Domestic passenger transport services temporarily exempted from VATNews, 1/11/2023
Passenger transport services provided in Finland are temporarily exempted from VAT. In addition, the service provider can deduct the value added tax included in its purchases. The exemption is in force from 1 January to 30 April 2023. The VAT rate applied to passenger transport has been 10%.
The temporary exemption from VAT applies to passenger transport services between 1 January and 30 April 2023. When the zero VAT rate is applied, a service provider registered for VAT can deduct the VAT included in the provision of the services on the VAT return. The change does not affect the deduction right of the providers of passenger transport services.
The zero VAT rate is applied to all passenger transport services provided in Finland, such as transportation by train, coach, taxi, airplane and ship. The change does not have a direct impact on passenger transport between Finland and other countries, because these services were subject to the zero VAT rate even before the legal amendment.
The zero VAT rate also applies to any advance payments for passenger transport services. Advance payments refer to payments made before the service is provided.
The definition of passenger transport services does not change. Passenger transport services to which a reduced VAT rate of 10% could be applied before the amendment are subject to the zero VAT rate during the period of validity of the act.
In practice, providers of passenger transport services receive both general financial subsidies and subsidies directly related to the price of the service. Between 1 January and 30 April 2023, recipients of subsidies that are directly related to the price of the services they provide are not liable to pay tax on the subsidies. General subsidies that are not consideration for the provision of goods or services do not fall within the scope of application of the Value Added Tax Act.
Example 1: Company A Oy provides passenger transport services between locations in mainland Finland. Instead of a normal seat, a passenger can buy a business class seat with more space as a supplementary service. The price of a business class ticket includes wireless internet access and a daily newspaper for free.
A business class ticket that Company A Oy sells for an additional charge is sales of passenger transport services and subject to the zero VAT rate from 1 January to 30 April 2023.
Example 2: Company A Oy provides passenger transport services between locations in mainland Finland. A passenger can buy a ticket for their pet for an additional charge of €5.
The charge for a travelling pet is a service associated with passenger transport services, and it is subject to the same VAT rate as the primary service. Both the passenger transport service and the pet charge are subject to the zero rate between 1 January and 30 April 2023.
Validity and allocation of changes to tax periods
The amendment to the Value Added Tax Act is in force from 1 January to 30 April 2023. During the period of validity, the exemption from VAT is applied to passenger transport services provided in Finland. The VAT payable on the sales of the service is allocated to the tax period during which the service was provided.
If an advance payment is made, the recipient files and pays VAT for the tax period during which the payment was made. If the advance payment accrued before the amendment entered into force, the legislation in force at that time will be applied. The exemption from VAT applies only to advance payments made between 1 January and 30 April 2023.
Example 1: Company A Oy provides passenger transport services between locations in mainland Finland. The company does not sell monthly passes. Instead, a passenger buys a separate ticket for each trip.
The passenger transport services provided between 1 January and 30 April 2023 are subject to the zero VAT rate. As a rule, the VAT payable on the services is allocated to the tax period during which the service was provided.
Example 2: Company A Oy sells consumers annual passes that entitle to unlimited passenger transport services and are valid for 12 months. The price of the annual pass is paid in advance. Customer B paid the company an advance payment on the annual pass on 1 December 2022. Customer C paid an advance payment on the annual pass on 1 January 2023.
Because the advance payment paid by B accrued before the amendment entered into force, the VAT rate applied to the annual pass is 10%.
The advance payment paid by C was made during the period of validity of the act, so the zero tax rate is applied.
- Government proposal HE 194/2022 (available in Finnish and Swedish, link to Finnish)
- Instructions for completing the VAT return