Brexit’s impact on taxation
The United Kingdom’s exit from the EU took full effect at the beginning of 2021. The European Commission and the UK concluded their negotiations about future relations by signing the Trade and Cooperation Agreement on 24 December 2020. The signed agreement has no impact on the tax rules in force.
Withdrawal agreement and transition period
The agreement on the UK’s withdrawal from the European Union came into force 1 February 2020. The agreement set out a transition period until the end of 2020. During the period, the relations between the EU and the UK continued under the EU’s current rules as if the UK had still been a member country.
Impact on citizens
The provisions of the Withdrawal Agreement safeguard the residence, employment and social security rights of EU citizens living in the UK, and UK citizens who live in the EU, under EU law for life if they have settled in the UK or the EU before 1 January 2021. Their status and rights remain as they are, under the key EU legislation, as of 31 December 2020. People who move between the UK and EU countries after 31 December 2020 are no longer subject to the EU freedom of free movement of citizens, and restrictions will be placed on their entry and rights.
The UK’s withdrawal has no direct impact on individual taxpayers’ income taxes
A tax convention continues to be in effect on income taxation between Finland and the United Kingdom. The fact that the UK leaves the EU has no impact on how the tax authorities apply the agreed provisions and clauses.
For example, no changes are made to the way tax is imposed on employment income earned by workers who leave the UK to start working in Finland, and vice versa. If you are a Finnish tax resident and you get a job assignment to the UK, there will be no changes to the way the tax authorities impose income tax on your wages.
However, compared to the earlier circumstances, some income is taxed differently because it is significant whether the source of income is an EU/EEA country or an outside country, and in case deductible expenses have been paid and claimed, whether the place where the expenses arise is an EU/EEA country or an outside country. After the end date of the transition (1 Jan 2021), the UK’s withdrawal affects the following items of income and the following deductions for expenses:
If you, the taxpayer, are a tax resident of Finland
- You settle the invoice of a company that has carried out some work in the UK for you in your household: the Finnish credit for household expenses is no longer available.
- You have a pension insurance contract, signed on a voluntary basis with a pension provider in the UK: deductions for your premiums are no longer available.
- You have a pension insurance contract that your employer has arranged for you from a UK pension provider: as your employer pays the premiums into your contract, the full amount (with nothing deducted anymore) of the premiums is taxable income for you, equal to wages.
- Your employer has arranged for a collective additional pension scheme where the pension provider is from the UK: whereas part of the contributions to such schemes was deductible previously, nothing can now be deducted.
- Lottery prize income from a UK source (including poker-game winnings): you are liable to pay tax on this type of income.
- You are paid dividends by a UK company or profit-surplus by a UK cooperative society, and the company/cooperative paying them pays less than 10% UK tax on its profits: the amount of dividends/surplus you receive is taxable income for you, equal to earned income. Read more about how dividends are taxed in section “2.3-Dividends distributed by a foreign corporate entity” of the “Dividends” guidance (Osinkotulojen verotus — Ulkomaiselta yhteisöltä saatu osinko) (in-depth guide in Finnish and Swedish, link to Finnish).
- You donate an amount of money to a UK-located university, institute of higher education or a fund for academic research: the deduction for a donation made by a private individual is no longer available.
- If you leave Finland and move to the UK, it now affects the tax treatment of any capital gains that you may receive in a swap deal. Read more about these gains in section 19.4 “Swaps of shares" – Osakevaihto of the guidance "Taxes on sales and other conveyances of securities" – Arvopaperien luovutusten verotus (in Finnish and Swedish).
If you, the taxpayer, are a UK resident and you receive income from a Finnish source
- You are an artiste, athlete or sportsman and a non-resident taxpayer in Finland receiving income from a source in Finland: any direct expenses you have paid that relate to that income no longer entitle you to claim deductions.
- If you are a nonresident for Finnish tax purposes, you can still demand progressive income taxation of your income in Finland. However, you can no longer invoke the 75%-of-annual-income rule unless you are issued the residence permit referred to in the Directive on academic researchers. More information on the progressive taxation of a nonresident taxpayer can be found in section 2.4 of the Taxation of employees from other countries guidance.
Healthcare contributions withheld from wages, starting 1 January 2021
The country where health insurance contributions are imposed on workers’ wages continues to be the country of issue of the worker’s A1 Certificate, provided that the Certificate’s validity extends past the end of the transition period.
After further information has been received on the subject of health insurance for mobile workers, we will be able to add more details, and update this guide accordingly.
Medical care contributions on pensions, starting 1 January 2021
Although you reside outside of Finland, if you receive pension from Finland, you must pay the insured person’s health care contribution, which is less than 2% of the pension, to Finland. If, however, you obtain a certificate from Kela confirming that you are no longer covered by the Finnish social security system and if under the EU Social Insurance Regulation, Finland is no longer liable to reimburse your medical costs to your new country of residence, your obligation to pay this contribution will be waived.
If you receive pension from Finland and Finland is accountable for your medical care, you must still pay the health care contribution to Finland. This concerns you if you have started living in the UK prior to the end date of the transition and continue to live there later.
If you are a tax resident of Finland and you receive pension from the UK, the health care contribution to Finland will be imposed the same way as previously. For more information, see “Taxation of pensions in cross-border circumstances” – Eläketulojen verotus kansainvälisissä tilanteissa (available in Finnish and Swedish, link to Finnish), section 5.11.1.
After the end of the transition period, if you move from one country to the other, it may affect the conditions of whether the Finnish health care contribution is imposed. A further update to this guide will be released later.
Impact on businesses
The free movement of goods between the UK and EU continued throughout the transition period. During the transition period, the current rules and guidelines of intra-Community trade relating to value added taxation and excise duties were applied.
An important part of the Withdrawal Agreement is the Protocol on Ireland and Northern Ireland. Under the Protocol, starting 1 January 2021, Northern Ireland will be a territory where the VAT and excise duty rules (regarding goods trade) of the European Union continue to be applied. In other words, the transactions with goods between EU countries and Northern Ireland will be taxed as intra-Community supply and intra-Community acquisition.
However, supply and acquisition of services with Northern Ireland are taxed as if Northern Ireland were a non-EU country from the VAT perspective. Trading with services is not included in the Protocol on Ireland and Northern Ireland. Read more at: VAT rules on place of supply in service trade.
As for excise duties, a duty suspension arrangement will be in effect, making Northern Ireland an exemptible territory for a temporary period. This means that movements of goods will take place on a temporary basis between Northern Ireland and the EU in the framework of the EMCS system.
The Protocol continues to be in effect up to 31 December 2024. After that, the Protocol will no longer be applied unless the House of Representatives (Northern Ireland) approves of it.
As of 1 January 2021, an XI-prefixed VAT identification number will be used in goods trade between the EU and Northern Ireland. In addition to goods trade, the VAT number will be used in the VAT refund procedure.
- Council Directive (EU) 2020/1756
- Further information about the withdrawal (the Finnish Prime Minister’s Office)
Additional information about how companies are taxed after the transition period:
After the transition period, as of 1 January 2021, all goods moving between the UK and the EU must be cleared at Customs. After 1 January 2021, any goods brought by a company from the UK to Finland are regarded as imports.
The VAT treatment of imports depends on whether the importer is liable for VAT:
- If you are the importer and you have a Finnish VAT registration: file and pay the VAT-on-imports to the Tax Administration as a self-assessed tax; file the Customs Declaration to the Finnish Customs
- If the importer is not VAT registered: The Finnish Customs will charge VAT on imports on the value of the goods that were imported.
On or after 1 January 2021, companies that sell goods from Finland to purchasers in the UK will be treated as exporters, and the sales transactions are regarded as VAT-exempt exportation. In other words, the transactions are no longer an intra-Community supply, exempted from VAT.
Note: If you are importing goods from the United Kingdom to Finland or exporting goods to the United Kingdom, your company will need an EORI number for its Customs transactions as of 1 January 2021. You can apply for the EORI number from Customs (tulli.fi/en).
Deliveries in progress; start date of goods transport occurs before the transition period ends
If the delivery or transport of goods between the UK and an EU Member State begins before the transition period ends, the rules on intra-Community supply and acquisition are followed. This principle applies even if the delivery or transport ends after the end of the transition period.
However, when goods are imported from the UK to Finland after the transition period and the rules of intra-Community acquisition are applied, the goods must be presented to Customs for clearance. Customs may request the importer to prove that the delivery or transport began before the end of the transition period. Report an intra-Community acquisition in the usual manner.
VAT recapitulative statement
An intra-Community supply of goods is reported on the VAT return. In addition, the VAT recapitulative statement must be filed. The intra-Community supply of goods is usually considered to have taken place in the calendar month following the month of delivery. If the buyer is issued an invoice in the month of delivery, the supply is considered to have taken place in the month of delivery.
For example, if the seller delivers goods in December but has issued an invoice in advance or does not issue an invoice until January, the intra-Community supply should be included in the report prepared for January 2021. In this exceptional case, however, we recommend that the intra-Community supply to the UK should be allocated to December 2020, because the last recapitulative statement information that the Finnish Tax Administration will send to the UK is for December 2020. Previously filed reports can still be corrected.
The VAT recapitulative statement can be used to report supply of goods and triangulation when the destination is Northern Ireland and the XI-prefixed VAT number is used. Supply of services to Northern Ireland cannot be reported on the recapitulative statement. The first such recapitulative statement that you can file is for January 2021.
Call-off stock notification
Goods moved to a call-off stock operated by the buyer or a third party must be supplied to the buyer within 12 months from the date when they were moved to the call-off stock. If the goods were moved to the call-off stock before the end of the transition period and the right of ownership transfers to the buyer as the transition period ends, the supply is regarded as an intra-Community supply and an intra-Community acquisition.
Example: A Finnish company moved goods to a call-off stock in the UK before the end of the transition period in November 2020, and the right of ownership transfers to the buyer in July 2021. This is an intra-Community supply. However, it cannot be reported as an intra-Community supply for July 2021 on the VAT return or the VAT recapitulative statement. It must be reported as turnover taxable at zero VAT rate. It is important that the list of call-off stock goods is up-to-date.
Example: A British company moved goods to a call-off stock in Finland in April 2020, and the right of ownership transfers to the buyer in March 2021. This is an intra-Community acquisition. The intra-Community acquisition is reported for March 2021 on the VAT return in the usual manner. It is important that the list of call-off stock goods is up-to-date.
If goods are moved to a call-off stock in Northern Ireland on or after 1 January 2021, a call-off stock notification must be filed. Specify the buyer’s XI-prefixed VAT number on the notification.
Getting ready for the end of the transition period – the EU Commission has released the following Notices:
After the transition period, no supply of services between Finland and the UK will be an intra-EU supply (sale or purchase).
Please note that when you fill out your VAT return, no sale or purchase of services in the UK is reported anymore under “Sales of services to other EU Member States” and “Purchases of services from other EU Member States”. Instead, report it as a sale of services to non-EU countries under “Turnover taxable at zero VAT rate”. Finnish companies that sell services to customers in the UK will no longer have to submit the EU VAT Recapitulative Statement.
After the transition period, to sell services to customers in the UK will be seen as selling to a non-EU country, that is, to a “third” country. The VAT on the sale will be taxed in accordance with the provisions that determine the actual country of supply in the VAT Act (= the place-of-supply rules). Accordingly, if any service is regarded as having been sold in the UK – that is, outside the EU – the VAT treatment must be cleared up with the UK authorities.
The VAT numbers of British trading partners (with prefix GB) can no longer be validated after 1 January 2021. You can validate the VAT numbers of British trading partners up to 31 December 2020 and the XI-prefixed VAT numbers of Northern Irish trading partners starting 1 January 2021 in the following ways:
- in the VAT number validation service
- by phone: 029 497 062 (standard call rates apply)
- by e-mail: eu.vies(at)vero.fi.
The VAT taxpayer company must be able to prove, by presenting its accounting records if necessary, that it has been entitled to VAT-exempt intra-Community supply to the UK, or that it made an intra-Community acquisition from the UK before transition period end. The above also concerns any other transfers of assets that the VAT taxpayer company may have made with a UK counterpart before transition end.
How to request refunds of VAT from the UK and Northern Ireland
For purchases that you make in the UK up to 31 December 2020, log in to MyTax to send your request for refund. The last date to do so is 31 March 2021.
No online requests for refunds can be made relating to purchases you make in the UK on 1 January 2021 or later. If you are about to request a refund for such a purchase, contact UK government services (Gov.uk) for instructions.
You can log in to MyTax to send your request for refund for purchases you make in Northern Ireland – only for goods purchases. The transition period end date is 31 December 2024 for Northern Ireland.
Read more: Refund of VAT to Finnish businesses
Sending requests for VAT refund to Finnish authorities
If a UK company buys goods and services from Finland during the transition period, it can request a refund of the VAT, provided that the UK company is not liable to pay VAT on supplies in Finland. UK companies must submit their requests by 31 March 2021.
After the transition period, UK companies must complete Form 9550 to ask for refund for any purchases made after the end date of the transition.
Companies from Northern Ireland can continue to submit their requests online for purchases made on 1 January 2021 or later as long as the purchase is a purchase of goods. The transition period end date is 31 December 2024 for Northern Ireland.
The United Kingdom as a Member State of consumption
You can still report sales to the UK in the VAT special scheme for tax periods ending in 2020. If you file and pay VAT by its due date, the Finnish Tax Administration will be able to forward the information to the UK on time.
- If you are a self-employed individual registered in Finland, file a tax return and pay VAT for the tax period Q4/2020 by the due date, 20 January 2021.
- However, you can still file the first VAT returns for tax periods up to and including Q4/2020 and pay the related VAT in the special scheme until 31 January 2021. After that, you must file and pay VAT directly to the UK. Further instructions are available from the UK tax authority.
If you notice errors in the tax returns you have filed, you can make corrections to your VAT returns for tax periods up to and including Q4/2020 and pay the related VAT in the special scheme up until 31 December 2021. You must make the corrections within three years from the due date of the tax period.
You can make corrections in the special scheme only if the first return for the tax period has been filed no later than 20 January 2021. Please note that you must submit your corrections and pay the VAT directly to the UK starting 1 January 2022.
Example 1: Sales to the UK were reported for the tax period Q4/2017 on 20 January 2018. The seller can correct the return and pay the related VAT within three years from the due date, i.e. by 20 January 2021.
Example 2: The seller has filed a VAT return on the sales to the UK for the tax period Q4/2020 on 20 January 2021. The seller notices an error in the return in April 2021. They must correct the return and pay the related VAT in the special scheme by 31 December 2021.
Example 3: The seller has filed a VAT return on the sales to the UK for the tax period Q4/2020 on 20 January 2021. The seller notices an error in the return in May 2022. They must correct the return and pay the related VAT directly to the UK.
Example 4: The seller has not filed a VAT return on the sales to the UK for the tax period Q4/2020. The seller notices the matter on 1 February 2021. They must file the return and pay the VAT directly to the UK.
The United Kingdom as a Member State of identification
If a self-employed individual has previously been registered for the special scheme in the UK, for example as a seller of e-services to consumers, they must register for VAT directly in those Member States of consumption where they sell their services. Alternatively, the self-employed individual can register as a special scheme user in an EU Member State (“Member State of identification”) if they want to file and pay VAT in the special scheme.
The self-employed individual registered for the special scheme in the UK must file a tax return and pay VAT for tax periods up to and including Q4/2020 in the special scheme by 20 January 2021. Further instructions are available from the UK tax authority.
When tax returns can no longer be submitted and VAT paid to the UK through the special scheme, you must report your sales directly to Finland on the Tax Administration Form 9568e (VAT special scheme, claim for adjustment). You must also pay VAT directly to Finland. You can request the payment information by calling the Tax Administration service number.
If there are errors in the tax returns for tax periods up to and including Q4/2020, the self-employed individual can make corrections in the special scheme up until 31 December 2021. Please note that the corrections must be made within three years from the due date of the tax period. If you cannot make corrections in the special scheme anymore, you must submit them directly to Finland on Form 9568e.
Example 1: Sales to Finland were reported for the tax period Q4/2017 on 20 January 2018. The seller can correct the return and pay the related VAT within three years from the due date, i.e. by 20 January 2021.
Example 2: The seller has filed a tax return on their sales to Finland for the tax period Q4/2020 on 20 January 2021. The seller notices an error in the return in April 2021. They must correct the return and pay the related VAT in the special scheme by 31 December 2021.
Example 3: The seller has filed a tax return on their sales to Finland for the tax period Q4/2020 on 20 January 2021. The seller notices an error in the return in May 2022. They must submit the corrections directly to Finland on Form 9568e as soon as possible, by the end of 2024 at the latest. They must also pay the related VAT to Finland.
After the withdrawal from the EU, the UK no longer operates in the EU internal market. Accordingly, it will no longer stay within the scope of the duty suspension arrangement.
For companies with taxable EMCS movements from the UK to Finland, the procedure will change.
If the company is an authorised warehouse keeper, goods transported to the UK will be reported as exports in the EMCS system. After that, export declarations will have to be submitted as instructed by Customs.
As goods are cleared with Customs, the company can convey them under the duty suspension arrangement, but this requires that the company is a registered consignor with the appropriate authorisation. The authorisation is granted by the Tax Administration. Companies can apply for the authorisation independently. After it has been granted, the company can take the role of a registered consignor. Alternatively, goods can be consigned by another company that has a registered consignor’s authorisation. The consignee must have a warehouse keeper’s or registered consignee’s authorisation.
- Information on EU rules in the field of excise and the post-transition period rules applicable to Northern Ireland (EU Commission’s “Notice to stakeholders”, pdf)
The SEED on Europa
Users of this service can make checks of excise numbers and the products covered by the authorisations that have been granted to companies. Users can continue the checks to find information on their UK trading partners before the transition period ends.
The United Kingdom has exited the EU, and it does not remain a member of the European Economic Area (EEA), either. Because of this, Finnish legislation that provides for tax treatment based on the EU or EEA membership of a foreign company’s country of residence does not apply to payments received from or paid to the UK. Further, the provisions do not apply to mergers and acquisitions (M&A) involving companies whose country of residence is the United Kingdom. However, the tax treaty between Finland and the UK concerning income taxation alleviates the effects of the UK’s exit from the EU (Brexit).
Dividends, interest and royalties
Dividends that Finnish companies receive from companies residing in EU or EEA countries are exempt from tax under certain conditions. Because the UK is no longer a member of the EU or the EEA, dividends that a Finnish company receives from the UK are not exempt from tax under Finland’s national tax legislation.
In accordance with the tax treaty between Finland and the UK, however, dividends will still be exempt from tax in Finland if the dividend recipient holds at least 10% of the votes in the company distributing dividends. Because of the tax treaty, Brexit has no effect on taxes imposed on dividends, interest and royalties in the country of source.
Applying the M&A provisions of the act on the taxation of business income
The provisions (§ 52 a–f) of the act on the taxation of business income (Laki elinkeinotulon verottamisesta 360/1968) that are based on the EU Merger Directive are applied, on certain conditions, to mergers and acquisitions where the domicile of a party is in an EU or EEA country that is other than Finland. After Brexit, these provisions are generally not applicable to arrangements involving companies domiciled in the UK.
Mutual agreement procedure
Taxpayers can ask for a mutual agreement procedure (MAP) to be initiated if they have been taxed contrary to the provisions of a tax treaty. MAP can be used in a procedure according to the EU Dispute Resolution Directive, in a procedure according to a tax treaty and, in the case of transfer pricing and allocation of a permanent establishment’s income, in a procedure according to the EU Arbitration Convention. After the transition period, if the UK is one of the countries involved in a MAP, only a procedure according to the tax treaty can be used.
The UK’s exit from the EU (Brexit) has no effect on car tax collected on vehicles imported from the UK to Finland.
If you import a vehicle from the UK to Finland, please read the section Changes to tax assessment and reporting of goods trade.
Also note that starting 1 January 2021, vehicles imported from the UK to Finland must be cleared through Customs.
Read more about customs clearance (tulli.fi):
After the transition period, an insurer established in the UK will not be regarded as an operator conducting insurance activities in Finland under the act on the tax payable on certain insurance premiums (Laki eräistä vakuutusmaksuista suoritettavista veroista 664/1966). This applies to insurance policies issued by insurers in the UK on or after 1 January 2021. If the insured party takes out an insurance policy from an insurer in the UK on or after 1 January 2021 and the policy is subject to the tax on insurance premiums in Finland, the insured party becomes liable to pay tax.
If the insurance company’s registered office is in the UK, it can establish a branch office in Finland. In this case, the branch office is the insurer and therefore liable to pay tax on the insurance policies taxable in Finland. The branch will need a licence from the Financial Supervisory Authority in order to conduct insurance activities in Finland.
Question 1: A business enterprise, a VAT taxpayer in Finland, buys goods from a UK seller and receives an invoice that the seller has made out for an intra-Community sale. The date on the invoice is prior to transition period’s end date. The delivery process starts in the UK on a date when the transition period is still ongoing. However, the goods arrive in Finland after the transition period’s end date. Is this purchase an importation of goods?
Answer: No, it is not. If the transport of goods from the UK began before transition period end date, the authorities in Finland will treat this purchase transaction as an intra-Community acquisition.
Question 2: A Finnish business enterprise sells goods from Finland to a UK company in the UK before the end date of the transition period. Delivery of the goods to the UK takes place after the end date by air cargo. Is this sale of goods an intra-Community sale?
Answer: No, if the goods transport began when the transition period had ended.
Question 3: A private individual who is a Finnish citizen buys a car from a dealership in the UK in order to use it in Finland. The car is a ‘new means of transport’ under the definition laid down in the Finnish VAT Act. The seller hands over the car to the private individual on a date before the transition period’s end. The car arrives in Finland on a date when the transition period has ended. Is this an intra-Community purchase?
Answer: Yes, because the transport of the good from the UK began before transition period end date.
Question 1: An employee of a Finnish company travelled to the UK in business in October 2019. How can the Finnish company submit an application for VAT refunds on the purchases (including hotel services) that the employee made during the business trip in the UK?
Answer: The Finnish company can log in to MyTax to send the application. The last date to do so is 30 September 2020.
Question 2: An employee of a Finnish company travelled to the UK in business in April 2020. How can the Finnish company submit an application for VAT refunds on the purchases (including hotel services) that the employee made during the business trip in the UK?
Answer: The Finnish company can log in to MyTax to send the application. The last date to do so is 31 March 2021.
If a British company wants to voluntarily register as liable for VAT for their business activities in Finland, does the company have to name a representative in Finland (Value Added Tax Act § 173 a)?
Yes, the company would have to name a representative (Answer revised due to new interpretation 19 May 2021).
Further information on the European Commission’s website:
- Commission notices on how to prepare for the time after the transition period in different lines of business
- Market Access Database: Information on trading with third countries
- Negotiating documents
- Brexit negotiations and Brexit preparedness
Information on The European Council’s website
Information on other authorities’ websites
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