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A Short Guide to VAT for Translators in the EU

A Short Guide to VAT for Translators in the EU

Before we start: It is absolutely impossible to produce a comprehensive guide to EU VAT in a short article. The laws and their exceptions are too numerous. The EU document describing VAT rates runs to 22 pages, that describing how VAT works is a whopping 170 pages long, and even the document describing the exceptions runs to 32 pages (links at the end of the article) – so don't expect all that information here!

In this article I have attempted only to summarise the answers to the most frequently asked questions and to provide links to sources of further information. Complex VAT questions can only be answered by your accountant, a tax lawyer or advisor, the tax authorities or another competent body, e.g. the chamber of commerce. Please ask them if you are unsure. Further, please confirm the information contained within this article before acting on it – EU legislation is in a constant state of flux and the information contained here may have changed by the time you read this!

Note: for VAT purposes a "company" can also be a sole trader or freelancer; the word company does not just refer to limited, public or other registered companies, it also includes individuals selling any kind of taxable goods or service, whether registered with the appropriate authorities or not.

1) Finding out whether you must register your business for VAT.

Generally there is a turnover threshold (turnover, not profit, of taxable goods or services) above which you must register for VAT. The thresholds vary quite considerably from country to country – you will need to check with your VAT authority where the threshold lies in your country, e.g. in Austria the turnover threshold is 22.000 Euros, which a busy freelance translator can expect to reach, and in the United Kingdom it is 56.000 pounds (about 80.000 Euros). In Austria, a full-time freelancer will almost certainly have to register for VAT, in Britain it's less likely. Unfortunately I was only able to find information on the thresholds in four countries — this is listed below.

VAT thresholds

You must inform the tax authorities as soon as you see that your turnover during the current financial year is likely to exceed this threshold. The "grace" period varies – generally a month or a quarter. If at the end of the financial year you are found to have exceeded the threshold (or if you declare it), all goods and services you have delivered in that year become taxable in retrospect. Without even considering the legal consequences, you can imagine that this will result in stress and a mountain of unnecessary paperwork, as all invoices will have to be re-issued with tax.

If you exceed the threshold once and are unlikely to do so again there may be exceptions. Ask.

2) Opting in

If it is not compulsory to register yourself or your business for VAT, decide whether you want to opt-in. There are, of course, advantages and disadvantages here.

Advantages:

• You can claim back any VAT paid for goods and services within your own country
• You will save yourself stress, paperwork and legal consequences should your turnover exceed the threshold in retrospect (more likely in countries with a low threshold).
• You do not pay VAT on imports from (other VAT registered) businesses in other EU companies
• Many large companies use your VAT number as a reference. To them you do not appear to be legitimate if you are not VAT registered. Of course a legitimate small business or freelancer may not need a VAT number because of the turnover threshold mentioned above, however try explaining that to a buyer at a larger company who is only used to dealing with other large companies.

Disadvantages:

• You must collect VAT (more about how, and when, later) and pass this on to the state either monthly, quarterly or yearly depending on your country's tax system.
• In order to do this you need to keep accurate accounts.
• Another possible downside (thanks, JP) is that the state keeps a closer eye on what you're up to.

Talk to your accountant and see what he suggests. Opting in can save you money particularly just starting out when you may spend more than you earn. It can also save you stress if you think you may exceed the taxable threshold in the coming year.

3) Collecting VAT

You collect VAT by issuing a VAT invoice for any goods or services delivered (more information below). If you are VAT registered you must collect VAT on all VAT-liable goods and services delivered to:

• consumers / end-users (non-businesses) in your own and other EU countries
• businesses in your own country, whether VAT registered or not
• businesses in other EU countries which are not VAT registered

VAT is not charged:

• on non-VAT liable goods and services (Very limited. Translations are VAT liable)
• to businesses/persons in other EU countries who are VAT registered. If the business/person has a VAT number, and you quote this on the invoice, you do not have to charge them VAT. If you charge them VAT by mistake they can claim it back when they do their own VAT return. There is another exception here: if you deliver goods and services to another EU country and the total value of goods and services turned over in that country in a certain year exceeds a certain threshold (determined by the country to which you deliver) then you must charge VAT at the usual rate for that country and register to pay VAT in that country. It is unlikely, however, that a freelance translator will ever exceed that threshold. If you're worried, talk to your accountant.
• on any goods or services delivered to consumers or businesses (VAT registered or otherwise) outside the EU.

4) The VAT rate

In all EU countries VAT on translations is charged at the standard rate for the country in which the work is carried out (with the one exception mentioned above). These rates are as follows.

Taken from here

5) Paying VAT

Any VAT you collect must be passed on to the appropriate authority in your country. This can be monthly, quarterly or yearly depending on the country and your turnover. Usually VAT must be passed on at the end of the month or quarter in which the VAT was invoiced. Sometimes the VAT must only be passed on at the end of the month or quarter in which you actually received that VAT (this is allowed for example in Austria if you do cash bookkeeping and do not by law need to do double entry bookkeeping. It's a "small business" thing, again, and varies from country to country. Ask.). The time at which you have to pay any VAT collected can vary depending on your circumstances (type of company, turnover). Ask your tax office or accountant. You pay any VAT you have collected minus any VAT you have paid.

Please note that if you deliver tax-free goods and services to customers in the EU you must list these customers, their VAT number and the amounts invoiced in a separate declaration to the VAT authority of your country at the same time you make your monthly/quarterly VAT return. Ask your VAT authority for the correct form.

6) Understanding and checking VAT numbers.

The format of the VAT number differs from country to country. Here is a quick guide:

Taken from (1) and (2)

If you want to find out whether a VAT number is genuine, you can check it here. Note that this only tells you whether or not the VAT number is valid, it does not confirm who the VAT number belongs to — if you want to find this out you must contact the VAT authority in your country.

7) A VAT invoice

A VAT invoice must contain the following information:

• Your company name (if you are a registered company, otherwise your own name. See note at start of article).
• The address of your company (make sure it is the registered address, if applicable)
• Your VAT number
• Your customer's name and address
• A unique invoice number and date
• For each item billed:
  • A short description
  • The price of the goods or services excluding VAT
  • The VAT rate
  • The amount of VAT
  • The date of delivery
• The total payable for all items
• The total VAT payable
• The rate of any discounts offered (before tax).

When invoicing customers in EU countries who you do not have to charge VAT to (VAT registered persons or businesses), you must include:

• The VAT number of the customer.
• A statement to the effect that the goods or services are tax free

You must not charge VAT to customers outside the EU. There are therefore no particular requirements on the content of the invoice.

8) Keeping records

VAT records (incoming and outgoing) must be kept for a minimum of six years, as with all other accounts.

9) Country to country peculiarities, exceptions and exemptions for small businesses and sole persons.

European VAT laws are riddled with exceptions. Many of these exceptions apply to small business and sole persons, so it is always worth checking with your accountant, the tax authorities or the chamber of commerce about any exceptions or exemptions which may be applicable to your situation. This document shows how riddled with inconsistencies and exceptions the EU VAT system is.

10) Links

Official EU information on VAT:

VAT rates applied in the Member States of the European Community

VAT in the European Community

VAT obligations (the one with all the differences and exceptions, English only)

VAT obligations

Links to the information provided by the VAT authorities of the various countries:

11) And finally...

I hope this has been useful. Any comments are welcome — you can mail me via my TC profile.

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