VAT for small business – a small-scale operation is exempted from VAT
The threshold is now €15,000 instead of €10,000. The new, higher threshold of VAT applies to accounting periods with start dates in 2021.
A number of VAT relief arrangements are available to small businesses. Examples:
- If your turnover for the accounting period (12 months), which starts 1 January 2021 or later, is less than €15,000, you are not under the obligation to register for VAT.
- If the start date of your accounting period is a 2020 date (or still earlier), the turnover has to be less than 10,000.
- Note: If you are a foreign company that does not have a permanent establishment in Finland, you must register for VAT in any case.
- If you apply for VAT registration, you can be granted a VAT relief for small businesses.
- In some circumstances, your VAT period can be extended.
Should I enter my company in the VAT register?
If your turnover is more than €15,000: VAT registration is required
All businesses with sales of goods or services that exceed €15,000 per accounting period (12 months) must register as VAT taxpayers.
If your turnover is MAX. €15,000: VAT registration on a voluntary basis
Businesses with sales up to €15,000 can submit an application for VAT registration voluntarily. This may be beneficial for you if you habitually buy a considerable amount of VAT-liable goods or services for your VAT-taxable business operation. If your company is VAT-registered, you can usually deduct the VAT included in the purchases of the goods or services.
Note: the €15,000 threshold does not concern Finnish municipalities, joint municipal authorities, and the foreign companies that are treated as not having a permanent establishment in Finland.
How to adjust the turnover if your first accounting period is not 12 months
You must estimate the future sales of your business and perform the necessary calculations yourself.
You must calculate a turnover value for an accounting period of 12 months. If the actual accounting period is shorter or longer than 12 months, its turnover must be adjusted in order to simulate 12 months of business activity.
First make an estimate for your annual turnover, then multiply it by 12 and divide the result by the number of actual months of business activity.
Example: Your new company’s first accounting period is 14 September 2021 − 31 December 2021. During that period, you sell goods and services for €4,200. Because the first period is shorter than 12 months, you must adjust the turnover for a period of 12 months as follows:
Turnover for the accounting period: €4,200
Full months in the period: 3 (October, November and December – September is not a full month).
Adjusted turnover for 12 months: €4,200 × 12 months / 3 months = €16,800
This means that your company’s adjusted turnover exceeds the threshold of small-scale activity, i.e. €15,000 per year. You must ask for VAT registration, effective from the first day of activity (14 September 2021).
What must be included in the turnover?
You must include the following in your estimation:
- Sales of goods and services subject to VAT.
- Certain sales of goods and services listed in the VAT Act as tax-exempt, such as export sales and intra-Community supply.
Do not include the following:
- The proceeds from any sales of the fixed assets of your business. In other words, do not include any selling of the assets or property that had been bought for your production or work. For example, if you operate an earthmoving company and you sold one of its excavators to an outside buyer, you should not include this sale in the turnover because the excavator had been part of the company’s fixed assets.
- Certain selling of financial services and insurance services in situations where the selling is related to other sales.
- Most sales not subject to VAT, such as services related to social welfare, healthcare services, and medical services.