Value added tax
Value added tax (VAT) is a consumption tax that the seller of goods or services must add to the price. Sellers collect VAT from their customers and pay it on to the State. Liability to pay VAT concerns anyone who sells goods, services, rents out goods, or is engaged in similar operations in the conduct of business. Similarly, the primary production activity of farmers and forest owners is VAT liable.
VAT must be collected from the buyer each time a good or service is sold. Sellers add the VAT to the price they charge for goods or services. Then they pay the VAT they receive to the Tax Administration. The VAT included in the price of goods and services is deductible for a VAT taxpayer who buys it for the purpose of taxable business. This requires that both the buyer and the seller are VAT taxpayers. Ultimately, the consumers pay the VAT; and the final price that they pay only contains a single debiting of VAT.
Registering for VAT
A person or company that conducts VAT taxable business must register for VAT with a notification in the Business Information System (ytj.fi). Registration is not mandatory if turnover for the accounting period (12 months) is €10,000 or less. However, businesses or corporate entities with a lower turnover may seek registration voluntarily if they conduct business.
If the length of the accounting period is different from 12 months, the turnover value must be adjusted so that it reflects a 12-month period (multiply the turnover by 12 and divide the result by the actual quantity of full months within the accounting period).
A number of activities are listed in the VAT Act as non-VAT taxable. If a business does not sell other goods or provide other services than those listed in the VAT Act, it cannot register for VAT, and consequently, its non-VAT taxable operations do not entitle it to VAT deductions on purchases. Operations outside VAT taxation include i.a.:
- Selling real estate and dwellings and offering them for rent
- healthcare and medical services, social caregiving activities
- training and educational services listed in the VAT Act
- financial and insurance services
- fees paid for copyright and performances listed in the VAT Act
- general postal services
However, the owner or holder of immovable property may submit an application for VAT registration on the basis of offering the property or part of it for rent if it is in continuous use that serves a VAT-taxable activity.
If an association or foundation promotes the public good, it is not treated as liable to pay VAT for that activity or other activities it may pursue that are considered exempt: no VAT is added to the prices of goods and services. In this case, the association or foundation cannot deduct the VAT included in its purchases.
However, a corporate body promoting the public good is liable to pay VAT on the following specific activities:
- Anything that is treated as a taxable business operation for the purposes of income tax. Small-scale operations (turnover for the accounting period max €10,000) fall nevertheless outside VAT taxation.
- Own use of restaurant and catering services.
- Own use of real estate management services.
A corporate body promoting the public good may opt for registering for VAT although they do not conduct taxable business. However, the activity that it operates must in that case be a business operation within the meaning of VAT Act. It must be possible to differentiate between the activity for which VAT registration is sought and the body’s other activities. This way, its application for VAT registration will not concern the body’s other, separate activities. An example of an activity for which VAT registration may separately be sought is the ownership of forest land and the carrying out of business relating to it.
Reporting and paying VAT
As a VAT taxpayer, you must submit a VAT return on your own initiative and pay it, in accordance with the tax period you or your company has. You can report and pay VAT in MyTax.
Small-scale operations and VAT relief
If the VAT taxable operation is considered small-scale ‒ i.e. the turnover for the accounting period (12 months) is less than €30,000 ‒ you may be eligible to relief for the VAT.
Amount of VAT
If you sell a product, you can calculate the VAT to be added by multiplying its net price by the currently valid VAT rate for that product and dividing the result by 100. The base for VAT is the net price to be charged from the buyer.
VAT rates on goods and services
|24%||the general rate: most goods and services|
|14%||a reduced rate: food, animal feed, restaurant and catering services|
|10%||a reduced rate: books, pharmaceutical products, physical exercise services, film showings, entrance to cultural and entertainment events, passenger transport services, accommodation services, operations relating to TV and public broadcasting against a fee|
The buyer must be given a receipt or invoice
Sellers registered for VAT must give an invoice to their buyers. It must contain the required VAT details listed in VAT Act.
To have the right to deduct input VAT, the buyer must get and keep the invoice, receipt or other similar documentation from the seller.
Termination of VAT taxable operations
If you cease to operate your VAT taxable trade or business, please file a Notice of termination (ytj.fi) without delay.