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.