The first thing you should understand about value-added tax is that it is not your money; it belongs to the state. It just travels through your account into the state treasury.
Companies are VAT taxpayers, meaning that they have to collect value-added tax (VAT) from their customers by including it in the prices of their products and services, and remit it to the state. In Finland, the general value-added tax rate is 24 per cent. In practice, this means that if a company wants to charge their customer 1,000 euros, it should add a 24-per-cent value-added tax to the price – in this case, 240 euros. So, the customer pays 1,240 euros for the product or service.
Entrepreneurs remit the collected VAT to the state, but, as VAT taxpayers, they get the VAT included in the prices of their investments back as tax returns, insofar as the investments are used in their business that is liable to pay VAT.
Private persons operating without a company, such as light entrepreneurs, cannot register as VAT taxpayers. Freelancers whose annual income exceed the set VAT limit (15,000 euros in 2022) have to get a Business ID and register as VAT taxpayers.
When entrepreneurs negotiate on the prices of their services or products with customers, it is important that both parties understand whether or not the discussed price includes value-added tax. When selling services or products to private people, you usually include VAT in the price. In turn, in business-to-business trade, prices are usually presented without VAT because the company buying the service or product can probably deduct it in their taxation, and its budget is most likely built on prices without taxes.
Therefore, it is safer to first present a price including VAT, and, if the customer points out how high it is, you can add, “….Including a 24-per-cent VAT, of course.”
In invoices, you can indicate your price and the portion of VAT like this, for example: € 1,000 (VAT 0%) or € 1,240 (VAT 24%). To recap, the buyer should understand that if a price is indicated as “VAT 0%”, a 24-per-cent tax is added to the price. If the vendor is not liable to pay VAT, they should clearly indicate this in their invoices. Furthermore, the invoices should clearly state what kind of service or product is traded and what its value-added tax rate is.
Companies with an annual turnover remaining below a certain limit (15,000 euros in 2022) are exempt of collecting VAT. This reduces the amount of administrative work required of these entrepreneurs but, on the other hand, they are not entitled to VAT refunds either. In this context, you should also take note of what is called a “VAT relief for small businesses.” You can find more information on this further on in this Guidebook.
Even companies with an annual turnover exceeding the VAT threshold can, in certain cases, be exempt from liability to collect VAT. This is possible if the products or services they sell are determined as exempt from VAT. An example of such a case is the health care industry.
Different products and services can be subject to different amounts of VAT. The term referring to this is value-added tax rate. In 2022, the VAT rates in Finland are 24, 14 and 10 per cent.
Remitting value-added tax to the state
VAT collected by companies is filed periodically to the Tax Administration and paid via the MyTax service. The filing period can be one month, one quarter or one year. You should file and pay the tax on the 12th day of the second month following the tax period. For instance, the VAT for February must be paid by 12 April.
However, you can apply for a longer filing period if your company turnover is small. Companies with a turnover up to 30,000 euros in a calendar year can pay value-added tax once a year. This is recommendable for part-time entrepreneurs who only have few receipts to file.
Small business owners can remit their value-added tax on a cash basis. It means that the value-added tax payment date is calculated from the moment when the customer’s payment actually lands on the company’s account. For example, if you have completed a job in January but the customer pays the invoice only in March, you need to remit the VAT for the payment by 12 May.
From the beginning, it is best to send receipts of all purchases, even small ones, to your bookkeeper digitally. It makes bookkeeping easier and saves time and money. Bookkeepers cannot make VAT deductions for purchases without receipts.
VAT relief for small businesses
Even if your business starts out small, you should consider registering as a VAT taxpayer. Then, you can deduct the VAT included in your investments and get a VAT relief for small businesses.
It is a tax relief aimed at entrepreneurs running a small business. The beneficiaries of this policy are VAT taxpayer companies whose turnover in a financial year is less than 30,000 euros. The smaller your turnover is, the larger the relative benefit from the relief. Company form does not affect the relief.
The VAT relief means that the state does not levy all the value-added tax belonging to it but gives it to the entrepreneur. In other words, the entrepreneur only pays part of the value-added tax. The remaining VAT turns into company profit, on which the owner then, of course, pays income tax.
However, entrepreneurs need to request for the relief themselves. This happens online in conjunction with the final (or only) VAT filing of each financial year.
If an entrepreneur does not enter the VAT register and their turnover exceeds the VAT limit (15,000 euros in 2022), their company has to pay VAT retroactively for all the sales of the financial year. On the contrary, if a company enters the register but the turnover does not exceed the limit, thanks to the VAT relief, the company gets a refund of all the VAT paid.
So, you should definitely enter the VAT register if you think that there is any chance of your turnover exceeding the VAT limit.
How is the VAT relief for small businesses calculated?
If a company is registered as a VAT taxpayer but its turnover in a financial year is less than 15,000 euros (2022 limit), it can apply for a refund of the paid VAT. For a turnover of 15–30,000 euros, the company gets a refund for part of the VAT is has paid. This is called a partial VAT relief. From the links below, you can find a calculation formula for the VAT relief and a calculator provided by the Tax Administration.
VAT also entails numerous other details, such as VAT reverse charge in the construction industry, but they are not examined further here.
VAT calculation formulae:
https://www.vero.fi/en/businesses-and-corporations/taxes-and-charges/vat/how-to-calculate-vat/
VAT relief for small businesses and how to calculate it:
More information on value-added tax:
https://www.vero.fi/en/businesses-and-corporations/taxes-and-charges/vat/