Self-employed in Spain Working with Upwork
Tax Agency (Hacienda)
If you are a freelancer, you have probably heard about Upwork or even use the platform to get jobs and clients. Although the platform is in English and all processes, registrations, contacts with clients and acceptance of projects, are enabled in that language, many Spanish speakers use it.
In this article, we will focus on explaining how you should issue income invoices and compute expenses generated when working with Upwork.
To be able to write this article, we have searched on the Upwork page the legal terms and its service to understand how they raise their business and the relationship with their clients. There are two types of customers: the companies that apply for jobs (from now on the company) and the freelancers who are willing to develop them (freelancers).
How does Upwork work?
First, to determine whom you need to bill, for what amount and when, it is necessary to understand the work system that Upwork poses to companies and freelancers. These steps would summarize the process:
1. Both types of clients, company and freelancers, will create an account on Upwork.
2. The company presents a project to obtain proposals from freelancers.
3. The freelancer, using the search engine to find opportunities, finds the project uploaded by the company to Upwork and submits a proposal.
4. The company values all the proposals received and selects a freelancer to carry out the project, making a contract through the platform.
5. At that moment Upwork becomes a depository of the amount to which the price of the project rises, guaranteeing the future collection by the freelancer.
6. Once the project finished, you send it to the company for evaluation. If there is no objection from the company, Upwork transfers the amount of the project price to the account that the freelancer has in Upwork.
7. The freelancer’s account in Upwork will increase with each project, being able to withdraw these funds through different systems (the most used: Paypal, Payoneer, direct deposit to a bank account).
Whom should you bill?
Once we analyzed the Upwork’s work process, we conclude that they don’t make a service contract with the freelancer to develop the company’s project. Upwork is a pure intermediary (putting companies in contact with particular needs and freelancers with skills to develop them) and guarantee payment for the service performed.
Therefore, the legal relationship for the development of the project is composed of two parts, the company and the freelancer. That’s why the freelancer must issue an invoice in the name of the client and not in the name of Upwork!
We verified that the invoice that you download from the Upwork’s platform includes some customer information (name and country). To make a legal invoice according to Spanish regulations sometimes, you should ask the client for the full address and the tax identification number assigned by their country.
What would be the amount you should put on your invoice?
Here the question is a bit more complicated, but we will try to explain each of the aspects that you should take into account.
From what we have verified in the invoices that you download from the platform, there is no tax related to Spanish regulations, VAT or IRPF. So what you charge for the project is the total invoice once taxes applied, if any.
Many different situations can occur here since the application of taxes depends on both the tax obligations of the freelancer and the nationality of the company to which you invoice.
To try to simplify, we will use the most common freelancer profile, according to our experience. That is a freelancer who develops a professional activity, subject to withholding and VAT. There are three different situations with an example in each of them.
COMPANY: Spanish limited company that pays for the project $ 600 *
In this case, the freelancer’s invoice must include 21% VAT and a 15% withholding. If the total invoice is $ 600, these are the amounts to be included in the invoice:
(*) later we will explain how we make the currency exchange to euros.
COMPANY: German company that pays for the project $ 600 *
As it is an operation with an EU company, it is crucial to know whether both parties, that is, freelancer and company, are registered in ROI/ VIES (Registry of Intra-Community Operators) or not.
To know if the company to which you bill is registered in ROI (called the VIES census -VAT Information Exchange System- at community level) you can check this link.
EXAMPLE 2.1. Freelancer and company registered in ROI (VIES census)
In this case, the freelancer must not apply VAT or personal income tax (IRPF) on their invoice but must submit form 349 to communicate the intra-community operations.
EXAMPLE 2.2. Some of those included in the invoice (freelancer or company) not registered in ROI (VIES census)
In this other case, VAT would apply, but not personal income tax (IRPF).
COMPANY: American society that pays for the project $ 600
When invoicing a company from a country neither Spain nor EU, no tax, VAT or personal income tax, should be included in the invoice.
2. The currency
Your invoices must be in euros, so starting from the amount of the service in dollars, you must use the euro-dollar exchange rate on the date of the invoice to register all the amounts in euros.
We give you an example:
You received in your Upwork account $ 600 for the completion of a project on 02/09/2019. Since the dollar-euro change that day was 0.91, the amount you should register on the invoice should be € 546.
What date do I put on the invoice?
The rule states that you must invoice once you have provided the service. Therefore, it should be the date on which you deliver the work, but you won’t have the money from your services at your disposal until Upwork has the company compliance. So we consider it more consistent to date the invoice with the same date you receive the payment and use that date to make the currency exchange.
What expenses can I deduct related to Upwork?
1. Fee for commissions
The services provided by Upwork have a cost of commissions that will be 5, 10 or 20% of what you bill to your customers, depending on the following table:
Which means that if you have more long-term relationships with your clients, you will pay fewer commissions.
21% VAT applies to this Upwork commission if you aren’t registered in ROI (VIES census). A VAT that you can deduct if you have the invoice that justifies it.
2. Membership fee
Monthly Upwork will charge you a fee for being a member and being able to access the search for projects to submit proposals. That fee is also considered deductible.
This Upwork fee also applies 21% VAT if you aren’t registered in ROI. A VAT that you can deduct if you have the invoice that justifies it.
3. Commission for withdrawal of money
Among the money withdrawal systems, one of the most used is the direct deposit to your bank account. For the use of this system, Upwork charges you a commission of $ 0.99, commission that you can also deduct.
So, if you enter your Upwork account you will see something similar to this:
As with the income, Upwork charges are also in dollars. To include them in your expense book you must make the change to euros on the date that Upwork charges you.
Upwork opens up the possibility for freelancers, who start in self-employment, to get clients and generate their first income. Still, it is essential not to forget the tax and accounting implications that the use of these digital intermediation platforms has for the Spanish self-employed workers.