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 business owner or self-employed person). Four things self-employed persons should know about value added tax:
1. What is value added tax?
Value added tax, or VAT, is a commonly used consumption tax that is paid on nearly all goods and services. When a company sells goods or services to a customer, value added tax is added to the sales price, with a few exceptions. You do not necessarily need to pay value added tax if your business is small in scale or exempt from value added tax.
2. Who is liable to pay value added tax?
A company is liable to pay value added tax when it engages in business by selling goods or services. In this case, the company must be entered in the VAT register.
VAT registration is voluntary if the business is small-scale or the company is engaged in operations that are exempt from value added tax, such as health and medical services or the sale and rental of real estate and apartments. The threshold for VAT registration is that the company has a turnover of 20,000 euros or more. If your company’s turnover exceeds the threshold during the financial year, you must enter the company in the VAT register.
You can enter your company in 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
3. How is value added tax calculated?
VAT is calculated by adding VAT to the prices of goods and services sold by the company, which customers then pay as part of the price. The company then pays the VAT to the state. The date for filing the VAT report and payment date is determined based on the company’s tax period and can be monthly, every three months or once a year. If the filing or payment date falls on a Saturday, Sunday or holiday, the deadline for filing and the due date are postponed to the next weekday.
The amount of VAT paid is based on the tax rate of the goods or services. The general VAT rate in Finland is 25.5%. Reduced VAT rates are 10% and 14%. The reduced VAT rate of 10% applies to goods and services such as pharmaceutical products and entrance fees, and the reduced rate of 14% to restaurant and catering services, for example. As of the 2025 tax year, the VAT relief scheme for small businesses will no longer be continued.
4. When can a company deduct VAT on purchases?
When a company purchases goods or services from another party liable to pay VAT, the company can deduct the VAT on the purchase from the VAT payable on its sales. The deduction can only be made 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.
For this article, we interviewed Olavi Tuomi, Leading Tax Specialist at the Finnish Tax Administration.
