Tax-free sales to travellers - Guidance for retailers

This is an unofficial translation. The official instruction is drafted in Finnish and Swedish languages.

Passage 8.2 has been updated as far as Customs customer release is concerned.

The guidance has a number of terminology changes because of the amendments of tax rules coming into force on 1 January 2017. New terminology replaces the terms used so far because the Act on assessment procedure for self-assessed taxes come into force, and because the act governing the Tax Account has been repealed.

This guidance is intended for retailers who sell goods in Finland to travellers from outside the EU visiting Finland and to Finns living outside the EU who buy goods in Finland and export the unused goods in their personal luggage outside the EU.

Amendments in the VAT legislation governing tax-free sales to travellers which came into force 1 July 2015 has been added. A new Act was passed in March 2015 governing cash refund business (palautusliikelaki 250/20.3.2015) and revisions were made to section 70 b, subsections 1 and 3 of the Value-Added Tax Act. Similarly, revisions were made to section 2 of the Value-Added Tax Decree on VAT laying down the provisions on sufficient proof of an export transaction.  Moreover, a new passage has been added for a Finnish mail-order company and a passage on the proof of export and how the proof should be stored.

1 Introduction

Under international practice, goods may be sold tax-free to visitors from outside the EU. Buying tax-free means that travellers take possession of the goods and export them from the territory of the EU in their personal luggage. In this guidance you will find a description of the procedure which retailers must follow so that the sale can be considered tax-free.

Tax Administration guidance Ahvenanmaan veroraja arvonlisäverotuksessa (The Åland Islands not forming part of the EU VAT area) discusses tax-free sales in the Province of Åland or to a traveller who is domiciled in the Province of Åland.

Selling tax-free to travellers is a voluntary service. Retailers are therefore not obligated to engage an authorised VAT refund business or other refund business nor to refund VAT themselves to travellers.

2 Buyer’s domicile

Tax-free sales to travellers concern sales of goods to a traveller who is not established within the EU or Norway. Not established means whose habitual residence or permanent address when it is different from the habitual residence is not located within the EU or Norway. Travellers are private persons. At the time of purchase, they pay the full price including VAT for the goods.

The retailer must verify the traveller’s domicile by checking their passport or the separate residence permit, or other documents which prove the habitual residence or permanent address, if it is different from the habitual residence in a reliable way. Individuals who have a residence permit in Finland are deemed to be living in Finland even if they are domiciled outside the EU. The nature of their stay in Finland can be checked from their visa or residence permit.

Travellers who have a visa sticker, a visa, on their passport are eligible for tax-free purchases. Travellers who have a residence permit (either a sticker on the passport or separate card) are eligible for purchases within the last 14 days of the permit period. Anyone leaving Finland earlier must provide a notice from their employer stating that the employment ended earlier than the date entered on the permit.

Finns living permanently outside the EU or Norway may, when visiting Finland, buy goods on which the provision on tax-free sales is applicable. Likewise, when Finns move abroad to a place outside the EU or Norway for at least six months, the provision on tax-free sales to travellers is applicable on purchases they make during the last 14 days before their departure from Finland. A Finnish buyer must present a work or residence permit to the retailer as proof that they live or are moving to a country outside the EU.

The procedure on tax-free sales to travellers does not have to do with the traveller’s nationality; it is rather based on their location of domicile or the place where they live on a permanent basis.  Example: it is regarded as a transaction on which the procedure may be applied when a citizen of Sweden permanently living in Switzerland buys goods in Finland and takes them to Switzerland in their personal luggage.  Similarly, it cannot be regarded as such a transaction when a citizen of Russia, who lives in Finland or Sweden permanently, buys goods in Finland and takes them to Russia in their personal luggage.

In order to qualify for tax-free sales to travellers, buyers must export the goods themselves outside the EU.

3 Minimum sales value and exportation of goods from the EU

To be eligible as tax-free sales to travellers, the total value of the purchased goods must be at least 40 euros. It can include several items. The aggregate value of several goods may be used only if all those goods are included on the same sales receipt (invoice) issued by the same retailer supplying goods to the same customer. The sum includes VAT.

The goods must be unused when they are exported from the EU territory in the buyer’s personal luggage.  Tax-free sales are not applicable if the goods have been taken into use within the EU.

4 Refund procedure

4.1 Retailer uses a VAT refund company

Retailers supplying goods to travellers can use the services of a cash refund business that is authorised by the Tax Administration or other refund businesses.

A VAT refund business that encompasses the responsibility of monitoring and proving that the travellers has transported the goods outside the EU needs an authorisation according to the Act governing the responsibilities of a business that pays VAT refunds in cash in Tax Free Sales to Travellers (palautusliikelaki) 250/2015. Authorisation applications are addressed to the Tax Administration.

A refund business that on the request of the retailer does not monitor the exportation of the goods, do not need an authorisation.  In this case the exportation of goods from EU territory is proven by virtue of the presentation of receipts that are stamped by the Customs (other refund business).

4.2 Retailer refunds the VAT

Retailers may refund the VAT to the buyer themselves. To make refunds, no special authorisation is required. When a retail company sells goods to a foreign traveller, the sale is considered a normal VAT liable sale until the retailer is provided with a declaration showing that the goods have been exported from the EU territory.

5 Sales receipt

The retailer has to issue a sales receipt on the sale to the traveller. The receipt has to contain all information relevant to the supply as sales to travellers.

If the payment receipt that the retailer issues e.g. cash register receipt (till receipt) do not show all the required information a separate receipt that should be attached to it. The retailer enters the information lacking in the cash receipt in separate receipt. The cash receipt and the separate receipt should be firmly attached together. The separate receipt is a complement to the cash receipt. If the receipts are not firmly stapled together, the separate receipt must contain a transparent reference such as the cash receipt's date of issue and receipt number.

It is important that you as retailer are careful when making the entries in the sales receipt. The details on the sales receipt must be in at least Finnish or Swedish. If the details are insufficient or missing, the customs officer may refuse to stamp the receipt. A receipt which customs has stamped serves as documentation showing that the goods have left the EU, and the sale may entered as supply under tax-free sales, in the bookkeeping.

The seller shall retain a copy of the sales receipt.

The retailer must enter the following details in the sales receipt:

1. Buyer’s name, passport number and domicile and habitual residence if it is other than the domicile.

The buyer purchasing the goods to export them in their personal luggage outside the EU must show you their passport at the time of the sale. The seller  must write the passport number on the receipt.

2. Retailer’s name, address and Business ID

3. Quantity and quality of goods

The goods must be described in such detail that they can be identified and itemised.

“Clothes” is not a sufficient description. Instead, itemise the goods in the receipt as for example “coat, shoes or children’s wellington boots”.
“Sports gear” is not a sufficient description. Instead, itemise the goods in the receipt as for example “ slalom skis, ice hockey stick or skateboard”.
“Jewelry” is not a sufficient description. Instead, itemise the goods in the receipt as for example “bracelet, ring or necklace”.
”Accessories” is not a sufficient description. Instead, itemise the goods in the invoice as for example “key ring, scarf, pendant, tie or wallet”.
“Electronics” is not a sufficient description. Instead, itemise the goods in the receipt as for example “mobile phone and its IMEI code, computer or system camera”.
“Tools” is not a sufficient description. Instead, itemise the goods in the receipt as for example “hand drill, hammer, axe, electric milling machine, or electric grinder”.
“Car parts” is not a sufficient description. Instead, itemise the goods in the receipt as for example “engine bonnet, brake pads or bumper”.

4. The paid price with the VAT included, and the tax basis (the consideration paid for the sale of goods without tax) by tax rate, the tax rate applied, or the amount of tax to be paid in euros.

At the time of the sale, debit the traveller the whole price including VAT. The seller reports the sale in the periodic tax return as tax from taxable sales.

5. The amount to be refunded to the buyer or if that cannot be ascertained, an indication of minimum and maximum refund levels.

6. Delivery date of goods

The delivery date of goods is the day when the retailer hands over the goods in the possession of the buyer. If the date of issue of the receipt is the same as the date of delivery, there is no need for a specific indication of the delivery date.

In the case of mail-order selling, the date regarded as the delivery date is when the buyer collects the goods e.g. at a post office or similar pick-up site located in Finland.

7. Number of packages.

What is meant by 'package' is a plastic bag, box or similar unit into which the retailer places the goods, used as a transport package.

The traveller may not enter or add any of the details mentioned above in sales receipt. Instead, all entries in the document must be made by the retailer at the time of the sale. The original receipt given to the buyer and the copy which remains in the retailer’s accounting must be identical.

6 Sealing of the goods

The retailer must, when before handing over the goods to the buyer, always seal the goods so that the customs or the cash refund business can ascertain their connection to the retailer and that they are intact at the time of exportation from the EU. Such seal may consist of for example adhesive tape which bears the cash refund business’s or the retailer's logo or name. If the retailer has no such tape, the goods must be packed in a plastic bag/package which bears the logo or name. The bag/package must then be closed by stapling so that it cannot be opened without stapler marks being left on the bag/package.  The sealing must be made carefully so that the Customs officer or an employee of an authorised cash refund business can ascertain that the goods are unused. This ensures that the buyer is entitled to a VAT refund.

7 The retailer is a mail-order company

The Tax-free sales to travellers procedure can only be applied on mail-order business in the Finnish mainland.

The mail-order company/e-commerce store/online shop must be registered for VAT in Finland. The seller has to know that the sale is tax-free sales to travellers. When the buyer places an order, for example, in an online store, the buyer shall submit the scanned image to the seller of his passport. The passport or other document shall indicate that the buyer is domiciled or habitually resident outside the EU or Norway and that they do not reside in an EU country or in Norway on a continuous basis.

The seller dispatches the sealed goods to an agreed pick-up point in Finland and attaches the sales receipt which contains the information required in the procedure for tax-free sales to travellers into the package. Package pick-up location may be, for example, an office of the transporting company or postal service point. When the traveller picks up the package, the pick-up site employee checks the identity of the person from the passport.

When the traveller leaves Finland to outside the EU the Finnish Customs authorities check that the goods are sealed and unused. At the same time the Customs verifies that the copy of passport and traveller’s passport correspond to each other.

8 Proving the export of the goods

8.1 The retailer uses the services of an authorised cash refund businesses

When the retailer uses the services of an authorised cash refund business the traveller should at the boarder go to the cash refund business’s desk. The cash refund business checks the goods and the documents and verifies the exportation of the goods on the sales receipt. The cash refund business pays the VAT refund to the traveller in cash, on a bank account or other similar way possibly deducting a service charge.

8.2 The retailer or somebody else on behalf of the retailer refunds the VAT

Upon leaving the EU territory from either Finland or via another EU country, the buyer has the sales receipt stamped in the customs office via which the buyer is leaving the EU. The Customs may then request that the unused goods be shown in their original packaging.

The buyer sends the sales receipt stamped by the Customs to the retailer or the other refund business. The retailer or the other refund business pays the refund to the buyer possibly deducting a service charge.

The retailer and the other refund business has if they charge a fee, pay VAT on it, because it is a compensation for a taxable service.

Even when a traveller must file an export declaration with the Customs, the sale is considered tax-free if the conditions laid down in section 70 b of the Value-Added Tax Act  concerning tax-free sales, and section 2 of the Value-Added Tax Decree are met. The confirmation of exit concerning export for commercial purposes issued by the Customs is not considered a proof under the VAT Decree of the goods being exported outside the EU. Instead, even in this case the customs official will stamp the tax-free receipt from the retailer to confirm that the goods are being exported from the EU territory. See Customs information.

When a traveller exits the EU territory and a Customs officer notices some defects in either goods or receipts, they may stamp the receipt with a “red stamp”. The print on the stamp describes the observations made by Customs. In a situation when from the red stamp can be concluded that the conditions for tax-free sales are not met the retailer cannot enter the receipt under tax-free sales in the bookkeeping.

The most common situations when the retailer may not enter the sale as tax-free are

• goods are not presented at Customs when leaving the EU
• goods were used in the EU
• goods were sold VAT-exempt
• goods are presented in Customs by another person than the one entered as buyer on the sales receipt and whose passport was referred to.

For example a stamp which states that there is a defect in the sealing of the goods  serves as guidance to the seller for future sales.

9 Accounting entries on tax-free sales transactions

9.1 Proof of exportation

Retailers are always required to enclose proof and documentation with their accounting records of the exports of the goods to a destination outside the EU.  If no such proof is made available, the sales transaction must be treated as a conventional domestic sale and the rules that apply to it are the usual domestic tax rules.

Under section 2, subsection 2 of the Decree on VAT, the proof that the provision of section 70 b, subsection 1 of the Value-Added Tax Act refers to, for confirming that the buyer transports the goods out of EU territory, is a sales receipt confirmed and authorised by:

• the customs office through which the goods exit the territory of the EU or
• a business paying out cash refunds and authorised as provided in the relevant Act (250/2015: "Act governing VAT refunds in Tax Free Sales to Travellers" — Laki matkailijamyynnistä suoritetun arvonlisäveron käteispalautustoimintaa harjoittavan velvollisuuksista). Such an authorised cash refund business is under the obligation to perform checks, maintain control and provide proof that the goods were exported from the EU territory.

The sales receipt that either the customs or the authorised cash refund business has confirmed is an accounting receipt within the meaning of the Accounting Act, because it proves the transaction that affects the amount of VAT that must be paid.  The retailer must enclose it to their accounting and use it as the basis for making the necessary accounting entries of the tax-free transaction.

The customs declaration referred to above in section 8.2 is not a sufficient proof of exportation, and similarly, if the customs officer made an entry on the presented sales receipt stating "the requirements of tax-free sales are not fulfilled", it cannot be used as proof of exportation.

9.2 Storing the proof of exportation on file

As provided in section 209 o of the Value-Added Tax Act, the invoices that VAT taxation uses must normally be kept in storage in Finland.  If they are stored electronically, it is permissible to keep them in another EU country on the condition that users may always access them via a real-time link when necessary.

Under the provisions of section 24, Act on assessment procedure for self-assessed taxes, the taxpayer must at the request of the Tax Administration present their bookkeeping in Finland for purposes of auditing, including their notes and any similar materials and property that may be required for taxation, or required for processing an appeal regarding taxation. The place where an audit is conducted may be the taxpayer's premises, an accounting firm, or the premises of the Tax Administration.  The bookkeeping and other materials must be presented at the place, or delivered to the place where the audit is going to be conducted (section 14, Act on assessment procedure for self-assessed taxes).

It is permissible to keep the sales receipts, on behalf of the party concerned by the accounting obligation, at a location that is different from the premises of the company.  However, this requires that the receipts can be available with no difficulty if a tax audit is conducted.

9.2.1 Services of a cash refund business

Retailers can enter into an agreement with an authorised cash refund business on having the latter save, on the retailer's behalf, the sales receipts that it has confirmed. Under these circumstances, the authorised cash refund business must prepare a summary report of these documents, which serve as proof of exportation. Such a summary report and the actual proof documents, which are treated as accounting receipts, must have a connection permitting audit trail as laid down in the provisions of Chapter 2, section 6 of the Accounting Act.  The summary report prepared by the cash refund business must list every receipt for which it gave confirmation of the goods having been exported out of the EU.   It must contain the date and receipt number of each receipt, the amount of VAT and the amount refunded to the traveller concerned.  The retailer may use a received summary report as the basis for making their accounting entries that qualify the sales as tax-free.

To be able to establish a connection between the actual proof and the summary report is important: for example, when a tax audit is in question it should not be cumbersome for the auditors to locate the required proof or evidence.

9.2.2 Other refund business

The sales receipts that the Customs has stamped are the sole proof of the goods having been transported out of EU territory. The retailer must enclose them to their accounting and use them as the basis for making the necessary accounting entries of the tax-free transaction.

Retailers can enter into an agreement with a refund business on having the latter save, on the retailer's behalf, the sales receipts that Customs has confirmed. Under these circumstances, the refund business must prepare a summary report of these documents, which serve as proof of exportation. Such a summary report and the actual proof documents, which are treated as accounting receipts, must have a connection permitting audit trail as laid down in the provisions of Chapter 2, section 6 of the Accounting Act.  The summary report prepared by the refund business must list every receipt for which Customs gave confirmation of the goods having been exported out of the EU.   It must contain the date and receipt number of the sales receipt, the amount of VAT and the amount refunded to the traveller concerned.  The retailer may use a received summary report as the basis for making their accounting entries that qualify the sales as tax-free.

It is further required that the sales receipts that Customs has confirmed and that are saved by the refund business must be made available easily, for example when a tax audit is conducted.

In such a case, the retailer has confidence in the services of the refund business that inspects the proof of exportation, keeps the related documentation on file, and prepares a summary report listing all the facts correctly.  However, the retailer carries the responsibility vis-à-vis the Tax Administration regarding the correctness of the accounting entries of the tax-free sales. This way, in the event of an error made by the refund business or of its failure to keep the customs-stamped proof in storage, it is the retailer who must carry responsibility for the payment of any additional taxes.

10 Sales of goods at airports

At airports, tax-free sales take place in tax-free shops. They are located at international flights departure halls. Tax-free shops are either customs warehouses under Article 240 of the Community Customs Code (952/2013) or warehouses under section 72 j of the Value-Added Tax Act. The goods are therefore placed under the customs warehousing procedure referred to in the said regulations.

• Exempted from VAT are the sales of goods to travellers who take the goods in their luggage and whose flight destination is outside the EU tax territory.
• Subject to VAT are the goods sold to travellers who take them in their luggage and travel within the EU tax territory to another EU country.

If the traveller is domiciled in Norway or living there on a permanent basis, the selection of tax-free goods is limited. These travellers may only buy VAT-free alcoholic beverages, tobacco, chocolate, sweets, perfumes, cosmetics and toiletries at shops located in a departure hall.

If the traveller presents a boarding pass for an international flight, it is regarded as sufficient proof of their exporting the goods from EU territory. It is also required that the retailer issues a sales receipt for the sales transaction displaying the following details:

1. Buyer's name, passport number, domicile and the location of their permanent home, if different from domicile.
2. Flight number
3. Retailer's name and Business ID
4. Quantity and quality of the goods
5. Date of delivery, if the date of issue of the receipt is not the same as the date of delivery, and
6. The price paid for the goods.

11 Supplying goods to travellers who are permanent residents of Norway

Even though Norway is not an EU country, there are limitations as to what can be sold tax-free to those travellers who are domiciled in Norway. Those who are domiciled in Norway may purchase tax-free goods only when they will be taking the goods immediately in their accompanied luggage to Norway and will pay the VAT when importing the goods there. The supply is taxable until the traveller has proved (by showing a Norwegian customs import decision) that the VAT has been paid in Norway. After receiving the proof the retailer may enter the supply as tax-free in the bookkeeping and refund the VAT to the traveller. In addition, the selling price of the goods or a customary set of goods exclusive tax is at least 170 euros.