VAT Increase in Finland: What You Need to Know

In June, the Parliament of Finland decided to approve an amendment to the Value Added Tax Act, which will raise the general VAT rate from 24% to 25.5%. The change will take effect from 01.09.2024.

This VAT raise will be applied to all purchases and invoices, where the general VAT rate is used, consequently we will change the standard VAT percentage to 25.5% in our application.

Why is the VAT increasing?

The VAT is being increased based on the Parliament approval of the amendments to the Value Added Tax proposed in the government proposal (HE61/2024)

The proposal is related to the state’s second supplementary budget proposal for 2024. The amendments to the Act were approved after the votes in accordance with the Finance Committee’s report.

The increases are estimated to strengthen the public finances by around 3 billion euros starting in 2025.

Who will be affected by the VAT increase?

The VAT increase in Finland, which will raise the general VAT rate from 24% to 25.5% starting 1st of September, 2024, will affect a wide range of stakeholders:

• Service Providers: Light entrepreneurs using invoicing services like FREE.fi will need to potentially adjust their pricing for the done work, and inform clients about the new VAT rate.
• Consumers: Prices for goods and services will rise, increasing daily expenses.
• Businesses: Companies must update their pricing, accounting, and invoicing systems to reflect the new VAT rate.

How does this change impact pricing and billing?

The upcoming VAT increase in Finland, from 24% to 25.5% effective 1st of September, 2024, will affect pricing and billing in the following ways:

1. Pricing Adjustments: All goods and services will need to reflect the new VAT rate if they fall under the general VAT %, potentially increasing costs for customers. If your invoicing includes VAT in the invoicing price, consider raising prices.
2. Expenses: If you have any expenses which you invoice from your customer, be aware that the VAT for the expenses will be calculated based on the date of the expense.
   
   For example, if an item or service was purchased before September 1, 2024, it is subject to a 24% VAT rate if it falls under general VAT. On the other hand, expenses incurred after September 1, 2024, will be subject to the new VAT rate of 25.5%.
3. Billing Systems: Our invoicing system will be updated to ensure the correct VAT rate is applied on all invoices.
4. Contract Adjustments: When setting prices for services or products to be done after 1st of September, ensure that the VAT increase is considered.
5. Purchasing Decisions: Plan significant purchases before September to benefit from the current lower VAT rate.

Example scenarios

All of the scenarios are after 01.09.2024 with the new increased VAT percentage of 25.5%. Please keep in mind that the scenarios are hypothetical, and are subject to change if and when changes occur to the legislation or Tax Authorities instructions.

Scenario 1 (Invoicing in September for a work done in August)

Pekka is a gardener who has done work for a customer during August. Pekka and the customer have agreed that Pekka will invoice in September for the work done in August.

The invoice date will be the invoice creation date which is usually the day of creation, however Pekka must set the invoice row date as to when the work has been completed.

Since the work has been completed in August, and Pekka set’s the invoice row dates to August, Pekkas invoice will be subject to 24% VAT.

Scenario 2 (Invoicing for work done in August and September)

Kalle undertakes a project for a customer starting at the end of August, with the work continuing through September. The project concludes on September 23rd, and Kalle issues an invoice to the customer on September 26th.

Kalle includes multiple invoice line items for the work performed, each with different dates:

1. First Invoice Line Item: Dated August 20th, subject to the 24% VAT rate as it precedes the VAT change on September 1, 2024.
2. Second Invoice Line Item: Dated September 1st, subject to the new VAT rate of 25.5%.
3. Third Invoice Line Item: Dated September 23rd, also subject to the new VAT rate of 25.5%.

The VAT calculations for these line items are automatically managed by FREE.fi, determined by the date of each invoice line item.

Scenario 3 (invoicing with a base price + VAT)

Matti is a consultant who invoices for their work using FREE.fi. Matti has agreed with the customer that he will invoice once per month 3000€ + VAT.

As Matti’s field of work and the completed work is subject to the general VAT, Matti would create the invoice normally to the customer and select while creating the invoice that the VAT is not part of the invoice sum (3000€).

The VAT will be calculated automatically by FREE.fi from the 3000€ using the new VAT 25.5% on top of the invoice. 

Scenario 4 (Invoicing with a base price INCLUDING VAT)

Sanna undertakes a project for a customer. Sanna and the customer have agreed that she will invoice the customer once per month for a total amount of 2,000€, VAT included.

Since the VAT rate changed on September 1, 2024, the VAT will be automatically calculated and deducted from the net price, as Sanna has selected that the VAT is included in the invoicing amount.

Due to this reason, Sanna should consider raising her prices as the VAT rate is now higher.

• 25.5%
• invoicing
• New VAT
• Old VAT
• VAT
• VAT increase

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