How European VAT Rules influence translation rates
European VAT rules vary even though the EU has a lot of common rules. So, some VAT rules and regulations have local variations.
While the rules are similar, they have distinct differences. We have collected rules relevant to freelance translators in the UK, Germany, Spain and Austria as these are the countries in which we currently have resident translators.
Translators living and working in Spain must pay an extra government tax which we have included as a cost when quoting for a translation job.
UK VAT rules
In the UK, one of the advantages freelance translators have over translation agencies is that they are subject to lower taxes. While corporation tax and income tax are currently (2021) equally high at 20% of profit, the self-employed translator has a personal allowance of almost £10,000 before this rate applies.
UK freelance translators have a choice whether to register for VAT or not. What is more, the threshold at which freelance translation service providers are legally required to register is very high and a self-employed translator is not likely to reach it. So most independent translators do not register for VAT in the UK.
In contrast, only very small agencies are likely not to have to register for VAT. Therefore, most agencies have to charge VAT. While this gives them the advantage of reclaiming VAT for goods bought in, it is a great disadvantage to have to increase translation rates by 20% for private clients who cannot reclaim the VAT. So UK freelance translators have an immediate and significant competitive advantage when calculating their translation rates.
Other European countries have varying rules.
German VAT rules
In Germany there is no exemption from having to charge VAT for traders with a low turnover. So, every entity – single freelance translators and globally active translation agencies alike – must charge VAT on translation jobs. There seems to be some uncertainty as to what rate of VAT translators are supposed to charge. Therefore, some freelancers charge the reduced rate of 7% while others invoice the full rate of currently 19% (2014). In contrast, if providing work for companies in other EU countries, translators need not charge VAT, but, if working for private clients outside Germany, translators have to add VAT to the cost of the translation.
Spanish VAT and tax rules
Due to Spanish VAT rules every trader, whether self-employed individual translator or large translation agency, must charge VAT at, currently, 21% (2014). Translation service providers need not charge VAT to clients who live outside of Spain, irrespective of whether they are private clients or companies.
To be able to practise as a freelance translator in Spain, the “traductor autónomo” must register as self-employed translator. This results in a government tax of almost 300 Euro per month, independent of the income received.
Austrian VAT rules
In Austria translators must register for VAT (20% in 2014), as soon as they start working regularly as self-employed translators.
And finally, this article was written prior to the UK leaving the European Union. There will be an update, when the new rules are known.