charge VAT, that is the question. Many freelance translators I know in Germany have been asking themselves that very question lately. It is that time of year.

Of course, freelancers who earned more than 17,500 EUR in 2010 are required to tack the extra 19% onto their invoices in 2011 – known as VAT or Umsatzsteuer. Those who earned less or are just starting out have a choice.

Some people worry about scaring off clients when they make the change and start charging VAT. Your business clients won’t mind the extra charge though since they get the same amount refunded to them in their own tax return –  just like you get the VAT you pay for business expenses refunded to you. That is actually the single biggest advantage to taking the VAT leap. If you are planning any major business purchases (computer, software etc) this year, it is definitely worth your while to get that 19% back.

A major disadvantage, of course, is that the laws in Germany concerning VAT tax code are extremely confusing. I filed my own taxes in Germany for years until I was responsible for VAT. As a result, I had to hire an accountant. Unfortunately, the amount of money I had to pay my accountant was significantly more than the amount I was reimbursed from the tax authorities.

Back in 2009, I wrote about some of the exceptions concerning VAT and freelance translators. It is not all that well-known in Germany (even among the tax authorities themselves) that a law is in place that says services provided to business outside of Germany but within the European Union are exempt from VAT. And that includes translation services.

That means, if you – as a freelance translator in Germany – work exclusively for business clients outside of Germany, then you save yourself the trouble of having to charge, collect, and pass on the 19% VAT but you can still get all of the VAT you pay on business purchases refunded to you. And that can be very good for you freelance business.

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10 responses to “To charge VAT or not to charge VAT, that is the question

  1. There are a few complications here. If these clients outside germany are businesses in the EU, you must note their VAT numbers and file a quarterly “zusammenfassende Meldung” for all services performed for these clients each quarter. The reporting is new as of last year, and I suspect that few complied with it in 2010. Expect a storm to hit in that regard in 2011. Individuals in other EU countries get charged VAT, so if your business clients refer their cousins to you, you’re stuck dealing with VAT after all. Outside the EU you needn’t worry about such things at the present time.

    • Thanks for the update, Kevin. I wasn’t aware of the new reporting requirements. I certainly didn’t comply in 2010, but the Finanzamt didn’t seem to mind.

  2. Last year was my first year freelancing and I am glad I opted for VAT, if only because I avoided learning the ropes with one system and then having to switch. My tax advice has come from my friendly local Finanzamt, from Verdi’s Mediafon site, from Google & Co when the first two weren’t in perfect harmony, and from my shareware bookkeeping software (JES EÜR), and so far the Finanzamt and I have been happy. I found my 2010 income tax return trickier than my end-of-year VAT return. I imagine the Finanzamt did too, since they dealt with the VAT return almost istantly and have yet to get to grips with the tax return. On the basis of my own experience, I would definitely encourage anybody who is happy doing income tax returns via ELSTER to handle VAT without external support as well. But maybe I’m missing something? What is it that makes people feel more confident about one than about the other?

  3. What I was told by the Finanzamt, on several occasions, is that you are only required to charge VAT due to earnings above €17,500 if you earn that amount in your first year as a freelancer. In fact, you are only required (verpflichtet) to charge VAT if you earned above €50,000 the previous year. Of course, you always have the option to charge VAT with earnings under that. In the end, I elected not to charge VAT for 2011, for a host of reasons from laziness to anticipated business costs.

  4. Marlene Jackson

    Do you have to file a Zusammenfassende Meldung if you have made no sales for the period like you have to do with intrastat?

  5. I would be grateful for your advice:

    I am a musician living in the US, I will be soon coming to Work in Germany as a freelancer. I already know I will earn about 23000 euro during 2011. Does this mean I will be charged the VAT? Or is there a way out of this?

    Thank you,
    Daniel

  6. My company registred in Hungary for VAT and the nature of business Information Technology services.

    1-My company started recently some IT service to German IT firm in Berlin and Paris IT firm in France. Do i need to raise my company invoice with Hungarian VAT or VAT of france/germany?Do i need to register for VAT at Germany and france also?

    Let me know please. I am new to EU freelancing.

    Regards

    • Thanks for the message. As far as I know, you only need to pay VAT in the country where your business is registered. I have done business with clients in many different countries but have only ever had to report and pay VAT in Germany (where I am registered). It may be worth looking into what countries you can work with without charging VAT. For instance, when I work with clients in Eastern Europe, including Romania and Slovakia, I don’t have to charge VAT. You’ll need to ask a Hunagarian accountant about that. I hope that helps.

  7. Is this still the case? I was told by my a tax specialist today that I would need to pay VAT on all the translations I did for businesses outside of Germany regardless. I really hope this isn’t the case….

  8. I think it only applies to the country where the business takes place, if you are not a resident you can then apply for a reimbursement

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