The Freelancer Guide to Cross-border VAT Invoicing

How to correctly invoice for sales of services to international clients (EU & non-EU)?

For solo-business navigating tax compliance and constant changes in tax ruling in different countries is challenging, but can be avoided by using company-as-a-service solution like Abillio. We've created this article to help you understand the basic requirements and regulations, and how we can make your freelancing life easier.

“My client asks for the VAT invoice, what should I do?”

- one of the most common questions asked from anyone who has just started cross-border freelancing and wants to get paid.

“Our outsourced independent contractor abroad has sent us a simple Excel sheet as an invoice, there is no company registration number, no tax identification number. He also included VAT - does it apply to cross-border services? Is this a legit document? Can we pay this invoice?”

- a common question asked by accountants working with a project-based workforce internationaly.

To answer these questions one must understand a few basics:

1. Freelancer location (origin of legal entity / tax residence)

As a general rule in the EU to start invoicing foreign clients (legal entities EU and non-EU), self-employed must acquire a VAT number (Value Added Tax payer registration number).

So by default, if you are based in the EU, e.g. your tax residence for more than 6 months is in EU, to start working with cross-border customers (businesses) you must become a VAT payer. In EU VAT registration can take from one to ten weeks, depending on the country.

If you're based outside of EU then your local regulations wll apply, but that does not change the fact that your customer might require a proper invoice with legal entity name, tax ID and/or VAT registration number.

A quick and easy way to start invoicing as a freelancer is Abillio's company as-as-a-service or virtual company, which will provide you with legal entity, VAT registration number, automated VAT invoicing and reporting with zero administrative work - start invoicing like a company today!

2. Place of service supply and the type of customer

If your business is based in the EU , you have different VAT obligations depending on where you sell to, and if you are trading in goods or services. Generally, if your client is a business customer, the place of supply will be where the client is based but if they are a non-business customer, the place of supply will be where you are based.

Examples:

A: If you sell your service to an EU-VAT registered business operating in another EU country, you don't charge VAT on that sale.

B: If you sell your service to an EU registered business that is NOT a VAT payer operating in another EU country, you charge VAT on that sale, VAT rate of the place where you are based.

C: If you sell your service to a natural person in your or another EU country, you have to charge VAT of the place where you are based.

D: If you sell your services locally in your country within EU, there is a certain annual turnover threshold for VAT registration (see Table 1 below).

If a freelancer's annual turnover (in the domestic market) exceeds the threshold (Table 1) they are obliged to apply for VAT payer status and file VAT returns and make required payments to the office of the Tax Authority monthly or bi-monthly or pay substantial fines if they fail to do so. It is time consuming and cumbersome. To deal with this problem freelancers have to hire an accountant and tax consultant which increases their running costs. A quick and easy way to start invoicing as a freelancer is Abillio's company as-as-a-service or virtual company, which will provide you with legal entity, VAT registration number, automated VAT invoicing and reporting with zero administrative work.

3. Calculating and displaying VAT on invoices

Normally, if you are registered for VAT and you make sales to other businesses, you must issue a VAT invoice — either in paper or electronic form. VAT is normally added to the price of the goods or services on your invoice.

Your VAT identification number must be shown on all invoices you give to customers, as well as the amount of VAT being charged and other standard items.

Information required in all cases

• Date of issue
• Unique sequential number identifying the invoice
• Customer’s VAT identification number (if the customer is liable for the tax on the transaction)
• Supplier’s full name & address
• Customer’s full name & address
• Description of quantity & type of goods supplied or type & extent of services rendered
• Date of transaction or payment (if different from invoice date)
• VAT rate applied
• VAT amount payable
• Breakdown of VAT amount payable by VAT rate or exemption
• Unit price of goods or services – exclusive of tax, discounts or rebates (unless included in the unit price).

How to check if my client has a registered VAT number (is VAT payer)?

You can validate your customer VAT status in the VIES database:

https://ec.europa.eu/taxation_customs/vies/#/vat-validation

Additional information:

• EU VAT invoicing rules
• Invoicing rules applicable in EU countries

A quick and easy way to start invoicing as a freelancer is Abillio's company as-as-a-service or virtual company, which will provide you with legal entity, VAT registration number, automated VAT invoicing and reporting with zero administrative work - start invoicing like a company today!

4. Exceptions

There are some exceptions to be considered.

For example, if you provide a service to another business, that is not located in the same EU country as your company is based, the VAT will not appear on your invoice. This does not mean the service is not subject to VAT, just that the VAT would be accounted for and paid directly by your business partner in the other EU country.

Similarly, if you make an export of goods to a non-EU country, your invoice will not show VAT. Normally, the buyer in the non-EU country will be subject to importation rules of its country.

Another exception is real estate services, where VAT will be calculated in the place of supply.

What services have no VAT?

VAT exemption for goods and services

• Sporting activities and physical education.
• Education and training.
• Some medical treatments.
• Financial services, insurance and investments.

A quick and easy way to start invoicing as a freelancer is Abillio's company as-as-a-service or virtual company, which will provide you with legal entity, VAT registration number, automated VAT invoicing and reporting with zero administrative work - start invoicing like a company today!

Table 1: 2023 EU VAT registration & reporting threshold

The table below provides the latest European VAT registration thresholds: