Keys to understanding how VAT works for self-employed workers
Posted: Mon Jan 06, 2025 5:29 am
VAT is a value-added tax, an indirect tax levied on the value added by each member of the production chain of a product or service. The tax falls on the final consumer, so that each company or self-employed person in the production chain transfers its VAT to the next point in the chain until it reaches the final consumer.
In this sense, the self-employed person is merely an intermediary between the Treasury and the final consumer, as he or she must pay the Treasury the difference between the VAT that he or she has charged and collected from his or her clients and the VAT that he or she has incurred on purchases from suppliers. All self-employed persons who carry out professional activities must file a VAT declaration.
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What types of VAT are there and how is the amount payable calculated?
There are three types of value-added tax payable, and they appear in accounting through the following formulas:
1. VAT charged, which is equal denmark number data to the sales price times the VAT rate charged on each invoice.
2. Input VAT, which is equal to the purchase price times the input VAT rate of each invoice received for purchases and expenses.
3. VAT payable, which is equal to the VAT charged less the VAT paid.
As for the fractional payment of VAT, this is done using form 303, which is submitted by the 20th of the months of April, July and October; or by the 30th of January. In addition, this is complemented by the annual VAT summary to be submitted using form 390 in the month of January.
Activities exempt from VAT
Activities that do not have to pay VAT include medical and health services, education and training, cultural and sports associations, financial and insurance operations and housing rentals.
However, as a general rule, most self-employed persons apply the general VAT rate on their invoices, which is 21%. Likewise, all professional activities must also apply this rate of 21%.
The simplified VAT regime
Finally, it should be noted that the simplified VAT regime applies to self-employed persons who pay contributions based on objective estimates – modules. The self-employed person can renounce it if he or she considers it appropriate, but this means also renouncing the module regime of personal income tax and the special VAT regime for agriculture, livestock and fishing.
The simplified regime is calculated by applying the modules contemplated in the order, which state the VAT accrued on sales, from which all VAT incurred on current operations, without investments, can be subtracted, plus 1% of the VAT accrued as expenses that are difficult to justify.
The simplified VAT regime has been presented in an integrated manner in form 303 for three years. Before, it was presented in the same timeframes as the general VAT regime, although form 310 was used for this.
In this sense, the self-employed person is merely an intermediary between the Treasury and the final consumer, as he or she must pay the Treasury the difference between the VAT that he or she has charged and collected from his or her clients and the VAT that he or she has incurred on purchases from suppliers. All self-employed persons who carry out professional activities must file a VAT declaration.
Save time by automating your accounting
Check your financial statements in real time, calculate taxes payable and automate the filing of some forms.
Start for free
What types of VAT are there and how is the amount payable calculated?
There are three types of value-added tax payable, and they appear in accounting through the following formulas:
1. VAT charged, which is equal denmark number data to the sales price times the VAT rate charged on each invoice.
2. Input VAT, which is equal to the purchase price times the input VAT rate of each invoice received for purchases and expenses.
3. VAT payable, which is equal to the VAT charged less the VAT paid.
As for the fractional payment of VAT, this is done using form 303, which is submitted by the 20th of the months of April, July and October; or by the 30th of January. In addition, this is complemented by the annual VAT summary to be submitted using form 390 in the month of January.
Activities exempt from VAT
Activities that do not have to pay VAT include medical and health services, education and training, cultural and sports associations, financial and insurance operations and housing rentals.
However, as a general rule, most self-employed persons apply the general VAT rate on their invoices, which is 21%. Likewise, all professional activities must also apply this rate of 21%.
The simplified VAT regime
Finally, it should be noted that the simplified VAT regime applies to self-employed persons who pay contributions based on objective estimates – modules. The self-employed person can renounce it if he or she considers it appropriate, but this means also renouncing the module regime of personal income tax and the special VAT regime for agriculture, livestock and fishing.
The simplified regime is calculated by applying the modules contemplated in the order, which state the VAT accrued on sales, from which all VAT incurred on current operations, without investments, can be subtracted, plus 1% of the VAT accrued as expenses that are difficult to justify.
The simplified VAT regime has been presented in an integrated manner in form 303 for three years. Before, it was presented in the same timeframes as the general VAT regime, although form 310 was used for this.