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An Overview of VAT for International Freelancers and Clients


Sep 14, 2021

If you are a freelancer who deals with clients internationally or an international company that deals with many freelancers, tax is always an issue to consider. One tax that you need to pay is Value Added Tax (VAT).

Calculating taxes and VAT can often get confusing, especially when you need to calculate it across borders. The following is an overview of VAT for international freelancers and clients:

VAT Obligations

VAT is a tax placed on goods you buy. It is a tax on the value added to produce a product or offer a service. Each country has its VAT rate; hence you should consider the tax when dealing with international freelancers and clients.

VAT is a consumption tax that applies to consumer spending. Its primary purpose is to generate revenue for the government. Still, in this case, VAT is used to account for the resources used by a company or freelancer to perform a particular job.

In some cases, countries will have no VAT. As a freelancer or a business working with freelancers, a 20% VAT is standard in addition to the rates you would typically charge. The money is not yours to keep as you will have to declare it when filing your taxes, and the same goes for the person or entity to whom you offered your services.

VAT will apply to all goods and services which generate revenue or capital for a business, freelancer, or client.

You are liable to pay VAT in most countries if you sell a product or offer a service as an individual, partnership, limited liability company, or unincorporated organization such as a trust or charity.

If you are a freelancer working for an organization, you can ask for a pay stub to see the amount of VAT deducted from your pay. A company can use a pay stub maker to outline various deductions made to payments, including VAT deductions. A pay stub is often a vital document, especially as it pertains to filing taxes.

As a freelancer or self-employed professional, you should have a professional tax accountant to ensure that the VAT is on the books. Moreover, you should update your books at least every three months to ensure that you pay the correct VAT amount to the tax authorities.

VAT Rates

As stated above, VAT rates will vary from country to country and, in some cases, according to the region. The EU and other economic blocks typically have the same VAT rate for their member countries.

Therefore, if you are a freelancer working in a particular country or region, the VAT you add to your invoice will be the specific rate for that area.

VAT rates could also vary depending on the products sold and services offered. The VAT one freelancer charges could have a substantial effect on their payment while it will have a minimal impact on the income of another freelancer depending on the rates using a online vat calculator uk.

VAT Threshold and Exemptions

Whether you are a freelancer or a business, you have to register for VAT for you to charge it. 

Many companies receive VAT relief if their turnover is below a certain threshold. Most freelancers don’t get the same benefit unless they offer their services as a limited liability company.

The VAT thresholds will also vary from country to country, and special conditions may apply.

There are VAT exemptions such as when offering services as a freelancer to a company outside your country, VAT may be exempt from your invoice. Your business partner will pay the VAT in their respective country.

There is much more to know about VAT that I could include in this article. An example would be how to calculate VAT. Consult a tax attorney or accountant to learn more about how VAT affects you as a business or freelancer. 

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