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May 8, 2024
2024-0930

Finland's VAT increase could make VAT rate the second highest in the EU

  • The Finnish government has announced rate increases for the standard value-added tax (VAT) and Insurance Premium Tax.
  • Companies operating in Finland should take into consideration the upcoming plans to increase the standard VAT rate and the changes in the VAT rate of certain commodities currently taxed at a reduced rate.
 

The Finnish government announced in its April 2024 budget session an increase in the standard VAT rate from the current 24% to 25.5% — in the European Union (EU), only Hungary's VAT rate is higher (27%). Certain reduced VAT rates of 10% and 14% in Finland would remain unchanged, but the products and services subject to the reduced rates will partially change within these VAT rates. The rate of Insurance Premium Tax will also increase to 25.5%

The increase in the standard VAT rate is intended to be implemented from the beginning of September 2024.

The government had already outlined that most of the commodities subject to the 10% VAT rate are intended to be moved to the 14% VAT rate, with only newspapers and periodicals remaining at 10%. Additionally, the VAT taxation of candies and chocolates is likely to change, and these products would be moved to the standard VAT rate.

Implications

The VAT rate increase requires companies to consider several matters that affect their operations, both in terms of the tax-rate increase and price changes. Companies should prepare for these changes as early as possible to ensure that all the necessary systems, contractual and pricing alterations are in place at the time of the change.

From a practical perspective, companies will need to update their accounting systems to reflect the new VAT rate, and the transitional rules should be taken into account, for example, in situations involving the return and refund of goods. Contracts should also be reviewed. The change also affects VAT reporting, as companies will need to update their invoice templates and prices to reflect the new VAT rate from the effective change date. Additionally, operators in the food industry must evaluate which products would be considered to fall under the standard VAT rate in the future.

From a more strategic perspective, companies need to assess how the VAT increases will be reflected, for example, in product prices. In addition, VAT can have a significant impact on company cash flows, and this effect may be exacerbated due to the tax increases.

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Contact Information

For additional information concerning this Alert, please contact:

EY Advisory Oy, Helsinki

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
 

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