Small update in this article!
Since a client asked me about this last week, I would like to provide some brief information about the job placement portal “Upwork”. The situation is likely to be similar for the “Fiverr” portal, at least until it is officially available in Germany, as announced.
As always, however, I can only give a brief summary here in the context of a blog. Never should such an article be seen as comprehensive legal advice, as it often depends on the individual case. Also, the processes of the portals are often different. Some charge the beneficiary the full amount themselves (Fiverr for example) others only the placement fee (Upwork). Here it is necessary to look carefully. In case of doubt, a lawyer or a tax advisor can help in the specific case. As part of a permanent mandate, I naturally also help a freelancer with the organization and management of these very processes.
But now to the actual content:
Upwork, for example, provides freelancers with programming jobs from clients all over the world. These programming jobs can be offered based on the freelancer’s own hourly rate or, in the case of Fiverr, a flat rate determined by the freelancer/provider. Once a service has been provided, the platform issues an invoice to the client. After the client has paid the amount to the mediation platform, they usually retain a service fee for the mediation. An invoice will then be issued for this fee. Here, urgent care should be taken to ensure that, if possible, the VAT ID is entered. In the case of Upwork, this is highly advisable, as in that case no sales tax is charged on the service fee, nor is it shown on the invoice, but the reverse charge procedure is applied. In the case of Fiverr, these are non-taxable services, as the company is based in Israel. Whether this will change when Fiverr opens an office in Berlin, as recently announced, remains to be seen.
Problems for freelancers
For freelancers, the question may now arise as to how the income is to be taxed in concrete terms? This is especially true since, for example, Upwork, and as far as I know also Fiverr, do not transmit exact data about the clients; probably so that the platform cannot be bypassed for further clients. However, Upwork is explicitly a payment provider only.
In some circumstances, this fact can really be a problem, but especially if the client is based in the EU and is an entrepreneur. If other services are provided to third parties in Germany, the VAT treatment depends on the location of the other service. For the determination of the place of performance, it is essential whether the recipient of the service is an entrepreneur or a non-entrepreneur.
As a service provider, you must therefore be able to prove that the service recipient is an entrepreneur, because otherwise the transactions are to be treated as if the service recipient were a non-entrepreneur. This may well be done with the help of the VAT ID, although electronic verification of this ID may sometimes be necessary.
In the case of a service provided electronically (i.e. service provided via the Internet or an electronic network, including networks for the transmission of digital content, and the provision of which is highly dependent on information technology due to the characteristics of the other service) to an entrepreneur, the place of performance shall be determined in accordance with Section 3a para. 2 sentence 1 UStG. In this case, the reverse charge procedure may apply, whereby the recipient of the service becomes the person liable to pay the tax.
So providers is the often quite sloppy tax treatment various mediation platforms rather no problem. For your own profit determination and proof for sales tax purposes, the billing documents in connection with the payment documents are usually sufficient. Only for the agency fee or the service fee you have to be a little more careful.
Place of performance?
This is legally provided by the provider to the freelancer in Germany and therefore the place of performance is also in Germany. But beware, this only applies if the platform actually displays EU VAT or if there is a reference to reverse charge. In my opinion, this is the case with Upwork, but not with Fiverr. This service is then taxable here and, in the absence of tax exemption, also subject to tax. In the event that one is entitled to deduct input tax as a freelancer, the sales tax can be drawn in the same amount. From an accounting point of view, however, there are two postings.
If the service recipient (not the portal operator) is located in the EU and the service, e.g. the programming work, would be taxable for him, he may have a claim against the service provider for the issuance of an invoice in the amount of the payment made by the service recipient (i.e. including the service fee). In the case of a service to the EU, if it is a business and this can be proven by a VAT ID, it would again be subject to the reverse charge procedure. In the case of a service recipient in Germany, sales tax would be incurred, which the service recipient may be able to claim again (and which you have to pay as a freelancer), in the case of a service recipient outside the EU, the whole thing would not be taxable at all.
Not every platform is the same!
For the latter reason, Fiverr and Upwork, for example, should also be treated differently, as Fiverr, for example, issues an invoice to the service recipient with Israeli contact details in full and titles it “Purchase from Fiverr”. As far as I know, this is regulated differently at Upwork.