VAT on imports, exports and EU commerce
Selling goods and services to customers in other countries is part of the business of a number of Finnish companies. Finnish companies also purchase many goods and services in other countries. In addition, a Finnish company may need the goods and services it buys from foreign suppliers for purposes that relate to the operating of its business directly. Under the tax rules on value added taxes, companies must find out how sales and purchases are treated. One of the typical questions is whether the Finnish VAT, or the VAT of another country, should be paid when goods are sold to a customer outside Finland.
In the same way, companies must make sure they know the VAT requirements of the foreign country where they conduct business. For example, it may be necessary to submit an application for VAT registration not only in Finland but also elsewhere.
You must be aware of the VAT treatment of various transactions
If you conduct business with customers and suppliers in other countries, you must make sure that you know how every transaction is taxed in Finland. The provisions of the VAT Act can give you this information.
In general, countries can only collect tax on the business that takes place within their territory. The Finnish VAT Act lays down the rule that VAT must be paid on the supply of goods and services, intra-Community acquisitions, and the import of goods when these transactions are carried out in Finland. Because the liability to pay VAT depends on the country seen as the “place of supply”, the VAT Act contains a number of provisions for determining whether or not the sale or purchase of a product or service is deemed to have taken place in Finland.
If Finland is the place of supply, the supply is subject to the provisions of the Finnish VAT Act and taxed in Finland. However, some sales transactions are tax-free under the VAT Act.
When VAT taxpayers in different countries within the EU buy and sell goods with one another, it is “intra-Community trading”
Supplies and acquisitions of goods and services between VAT-liable persons within the EU are called intra-Community trade. To sell goods to another business enterprise as “intra-Community supply” is normally exempted from VAT. For the VAT-exemption to be in effect, the goods must be physically transported from Finland to another EU country and the purchaser must be a VAT-liable person in an EU country that is not Finland. Read more about intra-Community supply and acquisition.
All supplies and acquisitions within the European Union must be reported on the VAT return, by sellers and purchasers alike. In addition, the same information must be reported again on the VAT Recapitulative Statement.
Import and export of goods – countries outside the EU
In VAT taxation, “exports” means supply of goods from EU countries to non-EU countries. “Imports” refers to purchases of goods from non-EU countries.
On the condition that the goods are transported directly to a country outside of EU territory, the export transaction is exempt from VAT. This also requires that the goods are transported either by the seller or by an external transport company that the seller or buyer has ordered to do so. If the buyer transports goods using their own transport, the exportation is exempt from VAT only if the buyer is a foreign business enterprise that does not have a VAT registration in Finland.
Supply to a private individual resident in a non-EU country who makes purchases when visiting Finland is exempted from VAT because it is considered tax-free selling to travellers.
In the case of an import transaction, if the importer has a Finnish VAT registration, the importer must submit a VAT return and pay the VAT on imports to the Tax Administration. If the importer does not have a Finnish VAT registration, the VAT on the imports is administered by Customs, not the Tax Administration. Read more about imports.
The VAT rules on place of supply
The VAT rules governing the place of supply define the country that should be treated as the place of supply. This means the country that gets the right to impose VAT on the sales transaction. The Finnish VAT Act sets out exact provisions on when a service is sold in Finland, i.e. when the place supply is Finland. For all selling in Finland, VAT must be paid to Finland. In general, unless the VAT reverse charge mechanism is applied, the seller must pay the VAT.
The place-of-supply rules for selling to business customers are different from the place-of-supply rules applied on situations where the services are sold to an individual consumer. Accordingly, services sold to a business operator are taxable in the country where the purchaser is established, and services sold to a consumer are taxable in the country where the seller is established.
The reverse charge mechanism means that the VAT is paid by the purchaser, not the seller. Under the general rule on service supply, when both the seller and the purchaser are business enterprises, VAT reverse charge applies whenever the seller is not established in the purchaser’s country. This means that if Finnish sellers supply a service to a purchaser resident in another EU country, the purchaser must pay the VAT, to the purchaser’s country of residence, on behalf of the Finnish seller. For example, supplies of consultancy services and of technical maintenance services are treated this way.
All supplies of services within the European Union must be reported on the VAT return, by the sellers as well as the purchasers. In addition, the same information must be reported again on the VAT Recapitulative Statement.
If the VAT treatment of an international transaction is unclear, try answering the following questions to identify the rules that apply
- Who is the seller, and who is the purchaser? (Is the purchaser a business – or are you selling to a private individual?)
- Do you sell services or goods? Are you buying a service or are you buying goods?
- Is the VAT legislation of Finland applicable on the supply or acquisition? (In other words, which one of the 2 countries is the place of supply?)
- After you have made sure of the country where VAT must be paid, the next question concerns the supply or acquisition itself: is it a VAT-taxable or a VAT-exemptible transaction?
- Who should pay the VAT to the tax authorities (the seller or, because of a VAT reverse charge mechanism, the purchaser)?
For further instructions on foreign trade, see “Commercial operations with other countries” — Kansainvälinen kauppa on the Detailed guidance pages on tax.fi (most of the guidance is in Finnish and Swedish)