Value-added tax and its principles
Taxes are the heaviest for entrepreneurs in Finland, which is why it's essential to understand the basics and pay the taxes on time. For successful business operations, an entrepreneur needs to know these three types of leading taxes: value-added tax (Vat), prepayment tax, and income tax. This article will discuss the value-added tax and its principles.
How should I charge my customers?
You need to understand how pricing works and how to negotiate the price when you speak with a business client or with the consumer. Whenever you sell your services, you have to either add value-added tax or include value-added tax in your services. If you're selling your service to a private household, the main rule is to count Vat with your services and products like this:
124 € ( 24% sis. alv), in English, it means that the Vat is included in the price. You're selling 100€ to the customers, and the 24€ is the vat money you save to pay for the tax.
When you sell a product to a business, then it is essential to add the Vat like this: 100+ 24% =124€. The Vat is included separately with the price, but the business client will pay your invoice according to the total sum of the price quote, which is 124€. It still means that you receive only 100€ and the 24€ is the Vat. It also means that you leave the extra 24€ alone because it is not a tip. There are companies exempted from the Vat, but that's another topic.
When should I pay value-added tax?
You can choose to pay monthly, quarterly, or yearly. If you have a small turnover, then you can pay for the Vat every February. But if you have a monthly income stream, then it is recommended to settle the tax on a monthly period than a quarterly period. It helps to balance vat expenses and forecast your budget. For example, paying a monthly vat for 500€ is better than paying 2000€ of Vat every quarterly period. Remembering to pay the Vat every 12th will be consistent and more comfortable to remember than paying Vat every quarterly period.
You should pay Vat according to the 12th of the second month following the target month. It means that value-added tax on the month of March must be paid after two months which is the 12th of May.
How should I pay value-added tax?
You can inform and pay value-added tax by visiting vero.fi.
Let´s say that you have sold over 1240 euros of goods, which includes Vat. The total amount of Vat is 240€ for products sold, and you have expenses of 620 euros with Vat. The total amount of Vat is 120€ for goods bought. With these values, you can fill the Vat notification from the tax office. Here are the three steps explained from the example form:
1. Fill your company name and business ID
2. Fill in the target month and year. Sometimes it reads if you inform your Vat on a monthly, quarterly, or yearly period.
3. Fill the Vat in euros according to the vat rates, which are 24%, 14%, or 10%. Fill also the deductible tax amount, which is 120€. Then count the total amount and fill it in the total amount 240€-120€ is 120€. When your vat cost is more than the sales, then you have to add minus-sign in the total amount column.
Sales tax 120- Cost tax 240 = Total amount is -120€. It means that you will receive the 120€ back to the account you have informed the tax office.
You have informed that your Vat period is in October 2019. It means that the due date to pay the Vat is on the 12th of December. If you miss the Vat, interest to pay is 7%. It is better to be punctual than late.
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