The Finnish government has introduced changes to the VAT rates, which are now in effect, with more changes scheduled to take effect on 1 January 2025 and thereafter. The changes will affect all VAT-liable operators in Finland.
Finland’s VAT system consists of a standard VAT rate, along with two reduced rates that apply to designated goods and services.
On 1 September 2024, the standard VAT rate increased from 24% to 25.5%. The reduced rates of 10% and 14% will remain unchanged, but certain supplies will be reclassified, including the following:
Affected businesses should understand the scope and impact of the changes to Finland’s VAT law. From the point of view of the application of VAT and changing tax rates, timely allocation is important. For example, questions are likely to arise regarding the rate applicable to specific sales and purchases and how the rate changes are taken into account in advance payment situations, as well as where there are discounts, credits and other adjustment items related to sales and purchases. Financial administration and accounting systems may need to be updated and adjusted to correspond to the new VAT rates from both a cost and revenue perspective. In this respect, it is important to ensure that the systems provide correct information in line with the VAT reporting rules and changes to operators' invoice bases and product pricing should also be considered. In the case of business agreements, it will be necessary to verify how changes in the applicable tax rates have been considered and whether the rate changes require further negotiations between the contracting parties.
Harri Huikuri
BDO in Finland
Finland’s VAT system consists of a standard VAT rate, along with two reduced rates that apply to designated goods and services.
On 1 September 2024, the standard VAT rate increased from 24% to 25.5%. The reduced rates of 10% and 14% will remain unchanged, but certain supplies will be reclassified, including the following:
- Most goods and services currently subject to the 10% rate will be subject to the 14% VAT rate. This includes books, pharmaceutical products, physical exercise services, passenger transport and accommodation services. However, newspapers and magazines will continue to be taxed at the 10% rate. The effective date of this change has not yet been announced; and
- Certain personal items will move from the 25.5% standard VAT rate to the 14% rate in 2025 and the rate on sweets and chocolates will rise from the 14% rate to the 25.5% rate.
Action Steps for Businesses
Affected businesses should understand the scope and impact of the changes to Finland’s VAT law. From the point of view of the application of VAT and changing tax rates, timely allocation is important. For example, questions are likely to arise regarding the rate applicable to specific sales and purchases and how the rate changes are taken into account in advance payment situations, as well as where there are discounts, credits and other adjustment items related to sales and purchases. Financial administration and accounting systems may need to be updated and adjusted to correspond to the new VAT rates from both a cost and revenue perspective. In this respect, it is important to ensure that the systems provide correct information in line with the VAT reporting rules and changes to operators' invoice bases and product pricing should also be considered. In the case of business agreements, it will be necessary to verify how changes in the applicable tax rates have been considered and whether the rate changes require further negotiations between the contracting parties.Harri Huikuri
BDO in Finland