Value added tax on goods and services purchased outside Finland – Association and foundation
The liabilty to pay VAT in Finland may arise for an association or foundation if it buys goods and services from a seller in a foreign country. VAT must be paid on the sales of goods or services, carried out in Finland, on intra-Community purchases and on the importation of goods. There are circumstances that make the Finnish purchaser – instead of the foreign seller – liable for paying the VAT.
Services purchased from abroad
Whether or not an association or foundation must pay VAT is determined by what is known as the “place of supply” of the service purchased from a foreign seller. If the association or foundation, under the international VAT rules on the supply of services, is treated as being a business enterprise, the place of supply is determined in a different way than if the association or foundation is treated as a consumer. If services are supplied to a business, the country where the purchaser is established and is a tax resident is where VAT must be paid. If services are supplied to a consumer, the country where the seller is established and is a tax resident is where VAT must be paid.
If an association or foundation supplies goods or services, it is treated as a business enterprise for purposes of international VAT rules on services, even though the association or foundation would not be liable to file and pay VAT on any of its activities. In the same way, any association or foundation that has a VAT registration is treated as a business enterprise. If an association or foundation purchases services from a foreign company or organisation, the association or foundation must pay VAT to Finland under the VAT arrangement known as the reverse charge mechanism.
Example 1: A nonprofit association (promoting the public good) sells theatre tickets to shows that are organised by the association itself. In addition, the association finances its activities through public grants. The association has no VAT registration. The association buys an IT software licence from a seller in Ireland. Because the association’s activities include the selling of theatrical tickets in such a way that the ticket buyers pay for them, the association is treated as being a business enterprise for purposes of the international VAT rules on supply of services. As a result, the association must apply for a VAT registration based on the purchase it is making, and it must pay the VAT on its purchase to the Finnish tax authority. The Irish seller of IT software must issue an invoice that does not contain VAT.
Example 2: The Business ID of a non-profit association is 1234567-8. The organisation arranges many events where no entrance fee is charged in rural villages, and offers juice pressing to the visitors who come to the event. To maintain the juice pressing facility for customers is a business operation. Accordingly, the association has submitted an application for VAT registration in Finland. The association purchases legal services from a German attorney’s office. The association gives the seller (the attorney’s office) its VAT number in Finland: FI12345678. As the German seller issues an invoice for the services, the invoice does not contain German VAT. The association files a Finnish VAT return where it reports the VAT on the legal services and pays the VAT as well.
However, if the foreign seller of a service had a VAT fixed establishment in Finland, or if the foreign seller had submitted an application for VAT registration in Finland, the situation would change: the association, i.e. the purchaser, would not have to pay the VAT. In the same way, an association or a foundation does not have to pay VAT on a purchase it makes, if it is treated as an association or foundation comparable to a consumer. In accordance with the VAT place-of-supply rules, only an association or foundation that does not sell any goods and services itself may be treated as being comparable to a consumer. Such an association or foundation can receive its entire funding e.g. from public-government sources or by receiving donations.
Example 3: Your foundation has received the official permit necessary for carrying out a fundraising activity. It solicits donations from members of the public. Having obtained funds this way, your foundation donates money on to various projects for the promotion of public good. The foundation has no VAT registration. The foundation purchases consultancy services from a seller in Sweden. The fundraising activity, where no goods or services are given in return to those who give donations to the foundation, does not give rise to treating your foundation as a business enterprise within the meaning of international VAT rules on the supply of services. The status of your foundation is that of a consumer. As a result, the Swedish seller issues an invoice for the supplied consultancy service, and the invoice contains Swedish VAT.
However, in contrast with the above, a number of services are treated as supplied not in accordance with the usual place-of-supply rules. This VAT rule applies to the following categories of services:
- restaurant and catering
- supply of entrance tickets to educational events, to scientific events, to cultural events
Read more about VAT in foreign trade in services (in Finnish and Swedish)
Goods bought from a seller in the EU territory
Although your association or foundation has no activities of its own that would make it liable to VAT, the liability for Finnish VAT will arise if the association or foundation purchases goods from another EU country (such a purchase is an intra-Community acquisition). If the value of the goods, without VAT, you buy goes over the threshold of €10,000 per calendar year, you must pay Finnish VAT. In the same way, if the previous year’s value of the goods had been above the threshold of €10,000, you must pay Finnish VAT.
If your association or foundation operates an activity liable to VAT, you must pay Finnish VAT on all your purchases of goods from foreign countries regardless of how much their value is per year.
Goods bought from a seller in a non-EU country
When an association or foundation purchases a good from a non-EU country, the purchase is an importation. The VAT on the importation of goods must be paid in connection with customs clearance.
Submitting an application for VAT registration
Associations and foundations must submit an application for VAT registration if they are liable to pay VAT due to the purchases they have made from sellers outside Finland. However, there is no need to apply for registration again if the association or foundation has a valid VAT registration from before.