VAT on international supply of services
When you sell services to another country or buy services from another country, you must determine the place of supply of the service. The place-of-supply rules decide which country’s VAT provisions apply to the sale.
How to determine the place of supply of a service?
The place of supply is decided by either the general rule or a special rule applicable to the service in question. The general rule is applied if there is no special rule on the supply of a particular service. The place of supply of most services is decided by the general rule. The general rule is different for services sold to small businesses and those sold to consumers.
To be able to determine the place of supply, you need to have the following information:
- Are you selling services to a consumer or to a small business?
- What services are you selling?
- Are you supplying a service to the buyer’s fixed establishment or from your own fixed establishment?
The questions below will help you determine the place of supply of the service.
The general rule is applied unless there is a special rule on the service in question. If you are selling services to small businesses, the general rule is applied to immaterial services, such as accounting, translation and advertising services, for example.
If you supply a service to the buyer’s fixed establishment, the general rule dictates that the service is considered sold in the country where the fixed establishment is located. If you do not supply a service to a fixed establishment, the place of supply is the country where the buyer’s place of establishment of a business is. In practice, the sale is taxable in the country where the service buyer is established.
A service is considered sold in Finland if you supply the service to the buyer’s fixed establishment located in Finland or if the buyer’s place of establishment of a business is Finland.
You can find more information about the special rules at “What services are you selling?” below.
When is the buyer a small business?
In the supply of services, “small business” is understood in the broad sense. Small businesses include all companies engaged in VAT-liable operations, even if the operations are small in scale. Also, a small business may sell only services that are not subject to VAT, such as financial or insurance services. For example, municipalities and associations or foundations registered for VAT are regarded as small businesses.
The general rule is applied only if the buyer is a small business and buys the service for purposes of their business. The buyer does not act in the capacity of small business if the service is for the buyer’s or their staff’s private use.
The general rule is applied unless there is a special rule on the service in question. When you are selling services to consumers within the EU, the general rule is applied to immaterial services, such as translation and legal services, for example.
If you, in the capacity of seller, supply a service from your fixed establishment, the general rule dictates that the service is considered sold in the country where the fixed establishment is located. If you do not supply a service from your fixed establishment, the place of supply is the country where your place of establishment of a business is. In practice, the sale is taxable in the country where you – i.e. the seller – are established.
The service is considered sold in Finland if you supply it from your fixed establishment located in Finland or if your place of establishment of a business is Finland.
You can find more information about the special rules at “What services are you selling?”.
When is the buyer a consumer?
Consumers are private individuals who buy services for their private consumption. Consumers here also include non-profit organisations that do not have sales subject to VAT, and small businesses buying a service for their own or their employees’ private consumption.
To decide the place of supply, you must often determine whether the service has been supplied to the buyer’s fixed establishment or supplied from the seller’s fixed establishment, and in what country the fixed establishment is located.
A fixed establishment is, for example, a fixed apartment or business premises where the company can conduct business on a regular basis. A fixed establishment must also have enough staff and appropriate information technology, machinery or equipment to allow the establishment to receive or provide services. Check with the tax authority of the country in question what is considered to give rise to a fixed establishment. For example, if a company rents an office in another country and hires an employee to work there, the company may be considered to have a fixed establishment there.
According to the special rule on small businesses, a service has been supplied to the buyer’s fixed establishment if the technical resources and staff of the fixed establishment have been used for receiving the service. VAT must be paid on the service in the country where the fixed establishment is located. If the buyer has several fixed establishments in various countries, the seller can in practice rely on the information provided by the buyer (e.g. a certain EU country’s VAT number provided by the buyer), specifying the fixed establishment that the service is supplied to.
According to the special rule on consumers, a service has been supplied from the seller’s fixed establishment if the technical resources and staff of the fixed establishment have been used for providing the service. VAT must be paid on the service in the country where the fixed establishment is located.
Even if the seller has a VAT number of the country where the fixed establishment is located, that does not as such prove that technical resources and staff are used for providing the service in question. However, if the seller has issued an invoice specifying a VAT number of a fixed establishment in Finland, then the fixed establishment is considered to have participated in the provision of the service.
If it is not possible to determine the fixed establishment, then the place of supply of the service is considered to be the country where the place of establishment of a business of the buyer business or the seller is located. The place of establishment of a business is the place of the company's central administration.
The place of supply of a service depends on the type of service you are selling. The place of supply of most services is decided by the general rule, but some services are governed by special rules.
Some special rules concern both services sold to small businesses and those sold to consumers. Other special rules apply only when services are sold to consumers.
Special rules for all buyers:
- services related to real estate
- passenger transport services
- admission fees
- restaurant and catering services
- short-term rental of means of transport.
The supply of travel agency services to small businesses is subject to a special rule, whereas their sale to consumers is governed by the general rule. However, the rules are similar in content. In practice, the place of supply of travel agency services does not depend on whether the buyer is a consumer or a small business.
Special rules for consumer buyers:
- goods transport
- services related to goods transport
- valuation of a movable object, and work related to a movable object
- long-term rental of a means of transport or a pleasure craft
- brokerage services related to training, entertainment and sports events and to other corresponding events
- immaterial services sold to non-EU countries
- radio and TV broadcasting services, electronic services, and telecommunications services.
Who pays the VAT – the seller or, based on the reverse charge mechanism, the buyer?
When a service is sold in Finland, i.e. the place of supply is Finland, Finnish VAT must be paid unless tax exemption is separately provided by law.
The VAT is usually paid by the seller. In some cases, however, the VAT reverse charge mechanism is applied. It means that the VAT is paid by the buyer instead of the seller.
When is the VAT reverse charge mechanism applied?
The reverse charge mechanism is applied in all EU countries when the seller and the buyer are in different EU countries, both are small businesses, and the service sold is governed by the general rule. In Finland, the reverse charge mechanism is also applied to many services that are not governed by the general rule.
However, if a small business sells a service subject to the general rule to another small business outside the EU, the seller must check the tax treatment of the transaction in the target country.
Are you liable for VAT in a country other than Finland?
Check VAT matters with the other country’s tax authority in the following situations:
- Your company has employees, premises or other resources in another country, and it may therefore be regarded as having a fixed establishment there.
- You establish a separate company or subsidiary in another country.
- Your company has sales transactions where the country of supply is not Finland, and your company is not registered for the VAT schemes used in the EU.
The EU VAT schemes are the VAT special scheme (One Stop Shop) and the VAT scheme for small businesses. The purpose of the schemes is to make things easier for companies operating in the EU.
A company engaged in international consumer sales can register for EU VAT special schemes. The special schemes cover all the services sold to consumers in the EU and the distance sales of goods to consumers in the EU. By using a scheme, the company can file and pay VAT on sales in a centralised manner in one EU country. Read more about the VAT special schemes: VAT special scheme (OSS)
A company with small-scale business operations can register in the VAT scheme for small businesses. The scheme allows the company to conduct small-scale business in another EU country without VAT liability. Read more: EU VAT scheme for small businesses
Construction and installation projects abroad
When you are selling a construction or installation service to another country, you must establish the place of supply of the service for purposes of value added taxation. To be able to determine the place of supply, you must have the following information:
- Are you selling only work or also goods?
- How long will the project last? Depending on the duration of the project, your company may be considered to have a fixed establishment in the target country.
- Is the buyer a small business or a consumer, and in what country is the buyer established?
If you are selling only work to a small business, you must establish whether the sales are govered by the general rule or by a special rule on services related to real estate. Read more about the general rule under “How to establish the place of supply – Are you selling services to a small business?”.
Below you can find instructions on different situations between small businesses.
If you are selling a service related to real estate to a small business, such as concrete casting for a building on the property, the place of supply is decided based on the country where the property is located.
If the property is
- in Finland, the place of supply of the services related to it is Finland. VAT on the sale of the service must be filed and paid in Finland.
- in another EU country, the place of supply of the services is the EU country in question. Check your VAT liabilities in that country.
- in a non-EU country, check the tax treatment of the supply of services in the country where the property is located.
What is real estate?
In value added taxation, real estate or property refers to land and to buildings and their fixed components on that land. Further, fixed industrial equipment, for example, may be regarded as part of the property if it cannot be removed without demolishing or altering the building. Installation and other work related to such equipment may be a service related to real estate.
Check in the country where the property is located whether the sale of installation service is regarded as a service related to real estate or a service related to movable property.
If you are selling an installation service related to movable property to a small business established in another EU country, the place of supply of the service is decided by the general rule, i.e. based on the buyer’s fixed establishment or place of establishment of a business. In practice, the sale is taxable in the country where the service buyer is established. A service related to movable property refers to installation of household appliances, for example.
In a case like this, you are selling a service that is exempt from VAT in Finland to another EU country. The buyer pays the VAT in their own country based on the VAT reverse charge mechanism. If the installation takes long, the seller may also be liable for VAT in the country where the work is being done.
However, if you are selling such a service to another small business in a non-EU country, you must check the service’s tax treatment in that country.
If you are selling goods ready-installed or assembled, the sale in its entirety is usually treated as supply of goods. Read more in chapter 14.1 of the Tax Administration’s detailed guidance on Value-added tax in the EU supply of goods (available in Finnish and Swedish)
If you are conducting construction or installation work in another EU country and move goods owned by the company from Finland to that other country, the transfer of goods is usually regarded as transfer of business assets. In other words, the transaction is regarded as an intra-community supply in Finland and an intra-community acquisition in the target country. Check VAT liabilities in the country to which the goods are transferred.
If, on the other hand, you are doing construction or installation work in another EU country and order goods from other EU countries, you may be liable for VAT on the goods in the country to which you order them.
If you import goods from a non-EU country, you must check the obligations regarding customs declarations and value added tax on the goods in the EU country to which the goods are imported. If you transport gooods from the country of import to another EU country, check the VAT obligations in the country of destination.
Read more:
How to report sales and purchases
File a VAT return, reporting information about both the sales and purchases of services. Also file a VAT Recapitulative Statement on sales where the buyer is another small business and is liable to pay VAT in another EU country based on the general rule. Note that the due date of the Recapitulative Statement is not the same as the due date of the VAT return.
If you are the seller, you must also enter in the VAT return certain sales of services that are not subject to VAT in Finland, such as supply of services according to the general rule to non-EU countries. Report them under “Turnover taxable at zero VAT rate”.
If you are the buyer and pay Finnish VAT on the service based on the VAT reverse charge mechanism, you must file the VAT you pay on behalf of the buyer in the VAT return. In the same VAT return, you can also report that the VAT paid on behalf the seller is deductible, provided that the general conditions for the VAT deduction right are met.
If you need help in filing, check the decision assistant for international supply of services.
More information about reporting:
- How to complete the VAT return
- EU Recapitulative Statement
- Value-added taxation of cross-border supply and acquisition of services (detailed guidance, chapter 9, VAT reporting)
Applications for VAT refunds from EU countries and non-EU countries
If your company has had expenses that include cross-border VAT, you can usually apply for a VAT refund from the country in question. If the country is in the EU, you can request a VAT refund in MyTax.
VAT can also be refunded from certain non-EU countries. In that case, however, you cannot claim the refund in MyTax. Contact the tax authority of the country in question and ask for more information.
Read more: Request a refund on purchases made in another country
Certificate of VAT registration
If you need a certificate of your business’s VAT liability, you can request it in MyTax.
Read instructions on how to request a VAT certificate: VAT number
Need further instructions?
You can contact our taxpayer service on Monday–Friday, 9 am–4 pm
You can also request written guidance or an advance ruling on a VAT-related matter. Advance rulings are subject to a fee.
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