Scam messages have been sent out in the Tax Administration’s name. Read more about scams.

Deducting VAT on purchases

As a taxpayer with VAT-taxable operations, you may deduct the VAT included in any goods and services you buy from others.You can deduct the VAT only if you have purchased the goods or services for a purpose that relates to the business operation for which you are liable to VAT.

If you also use the purchased goods or services for other activities, your right of deduction is limited to the proportion of their use for VAT purposes. However, it is required that the deduction is not subject to any other restrictions set out by the VAT Act.

For example, no VAT deduction is allowed in circumstances where a self-employed taxpayer or company employees use the goods and services privately or for an activity of the company for which VAT cannot be deducted.

Example: A self-employed person sells domestic cleaning services, subject to VAT, and also performs social services which is an activity exempted from VAT. They purchase a van for business use. The van is also used privately from time to time. The self-employed is entitled to a VAT deduction on the purchase price and running costs of the van only to the extent that it is being used for the domestic cleaning work that is subject to VAT. For getting the deduction, the self-employed must keep a driver's log. If necessary, the entries in the driver's log will serve as proof of the distances driven for a VAT purpose and non-VAT purpose; similarly, they will also prove the extent of private driving.

VAT deduction rights of nonprofit organisations

VAT may be deducted only for purchases that a nonprofit organisation has made for VAT-liable activities.

No VAT deduction is permitted if the purchases were made for the following purposes (some examples):

  • activity promoting the public good
  • other activity that has been exempted from income tax
  • activity for which there is no liability to pay VAT (such as healthcare and medical services, social services and rental operations of real estate property)
  • private use by the organisation’s employees or by its membership.

If an aqcuisition has been made for both VAT-liable and VAT-exempt activities, the VAT for it must be divided between the activities in relation to e.g. the use of the goods, net sales, real estate surface area or work hours.

Example: A nonprofit organisation runs a small retail shop. It has been regarded as an activity liable to income tax and VAT. In addition, the organisation also maintains a sports team, which is a VAT-exempt activity as it promotes the public good.  The organisation may deduct the input VAT of all the purchases goods and services it makes for the shop.  The organisation does not have the right to deduct VAT from the purchases that are related to its activity promoting the public good. If a purchase is made that will serve both the VAT-liable and VAT-exempted activities of the organisation, the input VAT contained by the purchase price must be divided accordingly. In other words, a division must be made that reflects the proportions of the VAT and non-VAT use.   

Report the deductible VAT on a VAT return

  • When completing the return for the each tax period, enter the period's VAT on purchases in the "Tax deductible for the tax period" line.
  • In the case of own use, enter an adjustment caused by the fact that you have used goods and services privately in "Tax on domestic sales by tax rate".
  • In the case of revision of a deduction on an investment in real estate, enter an adjustment relating to the VAT deduction in ”Tax deductible for the tax period”.

Read more:

Restrictions on the VAT deduction

Frequently, your right to deduct VAT is restricted in situations where the purchases relate to private consumption (by yourself or by your employees) rather than company business.

Examples of circumstances where VAT deductions cannot be made:

  • Purchases have to do with the self-employed person's daily travel between home and work
  • Goods or services were purchased for an entertainment purpose
  • Real estate property or expenses relating to it are involved that have to do with residential use by the self-employed person or by employees, or have to do with recreational or hobby use.

Expenses that relate to passenger cars can only be deductible in some circumstances.

Adjustments to VAT deductions

If the taxpayer has entered a VAT deduction on the purchase of a good but it is later used for a non-deductible activity or for a purpose subject to restrictions of VAT deductibility, the taxpayer must treat this the same way as a transfer to own use and pay VAT accordingly.

Procedure for adjusting the VAT deduction on a real estate investment

The adjustment procedure is applied to real estate investments made for the business operator’s business activities.

Real estate investments refer to construction services relating to new construction or refurbishment of real estate. The business operator can either build or refurbish the real estate unit by themselves, or buy the construction service from another company. Real estate investments also refer to the purchase of a real estate unit on which the seller has paid taxes on their own use.

The VAT included in real estate investments is deductible for the business operator insofar as the real estate unit is used in activities that entitle them to the VAT deduction or refund.

The adjustment procedure of real estate investments requires the business operator to monitor the use of the real estate unit for business activities during the adjustment period. The right or obligation to adjust the VAT deduction included in the real estate investment may arise in the following situations:

  • The real estate unit’s use that entitles the business operator to the VAT deduction decreases or increases in proportion to the use that entitled the business operator to the original deduction.
  • The real estate unit is sold or transferred.
  • The business operator’s liability to pay VAT ends.
  • The real estate unit is removed from business assets.

Read more:

Check the seller's liability to VAT

Buyers can deduct VAT only if the seller, too, is liable to pay VAT. Visit Business information system ( to check the VAT liability of companies you do business with.

Sellers who are liable to pay VAT must issue an invoice to their customers. It must indicate the amount of VAT included in the price.

Page last updated 4/19/2024