VAT - Value Added Tax

Table of Contents

1. VAT - Value Added Tax – Understanding the Basics of VAT
2. When Does VAT Increase?
3. What is VAT?
4. VAT Liability and VAT Threshold
5. Paying VAT
6. VAT Deduction in Practice
7. VAT Rates for 2024
8. Light Entrepreneur and VAT: Does a Light Entrepreneur Need to Pay VAT?
9. What VAT Rate Should I Use in My Invoices as a Light Entrepreneur?
10. Reverse VAT
11. Reverse VAT in the Construction Industry

When Does VAT Increase?

According to the current government policy, VAT is set to increase at the beginning of 2025. The new VAT rate will be 25.5%. With bisse.fi, you can stay updated on changes in VAT rates in Finland. Check the latest information on VAT changes and their impact on your business.

VAT - Value Added Tax – Understanding the Basics of VAT

Value Added Tax (VAT) is a consumption tax applied to almost all goods and services. It is a significant part of Finland’s tax system, and understanding it is crucial, especially for entrepreneurs. This article covers the basics of VAT, VAT liability, VAT rates in 2024, and the practicalities of VAT deductions.

What is VAT?

Value Added Tax (VAT) is a consumption tax paid by the buyer of a product or service. It taxes the difference between the cost of producing the intermediate products used and the final sale price of the product. VAT is state money that temporarily resides in the entrepreneur’s account.

VAT Liability and VAT Threshold

In 2024, the VAT liability threshold is 15,000 euros. An entrepreneur must register for VAT if their turnover exceeds this threshold. With a turnover below 15,000 euros, there is no need to charge VAT, but VAT on purchases cannot be deducted either.

Paying VAT

VAT is declared and paid periodically through the OmaVero service. The reporting period can be monthly, quarterly, or yearly. Entrepreneurs must know how much tax to pay and the deadlines for payment.

VAT Deduction in Practice

A VAT-registered business can deduct the VAT on its purchases from the VAT it owes on its sales. For example, if a company buys a phone for 1240 euros (VAT 25.5% or 255 euros), it can deduct this VAT amount in its accounting.

As a VAT-registered entrepreneur, you can fully deduct the VAT on purchases in your accounting, so your business effectively pays only 1000 euros for the purchase.

VAT Rates for 2024

In 2024, Finland has three different VAT rates:

• 25.5%: General rate.
• 24%: General rate (before 01.09.2024).
• 14%: Food, animal feed, restaurant, and catering services (excluding alcoholic beverages and tobacco products).
• 10%: Books, medicines, sports services, cinema tickets, cultural and entertainment events, passenger transport, accommodation services, and television and radio broadcasting fees.

Light Entrepreneur and VAT: Does a Light Entrepreneur Need to Pay VAT?

Light entrepreneurs using the bisse.fi service must charge VAT on all their invoices because the background company RNN Group Oy’s turnover exceeds the 15,000 euro threshold. Light entrepreneurs need to consider VAT when pricing their services.

What VAT Rate Should I Use in My Invoices as a Light Entrepreneur?

Most goods and services are subject to the general VAT rate of 25.5%. Below are the goods and services subject to lower VAT rates that are typical for light entrepreneurs.

14% VAT

• Sales of restaurant and catering services (excluding alcoholic beverages and tobacco products) - e.g., catering.

10% VAT

• Sports services.

If you provide fitness instruction aimed at facilitating physical activity, such as spinning, crossfit, group exercise, or group riding lessons, the invoice uses a 10% VAT rate.

In contrast, coaching and sport-specific training aimed at developing individual skills generally fall under the 25.5% VAT rate. Examples of coaching include personal training, soccer coaching, and individual riding lessons.

0% VAT

• Construction industry VAT 0%, where the buyer is a construction company that reports and pays VAT (VAT Act 8 c §).
• Fees for performing artists or other public performers or athletes.

Reverse VAT

Reverse VAT means that the buyer is responsible for paying the VAT. This applies to sectors such as construction and intra-EU invoicing. The seller must determine if reverse VAT can be used, and the invoice must indicate the buyer’s VAT liability.

Reverse VAT in the Construction Industry

Reverse VAT liability in the construction industry applies to specific construction-related services. It is important to note that reverse VAT does not cover all construction-related work, such as design and landscaping.

Reverse VAT applies to the following services related to real estate:

• Ground and foundation work
• Construction work
• Building installation
• Building finishing
• Rental of construction machinery with an operator
• Construction cleaning
• Rental of labor for construction services

Reverse VAT does not apply to:

• Sale of construction materials
• Sales to private individuals
• Architectural services, technical design, construction planning, or other engineering services
• Transportation services
• Planting and maintenance of green areas

The seller is responsible for determining if reverse VAT can be used. When applying reverse VAT, the seller invoices the buyer without VAT. The invoice must indicate the buyer’s VAT liability and the basis for the VAT liability. Invoices can also be sent through bisse.fi to companies operating mainly in the construction industry if the conditions set by the Tax Administration are met.

Note: bisse.fi is not responsible for the accuracy or timeliness of the information on this page. The article was first published on 14.06.2024.