Freelancers’ Questions: Is my German client right to say I must be VAT-registered?
I am a freelancer who is not VAT registered. But I did €2,000 worth of work in Germany and the client is now saying I must be VAT registered. Is what they’re saying true? It would have been more helpful if they’ve told me of this VAT registration requirement before I did the work. Now, they’re all worked up about it and I don’t know if what they’re claiming is true. Please help!
From the information you have provided, it sounds as if you invoice the German client in your name, rather than that of a company. You also state, "I'm a freelancer". In Germany, a person may register as a freelancer using a name sounding like a company. Issuing invoices in your name would mean that you likely will have to be registered for Value Added Tax (VAT), depending on your turnover.
If you earn over €17,500 (gross) in one financial year, or you are likely to exceed €50,000 in the next financial year, you will have to pay VAT (‘Mehrwertsteuer’), also known in Germany as ‘turnover tax’ (‘Umsatzsteuer’) on goods and services.
The VAT (Mehrwertsteuer or ‘MwSt’) threshold for a freelancer in Germany is €17,500 (about £15,800 in Sterling), meaning that if your turnover does not reach this level, then there is no need for you to register for VAT – or obviously to charge it. If you operate a small business with annual revenue below €17,500, you have the choice as to whether the income will be subject to MwSt or not.
In the instance that you decide that the revenue is not subject to MwSt, you are of course not allowed to charge MwSt in your invoices -- otherwise, you need to pay this amount to the tax authorities. And you are also not entitled to claim back MwSt (that you suffered) in an MwSt declaration.
But do watch out! If you are VAT registered in another EU state, then the €17,500 limit does not apply, and the threshold becomes nil. In any case, the liability to account for the VAT falls on you and not your client.
In your situation, and taking into account that your client is ‘all worked up,’ I would politely inform your client that your turnover is less than €17,500 and that you are not VAT registered anywhere else in the EU, and so are not obliged to charge VAT on your invoices.
Lastly, you don’t mention location, but it should not make a difference whether you, the freelancer, are working from the UK or not. If in the UK you are VAT registered, then you would have to charge VAT in Germany -- even on this €2,000, regardless of the fact that this sum is well below the UK VAT registration threshold. Good luck!
The expert was Kevin Austin, chief executive of accounting firm and overseas tax-compliance advisory Access Financial.
22nd August 2019