Value Added Tax (VAT) raises questions for many light entrepreneurs. Many wonder what VAT rate to add to the invoice and whether VAT should be included in the price or not. Is there a VAT calculator? What is the VAT register? In the article below, we have compiled everything you need to know about VAT.
What is VAT?
Value Added Tax (VAT) is a consumption tax paid on almost all goods and services. When a business sells a good or service, it adds VAT to the selling price of the goods or services it invoices. In practice, VAT is paid by the consumer as part of the price of the product or service.
What is the VAT register?
As a light entrepreneur who invoices through Suomen Palkkiopalvelu, you do not need to worry about the VAT register.
The VAT register, maintained by the Finnish Tax Administration, is mainly for entrepreneurs and businesses.
We take care of the automatic payment of VAT to the Finnish Tax Administration every time you invoice through us.
Invoicing and VAT
When you invoice through Suomen Palkkiopalvelu, you must always take VAT into account. This is because the turnover of Suomen Palkkiopalvelu exceeds the threshold of minor activities as defined by tax practice, so all invoices sent through us must include VAT (except for VAT-free activities as defined in the Value Added Tax Act, such as artist’s performances).
When you place an invoice order in the Liksala system, just simply select the correct value-added tax rate from the pre-set menu and we will take care of the rest. We will pay the VAT on the invoice to the tax authorities and the remainder of the invoice will be used to pay your fee.
If you have any problems choosing the right VAT rate, please contact us and we will be happy to advise you.
VAT rates – which one applies to me?
There are several different VAT rates in Finland. The standard VAT rate is 25,5%.
Based on the Value Added Tax Act, invoicing subject to the VAT rate of 25,5% include:
- music notation work
- working as an editor or journalist (including copy-editing, but not newspaper articles classified as works)
- music lessons
- production work
- working as a photographer and rights to use photographs
- working as a cameraman
- graphic design
- sound engineering
- working as a real estate agent
- construction work (also exempt from VAT under the reverse charge mechanism for value added tax)
- working as a publicist or press officer
- working as a teacher
- working as an instructor
In ambiguous situations, we try to determine the VAT rate on a case-by-case basis.
Ask us if you are not sure about the VAT rate for your sector.
What VAT rate do I use if I invoice abroad?
If you send an invoice to your customer in another EU country, the reverse charge VAT system applies, which means in practice that you can send an invoice without VAT.
However, you must have a valid VAT number, i.e. VAT-ID or VAT number, for the company you are invoicing. If you do not know the number, you can check it on the website of the European Commission’s Taxation and Customs Union.
If you are invoicing an individual from an EU country, VAT must be added to the invoice.
Is it possible to issue an invoice abroad in Liksala as usual?
When you are about to make your first invoice abroad, please contact us and we will look into it together.
Does VAT have to be included in the invoice price or not?
VAT is either added to or included in the agreed amount. In most cases, VAT is added to the invoice price. In a few cases, it is necessary to deviate from this.
If you are invoicing a limited company, a sole proprietorship or, for example, a general partnership, you can add VAT to the agreed amount of the fee.
If your customer is a non-profit association or a private individual, you should be prepared to include VAT in the invoice price. Understandably, an individual, for example, might be surprised if you have agreed on a fee of EUR 100 and they receive an invoice for EUR 124.
For example:
- VAT is included in the invoice price: EUR 1,000 incl. VAT 25.5% (EUR 796.81 + VAT 25.5%). An invoice for EUR 1000 is sent to the customer, of which VAT is EUR 203.19 and the rest, EUR 796.81, is the gross income.
- VAT is added to the invoice price: EUR 1,000 + VAT 25.5% = EUR 1,255. An invoice for EUR 1,255 is sent to the customer, of which VAT is EUR 255.00 and the rest, EUR 1,000.00, is the gross income.
- In principle, the VAT will be paid to the tax authorities and the non-VAT part of the invoice will be used to pay your fee.
Most companies can deduct VAT on their own taxes, which is why adding it to the price of the work is usually not a key issue to your customers.
Often when negotiating a fee or salary, the price you are talking about is exclusive of VAT. However, to avoid any confusion, it is advisable to state at the latest in your quotation whether or not the price includes VAT.
VAT calculator – how does VAT affect the price of your work?
As we pay the VAT of your invoice directly to the Tax Administration, it does not affect the price of your work. You should also not think of the amount of VAT as part of your pricing in the sense that VAT is not a key issue to your customers, as most businesses can deduct VAT on their own taxes. Your pricing should be based on things you and your customer agree on, such as the quality, duration or quantity of the work.
However, if you want to calculate how VAT affects the price of your work, you can try our handy calculator.
