Finland’s tax authority has released guidance clarifying the increase in the standard VAT rate from 24% to 25.5% on 17 July, 2024.
The VAT hike has received parliamentary approval and is currently awaiting final confirmation. The revised rates will go into effect on 1 September, 2024.
For supplies of goods, the date of delivery determines the VAT rate
In general, the VAT payable on a sale (=supply) of goods is allocated to the tax period when the goods were handed over to the buyer, i.e., delivered. If the goods are delivered on or before 31 August, 2024, the VAT rate is 24% even if the buyer were to pay for the goods some time later in September.
Paying a sum of money in advance
If an advance is paid to the seller, the seller must report VAT for it relating to the tax period when payment was made. If the seller is deemed as having received the advance before the VAT changes came into force, the VAT rate of 24% is applicable.
Contracts involving payment by instalments
An instalment contract, often called “hire-purchase”, means that the seller and the buyer agree that the buyer can pay for the purchased item in many instalments. The time when the seller’s obligation arises to pay VAT is the date of delivery of the item.
The point in time when a service performance is completed determines the VAT rate
Value-added tax on a service is allocated to the tax period when the service was given i.e. provided to the recipient. If the service performance is in an unfinished state at the time when the VAT change comes into force, the percentage rate to be applied will be the one in effect at the date when the finished service is provided. This means the date when the end result becomes available to the recipient of the service.
Paying a sum of money in advance
If an advance is paid to the seller, the seller must report VAT for it relating to the tax period when payment was made. If the seller is deemed as having received the advance before the VAT changes came into force, the VAT rate of 24% is applicable.
Goods supplied or services provided on a continuous basis
When the supply of goods or services to the buyer is of a continuous nature, the payment for it is based on the passing of time. For example, a rental service involves performance of services in a continuous way.
Continuous supply is deemed as having been supplied at the end of each period that determines the remittance of the payment. For example, if it is agreed that one single payment of rent to the property owner concerns the entire 1 June, 2024,–31 May, 2025, period, the date when the service is provided to its recipient is 31 May, 2025. In this example, the VAT rate would be 25.5% for the entire period.
If the payer of rent were to make a full payment to the property owner in advance, thus covering the June, 2024,–31 May, 2025, period fully before 1 September, 2024, the rental service would be subject to 24% VAT instead.
If the property owner charges rent by the month, the period determining remittance would also be the month. Accordingly, the date that determines the VAT rate is the end date of that period. In other words, rent for August 2024 is subject to 24% VAT – and rent for September 2024 is subject to 25.5% VAT.
It should be noted that no continuous supply of goods or services is in question – although payment may be effected in many instalments over time – for a purchase of a single good or for a purchase of a construction service.
Filing and paying VAT from 1 September, 2024, onwards
When one completes their VAT return, they will find only one space to fill in for sales affected at the general VAT rate.
Using MyTax for VAT reporting
When the VAT taxpayer’s tax period is the month, the VAT return in MyTax will display the following space starting 1 September, 2024: “VAT on domestic sales by tax rate: 25.5% VAT”.
When the tax period is the quarter or the tax period is the calendar year, the new VAT rate will enter into force part way through the tax period.
For those with the quarterly tax period, MyTax will display the year’s third tax period’s VAT return 3/2024 — July, August and September — as follows: “VAT on domestic sales by tax rate: 25.5% VAT”. For those filing and paying VAT once a year, MyTax will display the 2024 calendar year’s VAT return as follows: “VAT on domestic sales by tax rate: 25.5% VAT”. When one reports VAT on sales for the above tax periods, these spaces on the VAT return must be used although their actual VAT has in fact been 24%.
Filing VAT through other electronic services than MyTax and filing VAT on paper
Whenever the VAT rate is the general rate, one will need to fill in the spaces as explained above when using other e-services (www.ilmoitin.fi and the API interface) to send your VAT return. This means that although the VAT percentage rate is different, they will have to fill in the same space as before.
As for the paper VAT return, the Tax Administration will release an updated version as of 1 January, 2025. Up to the end of 2024, the paper form presently available will continue to be used. All sales with both the 24% and the 25.5% rates must be entered into the same space on the form (Domestic sales 24%).
Periodisation rules to be followed
Please note that when completing one’s VAT returns, the point in time when the obligation to pay VAT arises does not determine the tax period for which VAT must be reported. It may be that the tax rules governing periodisation make it necessary to report some sales with 24% VAT for September. Correspondingly, one may need to report other sales with 25.5% VAT during August.
The tax border between Åland and mainland Finland – imports of goods
The rate of VAT to be applied on imports between Åland and mainland Finland is determined by the date indicated on the decision on the first customs clearance of the goods. This means that if the date is 1 September, 2024, or later, the VAT rate is 25.5%.
However, one must report information concerning the imported goods to the Tax Administration on the VAT return for the tax period when the customs clearance decision was issued.
