Tax Administration supports increase of VAT threshold to €25,000

The Tax Administration supports raising the VAT threshold from €15,000 to €25,000. It says that issues such as costs would justify the increase.

The position of the Tax Administration is laid out in a statement which the Ministry of Finance requested from the Tax Administration about a draft Government Bill. In the draft Bill, the lower threshold for VAT liability would remain at €15,000.

The sliding relief for VAT paid by businesses with turnover between €15,000 and €30,000 is being withdrawn from the start of 2025 due to an EU directive.

In its statement, the Tax Administration states that a higher VAT threshold would reduce the number of businesses that would need to register as VAT liable. Evaluating the number of businesses that would register, however, is challenging, the Tax Administration states.

However, the Tax Administration supports consideration of an increase of the threshold to €25,000, which would be likely to lead to fewer staff resources being needed for guidance and monitoring than if the lower boundary were to remain the same,” the statement says.

Read the entire Tax Administration statement here.

€30,000 most popular threshold

Jukka-Pekka Hellman, a specialist at Suomen Yrittäjät, the Finnish SME association, considers the Tax Administration’s statement positive.

“Suomen Yrittäjät And the Tax Administration see the same need for a remedy,” Hellman says.

“Our association has long proposed raising the threshold to €30,000 to encourage enterprise and growth,” he continues.

The Yrittäjägallup survey published in December found that the vast majority of business owners wanted to raise the lower threshold for VAT liability for small businesses closer to the EU average of €30,000.

The survey found that 65% of business owners supported a threshold higher than €15,000. The most popular threshold would be €30,000. That was supported by one in four business owners. That has also been the proposal of Suomen Yrittäjät to the Government.

“We would like to see the Government revisit the threshold and raise it towards €30,000 so small businesses do not see their tax burden increase, as the Government has promised,” Juhana Brotherus, a vice president and the Chief Economist at Suomen Yrittäjät, said in December when information about the draft Government Bill became public.

“The sliding VAT relief was a good tax policy innovation because it lowered the growth barrier presented by the VAT threshold. Unfortunately, it has to be withdrawn after next year because of an EU directive,” he continued.

The VAT threshold is a difficult issue in terms of competition neutrality, which is why it divides business owners. However, a threshold of €30,000 is well below the level that bodies such as VATT, the Institute for Economic Research, have considered optimal. The average threshold in EU member states is around €35,000.

“Small businesses should be exempt from VAT to keep the threshold for enterprise and the administrative burden as low as possible.Leaving the VAT threshold as it is would directly hit sole traders’ and labour-intensive companies’ profitability and reduce entrepreneurial appetite.”

Are you a Suomen Yrittäjät member yet? Read more about member benefits and advantages!