Transferring to the new VAT rate in practice

The general value-added tax (VAT) rate will rise from 24% to 25.5% on 1 September.

In general, what will decide which VAT rate to use will be whether the service was provided or the product delivered to the customer before or after 1 September. If the service was provided or the product delivered on or after 1 September, the new 25.5% VAT rate applies.

Exception: advance payments

An exception to the main rule is advance payments. The VAT rate in force at the time when they were collected applies. For advance payments that the seller collects before or on 31 August, the tax rate in force at the time, 24%, applies. If a seller wants to apply the 24% VAT rate to the advance payment, they must receive payment from the customer by 31 August at the latest. Difficult situations may arise if advance payment has been agreed and invoiced with a due date in August, but the customer only pays the advance payment, for whatever reason, in September. In this case, the 24% VAT rate cannot apply to the advance payment.

If the payment is not an advance, but instead the product is delivered or the service is provided by the end of August, the VAT rate is not affected even if the customer pays the invoice in September and the due date was in August.

What should a business consider when preparing itself for the change?

The preparations for the legislative amendment coincide with the summer holiday seasons. This may cause additional difficulties or costs, but business owners should take action immediately. At the time of writing (1 July 2024) the legislation had not been enacted, with September fast approaching.

Suomen Yrittäjät, the Finnish SME association, says the two months or so that businesses have to adjust, from the enactment of the changes to their entry into force, is an unreasonably short time. Suomen Yrittäjät proposed delaying the entry into force of the new Act until at least 1 October. However, during the committee stage in Parliament, the majority did not support such a delay, citing budgetary reasons.

Businesses must ensure that all their data systems, such as accounting and cash registers, are updated to comply with the change. They need to pay particular attention to the first decimal fraction ever enacted in a Finnish tax rate, ensuring it works in their systems. They should also review contracts and keep customers abreast of the change.

A business signed a contract or proposal in spring 2024, but is only providing the service or delivering the product to the customer on or after 1 September. Which VAT rate applies?

The 25.5% VAT rate applies to the sale, as the service is provided or the product delivered on or after 1 September. For VAT purposes, when the contract or proposal was signed is irrelevant. Nor does the registration or order date of goods (such as a new car) determine the VAT rate.

For example, if a company made an offer in February 2024 which included the 24% VAT rate for the service, with payment due in November, that company must take the new VAT rate into account. If the customer pays for the service in advance by 31 August, the VAT rate is 24%. If the company provides the service in November, the 25.5% VAT rate applies to the transaction.

However, if the customer pays an advance by or on 31 August, the 24% rate applies (the rate that was in force on the date the advance was paid), even if the service has not yet been provided or the goods delivered to the customer.

A business has applied for a longer tax period because of the small size of its activities. For VAT, its tax period is a quarter. The new law enters into force in the middle of the third quarter (July–September). Does the new VAT rate apply to sales in Q3 2024?

Sales in the third quarter of the year are treated “as normal”, notwithstanding the longer tax period. The entry into force of the new rate on 1 September is particularly difficult for the 70,000 quarterly filers, as they have to apply two VAT rates to the same items during a single VAT period, which increases their administrative burden. Annual filers face the same difficulty.

How is the VAT rate determined in the sale of goods?

The payment principle means that in general, the VAT rate is determined by when the goods are delivered (transferred to the buyer). If the goods are handed over to the buyer before or on 31 August, the 24% VAT rate applies, even if the customer pays for them afterwards. For advance payments, the VAT rate in force at the time the payment is made applies.

It may be impossible for an online retailer, for example, to know when a product is delivered to the buyer. The transition period may cause difficult practical situations for businesses, such as if deliveries are delayed at the turn of the month in August–September. For example, a customer buys something in August and pays for it immediately. However, if the seller is responsible for the delivery, but does not deliver the goods by 31 August, the delivery on 1 September or later is not a problem, as the 24% VAT is correct. If the customer did not pay for their purchase straight away or the seller did not send a bill with 24% VAT in time, and delivery is delayed from August to September, the situation is different.

In hire-purchase, the goods are paid in instalments, and the seller has to pay VAT when the goods are handed over to the buyer. The delivery date determines the VAT rate.

Examples

A customer orders new windows for her summer cottage in June. The factory delivers the windows to the customer on 29 August and she pays the invoice on 12 September. The applicable tax rate is 24%.

A customer orders a new motorcycle in August, which is delivered to him in September. The customer pays for his new motorcycle when he receives it in September. The applicable tax rate is 25.5%. If the customer pays for the motorcycle in advance before or on 31 August, the applicable tax rate would be 24%.

A seller sends a buyer components on 31 August. The goods reach the buyer’s warehouse on 1 September. If the contractual delivery is the seller’s responsibility, the buyer has received the goods on 1 September and the applicable tax rate is 25.5%. If the contractual delivery is the buyer’s responsibility, the goods are considered delivered when delivering begins on 31 August. The VAT rate is 24%.

An electronics store sells a fridge on hire-purchase, which is delivered to the buyer in August. The customer pays for the fridge after the delivery, in instalments from 1 September. The 24% VAT rate applies to the entire sale price.

How is the VAT rate determined in the sale of services?

In the sale of services, VAT applies in the tax period when the service is provided (is available for the customer’s use). If the service is still being provided when the VAT rate changes, the VAT rate in force when the service is fully provided applies.

In the sale of goods and services on a continuing basis, the date of payment is determined on the basis of the passage of time (such as in a rental service). One-off sales charged in instalments are not on a continuing basis (hire-purchase, building contracts). Goods or a service sold on a continuing basis are considered delivered or provided at the end of each accounting period related to each payment. For advance payments, the VAT rate in force at the time the payment is made applies.

Examples

A customer orders lawn mowing from a handyman business. The lawn is mown on 30 August. The business invoices the customer, and the customer pays the bill on the due date of 16 September. The applicable tax rate is 24%.

A company provides accounting consultation between 26 August and 2 September. The customer pays for the service on 16 September. The applicable tax rate is 25.5%.

A customer orders a new car from a dealership in August. The car is delivered in September. The customer pays part of the price by trading in her old car with the dealership in August. The tax rate applicable to the advance payment is 24%.

A rental payment period is 1 August 2024–31 July 2025. The service is considered provided on 31 July 2025. The tax rate applicable to the sale of the service is 25.5%. If the tenant pays the landlord rent for the rental payment period before or on 31 August 2024, the VAT rate of 24% applies.

A rental lease has been signed for a year, from 1 August 2024 to 31 July 2025. Under the lease, the rent must be paid by the 5th of each month. That makes the accounting period a month; the VAT rate is determined by the final date of the accounting period. Rent for August is charged at the 24% VAT rate, and September rent is charged at the 25.5% rate.

A rental lease and rental payment period is 1 January 2024–31 December 2024. The tenant paid the rent in February 2024. The payment was an advance, meaning there is no need to correct the rent charged at the 24% rate.

The service that a company is selling is still being provided when the VAT rate changes. Which VAT rate applies?

Services which are still being provided when the VAT rate changes are charged at the VAT rate in force when the service is completed.

In contract jobs, the parts completed before 1 September are charged at 24% VAT and the parts completed after 1 September are charged at 25.5% VAT. If a customer pays, before or on 31 August, for a part of a contract job that is to be completed after 1 September, the 24% VAT rate applies.

Example

A service ends at the end of the year but the customer pays for it in six instalments between June and November. The June–August instalments are charged at 24% VAT, and the September–November instalments are charged at 25.5% VAT.

A customer orders roofing work, which begins in August and is completed in September. The contractor has ordered the materials for the job in August. Even though the building service includes materials, it is considered a single job and the sale of building services for VAT purposes. If the job is eligible for the household expense tax credit, it is worth itemizing the labour and materials on the bill.

Which VAT rate applies to discounts granted to customers after the sale?

For discounts, write-offs of unpaid invoices, and other adjustments, the VAT rate which was in force when the goods were delivered or the service provided is applied. If an unpaid invoice is written-off, but is later paid, the original VAT applies to the payment(s).

A seller can issue annual and seasonal after-sales discounts for goods and services provided both before and after 1 September. The discounts can be split into old and new portions according to the VAT rate in proportion to the passage of time.

How does the VAT rate change affect gift cards, when a gift card has been sold at 24% VAT in spring 2024, but is only used on or after 1 September?

The person asking this question probably means a gift card classified as a single-use voucher for VAT purposes, as money paid for with single-use vouchers is equivalent to advance payments. The money received by the seller for the sale of goods and services related to single-use vouchers is considered payment or part-payment for these goods and services. When an advance payment processed at the 24% VAT rate has been received by no later than 31 August, the VAT rate is correct. The actual supply of goods or provision of services on or after 1 September is not considered a new, standalone sale, nor is tax paid again on the money received for the sale of a gift card.

For VAT purposes, gift cards are vouchers. They are classified into single-use and multi-use vouchers, with different treatment of VAT on goods and services. Selling a voucher is not equal to selling the goods or services bought with the voucher. Instead, it is a part of the sale of goods and services for which the voucher may be used as payment.

A single-use voucher means a voucher for which the amount of tax due on goods or services is known when the voucher is issued. If the amount of tax or country of sale is not known when the voucher is issued, it is not a single-use voucher. Examples of a single-use voucher are book tokens, which can only be used for printed books (VAT 10%), or food gift cards which can only be used for groceries (VAT 14%). Any voucher which is not a single-use voucher is a multi-use voucher.

A multi-use voucher can be used to buy goods and services which have different VAT rates. A gift card which can be used to buy goods and services at different VAT rates is thus a multi-use voucher. The sale of goods and services bought with multi-use vouchers is only taxed when the goods are actually delivered or the service is actually provided, and the taxation payment obligation is decided in accordance with the general provisions of the Value-added Tax Act.

Will changes regarding filing of VAT be made to the VAT return?

On the self-assessed tax return (VAT return), there is only one field for sales subject to the general VAT rate.

When the tax period is a month, from 1 September the VAT return on MyTax will contain a field reading Tax for domestic sales by tax rate: 25.5% tax. When the tax period is a quarter, calendar year or reindeer husbandry year, the VAT rate change will enter into force in the middle of the relevant longer period. Quarterly filers will see a field reading Tax for domestic sales by tax rate: 25.5% tax on their VAT return for quarter 3/2024 (July–September). Annual filers will see a field reading Tax for domestic sales by tax rate: 25.5% tax on their VAT return for the 2024 calendar year. In other electronic filing channels (Ilmoitin.fi and API), VAT at the general rate is filed in the same field as before. The Tax Administration says it will issue a new version of the paper form from 1 January 2025, meaning the current form (Domestic sales 24%) is to be used until the end of this year.

When the amended legislation comes into force on 1 September, the VAT return will no longer contain sales taxed at 24% — or will it?

Because of the rules about when sales are allocated, a business may have to file sales at 24% VAT in September or at 25.5% in August. The tax payment obligation does not determine which period the VAT is filed for.

Examples

A business uses the monthly tax period and files VAT in accordance with when its customers pay its invoices. The business delivers goods to a customer on 30 August and receives payment on 1 September. The applicable tax rate is 24%, as the goods were delivered before 1 September. The tax is filed according to when it was paid, that is, on the September VAT return.

A business uses the monthly tax period and files VAT in accordance with when it issues its invoices to customers. The business sends an invoice for goods to a customer on 30 August and delivers the goods on 1 September. The customer pays the invoice on the due date in September. The VAT rate applicable to the sale of goods is 25.5%, as the goods were delivered on 1 September. The business files the VAT for the sale, in accordance with the invoice date, on the August VAT return.

Will the reduced VAT rates of 10% and 14% also rise on 1 September 2024?

No. The VAT rise entering into force at the start of September will only apply to sales at the general VAT rate. However, it is worth noting that even though a business does not pay VAT on its sales at the general rate, it should take account of the change in the general VAT rate when offsetting VAT from purchases against tax.

Under the Orpo Government’s programme, goods now at the reduced 10% VAT rate will be transferred to the 14% VAT rate, except for newspapers and periodicals. The change is likely to take place in 2025. At the budgetary framework negotiations in spring 2024, the Government decided to increase the VAT rate on sweets and chocolate from 14% to 25.5%. The Government intends to place a Bill before Parliament on this change in autumn 2024.

My company makes intra-community acquisitions from other EU member states. How will the change in the general VAT rate be applied to intra-community acquisitions?

The new VAT rate will be applied to intra-community purchases of goods which are allocated to September or later. An intra-community acquisition is allocated to the month following the calendar month during which the procurement is made. An intra-community procurement is made on the date when the buyer receives the goods. If goods bought as an intra-community procurement are delivered on a continuing basis over a period longer than one month, the goods are considered received at the end of each calendar month.

However, if the seller sends the buyer a final invoice during the month when the goods are delivered, the intra-community procurement is allocated to that month. Advance payment has no effect on the month the procurement is allocated to.

Example

A company makes an intra-community procurement: it buys a machine from Germany. It pays part of the purchase price in advance in July. The machine is delivered in August and the final portion of the purchase price is invoiced in September. The intra-community acquisition was made in August and allocated to September, meaning the applicable VAT rate is 25.5%. If the delivery and invoicing both happened in August, the procurement would be allocated to August, making the applicable VAT rate 24%.

My business imports goods. How will the VAT rate change be applied to imports?

For goods subject to the general VAT rate, the new VAT rate is applied when tax becomes chargeable on the imported goods on or after 1 September. The VAT becomes chargeable when the customs declaration is approved. Tax paid on imports to the Tax Administration is allocated to the calendar month during which the customs clearance decision is issued.

The applicable tax rate on imports between Åland and mainland Finland is determined in accordance with the approval date of the customs declaration recorded on the first customs clearance decision. If the customs declaration is approved on or after 1 September, the new VAT rate applies. Taxes are filed in the VAT return for the period in which the customs clearance decision is issued.

Example

A VAT-registered company imports spare parts from the United States to Finland on 30 August. Finnish Customs marks the customs declaration as received on 31 August and makes a decision on release for free circulation on 1 September. The applicable VAT rate is 24%, and the import is filed on the VAT return for September.

How is the applicable VAT rate determined when buying services from a foreign trader?

If a service subject to the reverse-charge VAT mechanism is completed on or after 1 September, 25.5% VAT applies to the sale of the service. However, if advance payment has been made before 1 September, the 24% VAT rate applies.

Example

A Swedish company sells consulting services to a Finnish company. The service is provided in August and invoiced in September. VAT at 24% is applied to the service, because the service was provided in August. The buyer pays the tax and declares it on the VAT return for August.

Additional information and advice

• Tax Administration guidelines on the increase in the general VAT rate: https://www.vero.fi/en/businesses-and-corporations/taxes-and-charges/vat/rates-of-vat/new-vat-rate-from-1-september-2024–instructions-for-vat-reporting/
• The Tax Administration’s VAT service line, 029 497 008, is open from Monday to Friday between 9.00 and 16.00.
• Suomen Yrittäjät legal counselling, tel. 09 229 222, and single-person business counselling, 09 2292 2400, open weekdays between 8.00 and 18.00.

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