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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Finland: VAT essentials 

Essential information regarding VAT as it applies in Finland.


Scope and Rates

What supplies are liable to VAT?


VAT is due on any supply of goods or services made in Finland, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by said person. Supply includes all forms of supply.


Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example the private use of business assets.


What is the standard rate of VAT?


The standard rate of VAT is 24 percent (since 1 January 2013).


Are there any reduced rates, zero rates, or exemptions?


Yes.


There is a reduced rate of 14 percent (since 1 January 2013) for certain goods and services, including:


  • food
  • animal feed
  • restaurant and catering services.

In addition there is a reduced rate of 10 percent (since 1 January 2013) for certain goods and services, including:


  • accommodation
  • books
  • pharmaceuticals
  • passenger transport
  • cultural and sporting services
  • newspaper subscriptions

There is an extensive list of zero-rate supplies, including:


  • sale of an edition of certain newspaper or periodical to a corporation for promoting the public good
  • sale and hire of certain vessels
  • sale of goods outside the EU
  • sale of certain transport and ancillary services relating to goods sent outside the EU.

The list of exemptions includes:


  • immovable property (with some major exceptions)
  • insurance
  • finance
  • education
  • health and welfare
  • lotteries and supply of places for gaming machines
  • performing artists fees and certain incorporeal rights
  • general post services

Note: it is not possible to recover VAT incurred in making exempt supplies.


What are the other local indirect taxes beside VAT?


  • tax on insurance premiums and lottery tax
  • excise duties on alcohol and alcoholic beverages, on tobacco, on liquid fuels, on electricity and certain fuels, on sweets, ice cream and soft drinks and on beverage containers
  • oil waste duty, oil damage duty and tax on waste
  • car tax and vehicle tax.

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Registration

Who is required to register for Finnish VAT?


Finnish Entities


If a business makes taxable supplies in Finland over the VAT registration threshold (EUR 8,500) it will be required to register and account for Finnish VAT. If it trades below the registration threshold it can still choose to register for VAT as a Voluntary Trader.


Non-Finnish Entities


The registration rules that apply to Finnish entities also apply to non-Finnish entities that make taxable supplies in Finland. However, there is no minimum VAT registration threshold for businesses not established in Finland.


If a business is not registered for VAT in Finland but sells and delivers goods from another Member State to customers in Finland who are not VAT registered (distance sales), where the value of those sales exceeds a threshold of EUR 35,000, the business is required to register and account for VAT in Finland.


To register, a non Finnish entity must use the Y1 form the Finnish registration authority’s web site (this form is to be used in most cases when a non-Finnish entity registers only for tax purposes in Finland).


Are there penalties for not registering or late registration?


Yes, provided that the business has made taxable supplies during that time. Although there is not a specific late registration penalty the amount of additional taxes and penalties due is based on the length of delay of the late/non-payment of VAT.


Is voluntary VAT registration possible for an overseas company?


Yes. The foreign company without fixed establishment (or if there is a fixed establishment it does not intervene in that supply) in Finland and carrying out taxable activity generally subject to reverse charge VAT may voluntarily register for VAT in Finland. The application cannot be, however, made with retroactive effect.


Voluntary VAT registration is possible on account of supply of certain construction services when a reverse mechanism must be applied, but its effect is limited to the right to recover input VAT on Finnish periodic tax returns.


The voluntary registration enables the foreign company to deduct the Finnish input VAT on a monthly basis. When the foreign company registers voluntarily for VAT in Finland, the foreign company can no longer take advantage of the Finnish reverse charge rules. Hence the Finnish VAT is to be accounted for by the voluntarily registered foreign supplier as output tax.


NB: voluntary VAT registration makes the supplier liable to pay VAT on all sales made in Finland, incl. sales by any part of the same legal entity (such as by other foreign branches of the same company, regardless of whether the branch intervenes in the making of the sales).


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


It is possible to avoid registering and accounting for Finnish VAT when making certain supplies.


In the following examples the obligation to account for the VAT due can be shifted to the customer provided that the customer is registered for Finnish VAT.


Triangulation


If a business is an intermediate supplier to a Finnish buyer of goods which it purchases from a business in a European Union (EU) member state other than its own and are delivered from there to Finland, VAT due can be accounted for by the Finnish customer (see section Invoices).


Call-off Stock


Where a business stores stock at a customer’s premises under its control the customer accounts for VAT on the supply as an acquisition provided that all the stock will be sold to the same customer.


Supply and Install


If a business supplies goods and installs or assembles them in Finland, the customer can account for any VAT due, in effect, as a reverse charge. There are, however, several exceptions where either reverse charge mechanism does not apply or it is not sensible to apply the reverse charge mechanism for example when it incurs significant amount of Finnish VAT.


Reverse Charge Services


These services are covered in more detail at (section International Supplies of Goods and Services).


Bear in mind that these provisions are subject to particular requirement.


Does an overseas company need to appoint a fiscal representative?


The Finnish VAT Act no longer requires EU businesses to appoint a VAT representative when voluntarily applying for VAT registration in Finland. The VAT Act was amended effective from 1 January 2007 in this regard. According to the Finnish VAT Act EU businesses or foreign businesses established in a country, with which a convention concerning mutual assistance has been concluded, would no longer be obliged to appoint a local VAT representative when registering for VAT purposes in Finland.


Other foreign businesses, which are not established or do not have a fixed establishment in another Member State or in a country with which a convention has been concluded, would still be required to appoint a local VAT representative when registering for VAT purposes in Finland.


KPMG in Finland can act as a fiscal representative when the foreign company is liable to appoint a VAT representative. KPMG in Finland provides VAT compliance services also for foreign companies that are obliged to register for VAT in Finland and thus are not liable to appoint a formal fiscal representative.


Please contact the Finnish knowledge manager for further details.

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VAT grouping

Is VAT grouping possible?


Yes, provided various criteria are met. The parent company that forms the VAT group with the other group companies must primarily perform VAT exempt financial or insurance services. The VAT group members must have close financial, economic, and organizational links with each other.


Can an overseas company be included in a VAT group?


Yes, provided the company has a fixed establishment in Finland. Generally, an establishment requires human and technical resources to be present.

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Returns

How frequently are VAT returns submitted?


Registered businesses are required to report VAT on periodic tax returns on a monthly basis. However, there are two exceptions where VAT can be reported on Periodic Tax Returns can be submitted quarterly or annually.


Businesses with the annual turnover not more than EUR 25,000 or primary producers can report VAT on periodic tax returns annually.


Businesses with the annual turnover not more than EUR 50,000 can report VAT on periodic tax returns quarterly.


The periodic tax return also contains information regarding e.g. employer’s payments. Failure to file the periodic tax returns on time results in a penalty.


Are there any other returns that need to be submitted?


European Sales List (ESL)


If your business supplies goods which are shipped from Finland to VAT registered businesses in other EU member states (see section International Supplies of Goods and Services), you are required to complete ESL's.Since 2010 supplies of services to VAT registered businesses in other EU member states must also be reported on the ESL's when the supplies give rise to a reverse charge VAT liability for the recipient of the services (article 192a of the EU VAT Directive 2006/112/EC).


ESL's are submitted monthly.


Failure to file ESL’s accurately and on time results in a penalty.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or arrivals to or from other EU member states, which exceed a certain threshold (EUR 275,000 per calendar year for arrivals effective from 1 January 2011 and EUR 500,000 per calendar year for dispatches effective from 1 January 2012) must complete supplementary declarations each month provided that the customs authorities have informed the company of this reporting liability.


Failure to file Intrastat declarations accurately and on time may result in a penalty.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Amounts in foreign currencies are converted into euro by applying the latest sales rate published by a commercial bank at the time when liability to pay VAT on sales arises. However, the date of the invoice or the date when the payment has accrued is the decisive date, if the VAT is assigned to the month of invoicing or to the month when the payment has accrued, within the same accounting year.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. If you are established in another EU member state, you should make a claim on the website maintained by your own country's tax authority (according to Directive 2008/9/EEC). If you are a non-EU business you should recover the VAT under the 13th Directive. Under both of these provisions there are strict time limits for making claims. The companies established in other EU member states must submit the claims by 30 September of the following year. The companies established in outside EU must submit the claims by 30 June of the following year.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Reciprocity is not required in Finland.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • Exempt supplies: where VAT relates to both taxable and exempt supplies, you need to make an apportionment.
  • Non-business (including private) activities: where VAT relates to business and non-business activities, an apportionment is required.
  • Motor cars (excluding commercial vehicles): with certain exceptions you cannot recover VAT on the purchase of a motor car or on lease charges or any other expenses directly related to such cars.
  • Business entertainment: VAT is not recoverable on business entertainment costs but can be recovered on staff entertainment provided that the expenses are not more closely related to private consumption of the employees than to taxable business of the company.
  • Purchases falling within the Tour Operators' Margin Scheme: the VAT on goods and services which fall under this scheme cannot be reclaimed.
  • Goods sold under one of the margin schemes for second hand goods. There are a number of schemes which provide for VAT to be accounted for on the goods' sales margin, but do not allow VAT recovery on the purchase of those goods.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer that is registered for VAT in another EU member state and the sale involves the removal of those goods from Finland (either by the supplier or its customer) to that Member State, then it does not need to charge VAT and may zero rate the supply as an intra-Community supply. The supplier must obtain its customer's VAT number and quote it on its invoice. The supplier should also obtain evidence of the goods' removal from Finland.


If a company sells goods to a customer who is not registered for VAT in another EU member state, it will have to charge Finnish VAT. If its sales exceed a certain threshold for that Member State it may have to register in the Member State under what is known as the Distance Selling Scheme.


If a company exports goods to a customer (business or private) outside of the EU, then it does not need to charge VAT provided that the strict rules for zero rating export sales are met; but, as for intra-Community supplies, it should make sure that in all cases you keep proof of dispatch/delivery to support the zero rating.


Services


If a business established in Finland and supply services to a foreign business customer (B2B), in general the supply of services is taxable in the country of the recipient under the reverse charge mechanism. If it, however, supplies services to a private consumer (B2C), they are in general taxable in the country of the supplier and therefore subject to Finnish VAT.


The following exceptions apply to the B2B and B2C main rules as described above:


  • services involving real estate (taxable in the country where the real estate is located)
  • restaurant and catering services (taxable in the country where these services are performed Other rules apply if these services are performed on board a ship, aircraft, or train)
  • passenger transport (taxable in the country where the transport services are actually performed)
  • services with regard to cultural, artistic, sporting, scientific, educational, entertainment, and similar activities, along with the ancillary services (taxable in the country where those activities are physically carried out). Since 1 January 2011, this exception has applied to services performed for VAT entrepreneurs only with respect to admission to the aforementioned events and the associated admission-related services.
  • Short-term hire of transport (for ships maximum 90 days/for other means of transport maximum 30 days; taxable in the country where the vehicle is actually put at the disposal of the customer.

The following exceptions apply to the B2C main rule:


  • intermediary services (taxable in the country where the underlying transaction is taxable)
  • intra-Community transport of goods (taxable in the country of departure). For other types of goods transportation for non-taxable customers, the place of service is the place where the transportation is actually performed
  • transportation-related services (taxable in the country where the services are physically carried out)
  • services involving movable tangible goods (taxable in the country where the activities are actually carried out)
  • services performed electronically by a VAT entrepreneur not established in the EU to non-taxable customers (taxable in the country where the customer of the service is located).

The following services performed for non-taxable customers that are established or resident outside the EU are not taxable in Finland:


  • the transfer of licenses and similar rights
  • advertising services
  • services performed by consultants, as well as data-processing and services of supply of information
  • the obligation to refrain, in whole or in part, from pursuing a business activity
  • banking and insurance services
  • supply of staff
  • hiring out of movable property, with the exception of means of transport
  • operating natural gas and electricity-distribution systems
  • telecommunications services
  • radio and television broadcast services and
  • services performed electronically.

How are goods dealt with on importation?


When goods are imported into Finland from outside the EU, import VAT and customs duty may be due. This has to be paid or secured before the goods will be released from customs' control.


How are services which are brought in from abroad treated for VAT purposes?


If a company purchases certain services from outside Finland, it will be required to apply the reverse charge. This is intended to take away any VAT advantage (except reduced VAT cash flow costs) of buying those services from outside Finland.


Under the reverse charge the buyer is required to account for a notional amount of VAT as output tax on its periodic tax return and it recovers this VAT as input tax on the same return based on normal recovery rules. If the purchase subject to reverse charge was made for taxable business, the reverse charge has no cost effect and is a VAT compliance matter only. However, for companies not in full VAT recovery position there is likely to be a VAT cost depending on the level of recovery allowed.


The reverse charge mechanism applies on an obligatory basis to purchases of services that fall into the scope of general rule of article 44 of the EU VAT Directive. This article covers as a default rule all the services that are not otherwise expressly mentioned in the other special rules for the place of supply. The following services are not covered by the general rule:


  • services connected with immovable property
  • passenger transportation services
  • hiring of means of transport for short term
  • cultural, entertainment and similar services
  • restaurant and catering services
  • travel agent services.

It should be noted that Finland has introduced mandatory reverse charge on certain construction services when rendered between construction companies.


There are also a number of other services in addition to those mentioned above that are subject to reverse charge, if the purchaser of the services is registered for VAT purposes in Finland and the supplier of services is a non-Finnish entity neither having a fixed establishment in Finland nor having registered voluntarily for VAT purposes in Finland.


Further, the reporting (on the periodic tax return) of the services to which the reverse charge mechanism is applicable is different when the services are purchased from other EU Member States and in other situations.

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Invoices

Is a business required to issue tax invoices?


Issuing a tax invoice is mandatory when a taxable person supplies goods or services to another taxable person or to a non-taxable legal person and the supply is taxable according to the VAT legislation.


An invoice is also required for zero-rated sales, in other words such exempt supplies where the supplier has a right to recover VAT included in the price of his purchases.


A taxable person has to issue an invoice for distance sale of goods and supply of new means of transport for private persons in another Member State. An invoice is required on payments on account and on correction items.


Finland has exercised the option not to require an invoice for such exempt supplies where the supplier does not have a right to recover VAT included in the price of his purchases. In other words, invoices are required for zero-rated sales but not for exempt without credit for input VAT sales (such as medical care).


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • date of issue
  • a sequential invoice number. If the invoice adjusts an earlier invoice (e.g., a credit note), unambiguous reference should be made to the original invoice.
  • supplier VAT number
  • customer VAT number (on intra EU supplies and on supplies where the VAT will be accounted for by the customer, i.e. when the reverse charge mechanism applies. In such cases, invoice requires a written explanation for the basis of the transaction or a reference to the respective paragraph in the VAT Directive or Finnish VAT Act).
  • supplier name and address
  • customer name and address
  • the quantity and nature of the goods/services supplied
  • tax point (date of taxable supply)
  • the taxable amount per rate
  • unit price (exclusive of any VAT)
  • rate of any discounts (if not included in the unit price and if applicable)
  • the VAT rate applicable
  • the amount of VAT payable in the currency of the country of supply
  • the indication of “reverse charge” if the customer is liable for VAT
  • indication of “Self-billing” if the invoice is established by the customer
  • indication of VAT exemption or legal basis for exemption (if applicable)
  • new Means of transport/margin schemes (if applicable). Certain exempt supplies will still require an invoice.

Can businesses issue invoices electronically?


Yes. No specific rules for electronic invoicing apply; however, the supplier must have an agreement with the customer.


Is it possible to operate self-billing?


Yes. The indication of “self-billing” is required in an invoice.


Can a business issue VAT invoices denominated in a foreign currency?


Yes but the supplier must set out the amount of VAT payable on the invoice in the currency of the country of supply. This is to ensure that the amount of VAT paid is the same as the amount of VAT to be potentially deducted.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a company sells its business or part of it as a going concern then VAT may not be due. There are certain conditions to satisfy, for example that the recipient should intend to use the assets for taxable business purposes and the recipient should be registered for VAT at the time of the transfer.

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Options to Tax

Are there any options to tax transactions?


There is an option to tax certain types of transactions in immovable property. In addition there are also provisions that allow an option to tax for small entrepreneurs and charitable organizations.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


If your head office makes a charge to its branch or vice versa, this is not treated as a supply for Finnish VAT purposes (with the exception of goods that are transferred between Finland and another EU Member State).

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Bad Debt

Am I able to claim relief for bad debts?


You are able to claim VAT back on the unpaid element through your periodic tax return. If you subsequently receive payment for the supply then you will have to pay back the VAT element to the tax authorities in the same way.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


Yes. Finnish VAT Act Article 181.


If a situation or a measure has been given a legal form that does not correspond to the true nature or purpose of the transaction, tax shall be levied as if the true form had been used.


If the consideration for sales of goods or services has been agreed or established at an amount lower than what may be considered reasonable, or if some other measure has been taken for the purpose of reducing the tax to be paid, the amount of tax that should be paid may be assessed.

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Penalty Regime

What is the penalty and interest regime like?


Penalties are raised if a business has paid less tax than was due or has neglected its obligation to submit periodic tax returns. The amount of the penalty varies depending on how frequently the business failed to pay, the length of the delay of non-payment/under-payment of VAT or the delay in submitting the periodic tax returns.

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Tax authorities

Tax audits


How often do tax audits take place?


VAT expiration period is 3 years from the end of the financial year. That is why the aim of tax authority is carry out audit every 3-5 years.


Some business areas receive special attention because of major black economy. For example the construction and restaurant sectors get special attention from the tax auditors.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Sometimes yes. The tax authorities has its own system (called Sesam) which process information from the company`s accounting system. Usually it is used as a part of tax audit of the big corporation.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes. It is possible to have formal and also informal ruling and guidance from tax authority. Taxpayers can request advanced ruling (right of appeal) or literal guidance (no right of appeal). Tax authority can also give informal oral or written e-mail guidance.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Not usually. Central Tax Board will publish a summary some of its decisions which have a new or otherwise larger magnitude. Those decisions are publicly available from Finnish tax authors web site. Rulings and decisions of local tax-offices are not publicly available.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes. For example reverse charge mechanism in construction business sector. An entrepreneur who sells construction services other than an occasional have to pay VAT from construction services he/she has bought.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes, reduced rates are available as stated above.


A special VAT relief scheme for small businesses with sales not exceeding €22,500 is also in use.

 

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