Finnish Tax Administration Publishes Guidance on the New Standard VAT Rate of 25.5%

The Finnish Parliament has adopted new legislation that confirms the increase of the standard VAT rate from 24% to 25.5% with effect from 1 September 2024. The new VAT rate will be applied to goods and services that are currently subject to the 24% rate. The Finnish Tax Administration has published guidance on the transitional provisions for the increase. According to the guidance, the division of which transactions are subject to which VAT rate will be determined based on the general timely allocation principles outlined in the Finnish VAT Act.

In certain situations, these principles may involve interpretative ambiguity. The guidance provides a more detailed examination of such situations, including the allocation of supplies involving instalments, continuous supplies, advance payments, intra-Community acquisitions, imports, and adjustment items.

Particularly regarding adjustment items, it is important to note that the VAT rate applied is the one that was in effect when the supply was made. This applies even when the adjustment item is allocated to a different tax period in accordance with good accounting practices. Annual or seasonal discounts may be divided into parts corresponding to different VAT rates to reflect the passage of time.

It is also important to note that companies applying the cash or invoice basis for VAT reporting may declare VAT in a different tax period than when the tax liability arose. As a result, in some situations, they may need to report VAT at the lower rate after and at the higher rate before the September tax period.

The VAT return will continue to have only one section for each different VAT rate (one standard and two reduced rates). Payable taxes must be declared in the same box of the VAT return, regardless of whether the new, old, or both standard VAT rates are applied. Therefore, it is important to ensure that taxes are calculated correctly according to the allocation rules.

The guidance has also been published in an English translation and can be accessed below. Finnish and Swedish versions are available by changing the language used.

Finnish Tax Administration: The general VAT rate rises to 25.5% starting 1 September 2024

If you have any questions about this Legal Alert, please feel free to contact the undersigned or your regular Borenius contact.