The general VAT rate is rising on September 1, 2024 – We’re ready, are you?
The VAT change will raise the general tax rate to 25.5 percent. Ensure that your company's financial management systems and processes are prepared to meet the new requirements.
The general VAT rate in Finland will increase on September 1, 2024. Starting from the beginning of September, the general VAT rate will be 25.5 percent, replacing the current rate of 24 percent.
The general VAT rate in Finland was last increased in 2013, so it’s been a while since companies have had to test their processes and financial management systems in light of a VAT change. Here at Gallant, we are ready to assist your business through this transition - we got your back.
Pay attention to the timing of goods delivery and service performance
The new 25.5 percent VAT rate will generally apply to all goods and services delivered or performed after September 1, 2024. Therefore, even if an agreement is made before September, the new tax rate will apply if the delivery of goods or performance of services occurs after September 1, 2024.
When assessing the delivery time for goods trading, it is important to consider the delivery terms in use.
In continuous services, special attention must be paid to the timing of service execution and, for services sold as continuous performance, to the end of the settlement period. Consider the change in the general VAT rate also, for example, regarding the tax-free benefit of bicycles acquired through leasing agreements.
Remember advance payments
If an advance payment for a service or goods is received or paid in August, the VAT rate that applies will still be the one in effect in August (24%). It is important to pay special attention to the timing of advance payments and ensure that the necessary advance payments are made during August.
Similarly, in September, it is essential to ensure the correct VAT treatment of advance payments and to correct any advance invoices if the VAT rate stated on them is no longer accurate.
What about installment sales?
In installment sales, the applicable VAT rate depends on the time of delivery of the goods. If a customer orders a new car in August 2024 but the car is delivered in September 2024 or later, the VAT rate applied to the sale of the car will be 25.5 percent. It is important to note that the order date, contract signing date, or vehicle registration date do not affect the VAT rate; the decisive factor is the delivery date of the goods.
Unfinished services and contracts
For services in progress when the VAT rate changes, the applicable VAT rate will be the one in effect upon service completion. This means that if independent parts of a project are completed by August 31, 2024, they will be subject to a VAT rate of 24 percent. Correspondingly, independent parts completed after September 1, 2024, will be invoiced at a VAT rate of 25.5 percent. For any advance payments made before September 1, 2024, a VAT rate of 24 percent will apply.
The change in Finland's general VAT rate must also be considered in the VAT treatment of purchases made from outside Finland.
Intracommunity acquisitions
For intracommunity acquisitions, both the moment of goods reception and the invoicing date are key factors.
According to the VAT Act, “the obligation to pay tax on an intracommunity acquisition arises when the acquisition is completed. The acquisition is considered complete at the time the goods are received or would have been taken into use.”
Intracommunity acquisitions are generally allocated to the month following the month of delivery. However, if the invoice is received during the delivery month, the acquisition is allocated to that same month. Therefore, an acquisition delivered in August but invoiced in September would be allocated to September, with a VAT rate of 25.5 percent applied.
Advance payments do not affect the timing allocation of intracommunity acquisitions.
Imports
The tax liability arises when goods enter the EU customs territory and are cleared through customs. This means that goods arriving in and cleared through customs in Finland before September 1, 2024, are subject to a VAT rate of 24 percent. For goods arriving and cleared on or after September 1, 2024, a VAT rate of 25.5 percent applies. Particular attention should therefore be given to the date on the customs clearance decision.
Even though VAT handling is managed appropriately for completed transactions, the VAT rate in effect up to August 31 must also be considered in case of future adjustments.
Handling credit losses or adjustments later in the fall?
Both credit losses and other adjustment items are subject to the VAT rate that was in effect when the goods were originally delivered or the service was initially provided. Similarly, the VAT rate in effect at the time the advance payment was made applies to any refund of that advance payment.
However, for annual discounts, the annual discount can be divided into portions based on the different VAT rates applicable over time.
How does VAT reporting change?
The change in the VAT rate does not practically alter the VAT reporting process itself. In the future, information subject to the general VAT rate will be reported in the VAT return under the section "Tax on domestic sales by tax rate: 25.5% tax."
It is important to note that this section will include both information subject to the 25.5 percent rate and, if necessary, any information subject to the 24 percent rate that still needs to be reported from September onward.
Conclusion
The change in the VAT rate brings several practical challenges that will affect at least all VAT-registered entities. However, with careful planning and preparation, we can ensure that the company's operations continue smoothly when the new VAT regulations come into effect at the beginning of September.
