Permanent establishment for purposes of VAT

Companies that have a VAT permanent establishment are regarded as VAT payers in Finland. The rules for permanent establishments for the purposes of VAT differ slightly from those for income tax.

Permanent establishment for purposes of VAT

For purposes of VAT, 'permanent establishment' or 'fixed establishment' means a fixed place of business through which the company conducts some or all of its operations.

  • The place of business may be a production plant, a set of rooms, or machinery and equipment that the company uses in its business.
  • A fixed place of business may also be a given space which the company occupies on a permanent basis.
  • Fixed places of business may also be located inside another company’s premises.

What gives rise to a permanent establishment?

The place of business must be permanent, in other words, it should have a definite geographical location. However, it is not required that fixed places of business in the form of a plant unit, set of equipment, or production facility are literally 'fixed' and attached to the ground. For example, enterprises that sell transportation services in Finland with a regular schedule and route are deemed to have a permanent establishment.

Places of business will only be treated as a permanent establishment if the company, wholly or partly, conducts business in them. If a Finnish office of a foreign enterprise does not take part in the selling of the goods and services that the company offers, the local office is not a permanent establishment. In practice, the foreign enterprise must have employees — or other people under the authority of the company — in the country where the fixed establishment is located to run its operations at the place of business. A permanent establishment exists even if the business operations were highly automated, as long as there are employees in the country of location seeing to the technical maintenance and control of the machinery, or the like.

A permanent place of business does not have to operate without interruption but it has to operate on a regular basis.

Examples of permanent establishments for VAT purposes include:

  • offices where company management is located
  • branches
  • local offices
  • production facilities
  • workshops
  • retail outlets and locations for  buying or selling
  • mines, quarries, peat extraction sites and other similar sites for the use of natural resources
  • warehouses, inventories or stocks.

However, foreign companies may not be treated as having a permanent establishment if their operation is only to rent out real estate or to rent out movable property, or to give out immaterial rights (such as licences).

Contract duration decisive in construction and installation industries under circumstances that normally involve such a scheme

Construction, building and installation projects constitute a permanent establishment if they last longer than nine months, either in the form of a single project or as several successive projects.The permanent establishment is deemed to exist from the moment the operations started – not only after nine months from their beginning.

"Call off" inventories do not constitute a permanent establishment

Goods to be held in stock or warehoused prior to use as "call off" goods do not give rise to a permanent establishment in Finland. To have "call off" stocks means that the seller has stored some goods in the buyer's facilities for selling them to the buyer only. To transfer goods to Finland for such storage does not obligate  the foreign enterprise to register for Finnish VAT.

Permanent establishment or consignation stocks require VAT registration

If the foreign company has set up consignment stocks it must either seek entry in the VAT register or become registered for the duty of notification for VAT purposes. Consignment stocks are formed when a foreign company transfers goods to its Finnish warehouse.

Companies that must pay VAT for their business — i.e. companies treated as having a VAT permanent establishment in Finland — are required to seek entry in the VAT register. In addition, foreign companies must register for Finnish VAT if a VAT reverse-charge scheme cannot be implemented in practice under circumstances that normally involve such a scheme.

For more information, VAT registration of foreigners.