VAT rules for small business will change – the threshold of small-scale business rises,VAT relief to be abolished, new exemption extends to all EU countries
Based on the provisions of the SME Directive, new VAT rules affecting small businesses will come into force as of 1 January 2025. The Finnish parliament has accepted the amendments to VAT legislation needed for implementation of the SME Directive.
The Directive aims to lower the administrative burden for small businesses in the EU, create a situation in which everyone has the same chance of succeeding, and help small enterprises sell their goods and services more efficiently in the EU.
The new VAT rules concern all small enterprises including limited-liability companies, general partnerships, limited partnerships, the self-employed, and operators of agriculture and forestry. In other words, the small enterprise’s type or legal form will not be important.
The present VAT relief for small businesses will cease to be in force
Starting 2025, small companies can no longer be granted a VAT relief in Finland even if their annual net sales remain low. The VAT relief for small businesses is a form of tax credit for companies registered for VAT with sales, i.e. turnover levels (12 months) remaining below €30,000.
Finnish small businesses continue to be able to request the VAT relief up to the end of 2024. To request the relief, companies must include the VAT relief information in their VAT return for their final tax period of 2024. If your tax period is the month and your company has a non-calendar accounting year, you can request the relief only for the part of the accounting year that precedes the date when the new VAT Act comes into force.
Example: The company’s accounting period is the calendar year, start date 1 January – end date 31 December 2024. Turnover for the accounting period has been €13,000. The company has a valid VAT registration for which it applied on a voluntary basis. The company should include its application for VAT relief in its December VAT return. If the company’s tax period is the calendar month or the calendar quarter, the VAT return for December must be filed by 12 February 2025. However, if the company’s tax period is the full year, its December VAT return must be filed by 28 February 2025.
The company cannot request the relief any more for its 1 January – 31 December 2025 accounting period even if annual turnover would stay below €30,000 and the company’s VAT registration would continue to be valid.
Example: The company’s accounting period is 1 July 2024 – 30 June 2025, a non-calendar year. The tax period is the calendar month. This company is entitled to the VAT relief for small businesses with respect to the calendar months 1 July – 31 December 2024. In other words, only for the part of its accounting year just before the changed law comes into force. The company should include its VAT relief information i.e. apply for the relief in its December VAT return. The due date is 12 February 2025.
The threshold of small-scale business activity rises to €20,000
Under provisions of VAT legislation, activities deemed small-scale are left outside the scope of value-added taxation. Under today’s VAT rules, if turnover is maximally €15,000 the company does not need to submit an application for VAT registration.
As of 2025 when the changed VAT Act comes into force, the threshold will be increased from €15,000 to €20,000. In addition, a new method will be implemented for threshold appraisals: company turnover will always be indicated for the entire calendar year instead of the accounting year. Threshold appraisal will not only look into the current calendar year’s turnover, but also take account of the preceding calendar year’s turnover. Accordingly, as the 2025 calendar year’s turnover should not exceed €20,000, it will also be required that turnover for the previous calendar year 2024 did not exceed €20,000.
The companies that have no VAT registration are required to keep an eye on the growth of turnover, and if the threshold is exceeded, they must submit an application for VAT registration. The start date for registration is the day when they exceeded the threshold. This point in time is also the start date for the company’s liability for paying VAT. Under today’s VAT rules, if turnover exceeds the threshold of small-scale activities during the accounting period, the company must register for VAT and pay it retroactively for the entire accounting period.
Example: For the 2024 calendar year, the company had a turnover of €13,000. According to estimates prepared by the company, its turnover for the current 2025 calendar year will be similar. There is no need for this company to register for VAT on the condition that its final turnover figure will stay below the threshold of €20,000 in 2025. However, if it were to exceed the 20,000-euro threshold some time during 2025, the company would be required to submit an application for VAT registration, and the day when the turnover figure went over the threshold would be given as the start date of the company’s VAT registration.
Small companies continue to have the option to register for VAT voluntarily even if their turnover does not reach the threshold. This way, the small company can become eligible for VAT deductions by virtue of its VAT registration: registered companies can deduct the input VAT when they buy goods and services. They simply enter the deductible VAT amounts on their VAT return forms.
After the changed tax rules come into force, a company can have its VAT registration canceled when its 12-month turnover has stayed below the national threshold during 2 calendar years one after the other.
The new EU VAT scheme for small-scale businesses engaged in international trade
A new EU VAT scheme for small-scale businesses will be introduced. The scheme allows the VAT exemption for small businesses offered by one EU country to be extended to business conducted in another EU country. At present, the VAT relief for small businesses is only granted locally in the EU country where the business is resident i.e. established.
To enter the new scheme is voluntary. To enter, and to receive the benefits of the VAT exemption available in another EU country, the company needs to submit an application for registration in its country of establishment. Small enterprises from an EU country that do not exceed the national threshold can utilise the VAT exemption as long as their total EU-wide turnover does not exceed €100,000.
For example, if a small company established in Finland enters the new scheme, carries out sales in Sweden and Denmark where these two countries give the company a VAT exemption, it is required that the company’s turnover during the current and the preceding calendar years will not exceed the national thresholds in force in Sweden and Denmark. Additionally, it is simultaneously required that the European Union-wide threshold of 100,000 euros is not reached during the current and the preceding calendar years. Companies must keep track of their selling i.e. detect an exceedance of the thresholds without delay.
Every member state can determine its national threshold for small-scale business activity. However, the national threshold cannot be above €85,000.
Registration in the new EU VAT scheme
Starting 1 January 2025, a company established in Finland can submit a prior notification through MyTax to become registered. After this step is taken, there is no need to obtain further VAT registrations in the other member states where the company sells goods and services.
The information to be entered in the prior notification will be company name, address, sector of business, the names of the EU countries where the company plans to carry out VAT-exemptible sales. The company will also need to specify its total turnover for the current and the preceding calendar years, including buyers in Finland and buyers in the other EU countries, country by country. The company will later have to update the information given on its prior notification as appropriate.
The Identification register
Companies established in Finland will be recorded in an identification register that the Tax Administration will manage. This registration satisfies the needs of the new EU VAT scheme, enabling the other EU countries to give VAT exemptions correctly. To be on the identification register does not require prior VAT registration. After registration, the company will be issued a unique Exempt ID.
How and when to submit the quarterly report concerning sales
Companies registered with the EU VAT scheme in Finland must submit a quarterly report, detailing their selling to customers in the EU. The due date for the quarterly report is the end date of the second month following the calendar quarter concerned.
The report’s required content will include the Exempt ID, specifications of the company’s sales of goods and services, with total sales for the reportable quarter, to buyers in Finland and to buyers in other member states, country by country. If an EU country has set out rules defining different thresholds for different sub-sectors of business activity, companies carrying out sales to such a country must itemize its sales values by each one of the sub-sectors as they are defined there. If the company has had no sales during the reportable quarter, the company should fill in zero values.
How to make corrections to quarterly reports?
If the company submitted a quarterly report that contains an error, it is very important to remedy the error without delay. This is done by submitting a replacement report for the calendar quarter concerned. The replacement will replace the previously submitted quarterly report fully.
Penalties for neglect
Penalty charges for negligence may be imposed as a consequence of non-compliance by a scheme participant with regard to the reporting rules. The maximum penalty is €5,000. No penalty charge is imposed if the negligence is deemed minor or if it is committed due to a good reason or due to a special reason by definition of law.
Finnish national legislation will enter into force on 1 January 2025
The new legal acts will enter into force on 1 January 2025. The Tax Administration will provide further guidance on the subject in autumn 2024.
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