Understanding VAT is one of the challenges facing new entrepreneurs. However, VAT is actually a very straightforward tax added to the price of goods or services and paid to the state by the seller (the entrepreneur). Entrepreneurs should know these three things about value added tax:
1. Consumers pay VAT, which the entrepreneur then pays to the state
All types of companies that sell goods or services on a commercial basis must pay VAT. They add VAT to the prices of their goods and services, which customers then pay as part of the price. After this, the entrepreneur pays the VAT to the state, usually on a monthly basis.
The amount of VAT paid is based on the tax rate of the good or service. You can enter your company on the VAT register on the Finnish Tax Administration’s website. You will then be given a VAT number.
Read more and enter your company on the VAT register
2. A company can deduct VAT on purchases
When a company purchases a good or service from another party liable to pay VAT, it can deduct the VAT on the purchase from its VAT on sales, but only if the product is purchased for a business activity subject to VAT. You cannot deduct VAT for purchases of goods or services to be used privately by a company or employees.
3. VAT relief for small businesses
VAT relief is a form of tax credit for entrepreneurs and companies registered for VAT but only doing a small amount of business. A company with net sales of no more than 15,000 euros can claim the entire VAT amount back as VAT relief. A company can receive partial VAT relief if its net sales exceed 15,000 euros but are less than 30,000 euros. Small-scale businesses do not have to register for VAT.
Ask for help if you need it. While you should understand taxation matters, you don’t have to face them alone. A good accountant can help an entrepreneur to manage taxation properly.
Use the VAT calculator for easy calculation of your VAT
Use the VAT relief calculator to calculate your net sales and tax qualifying for VAT relief
Olavi Tuomi, Leading Tax Specialist at the Finnish Tax Administration, was interviewed for the article.