INSIGHT: VAT Registration Requirements In Finland—Foreign Businesses Face Change

The Finnish tax authorities have published new guidelines changing the simplified value-added tax registration type called “notification duty.”

As a result of these changes, the notification duty will no longer be applied to foreign businesses with the following operations in addition to intra-community trade in Finland:

• making purchases subject to the so-called reverse charge in Finland, which requires foreign businesses to account for the Finnish VAT on the purchases (such as purchases of construction services in certain situations); and
• making imports.

Foreign business conducting these operations are required to register for VAT in Finland, as of May 1, 2019. Previously, businesses in the above circumstances were allowed to register for the notification duty only.

Registration Types

The Finnish VAT legislation provides for several types of VAT registrations. For foreign businesses, the following are the most common:

• “normal” mandatory VAT registration for business operations;
• voluntary VAT registration for business operations or to refund local VAT; and
• the notification duty for intra-community trade.

A mandatory VAT registration is required when a foreign business conducts activities for which it is VAT liable in Finland.

A voluntary VAT registration may be chosen when there is no VAT registration liability, but a foreign company wishes to become VAT-registered, e.g. to charge the local VAT (instead of applying the reverse charge) or to refund Finnish VAT on VAT returns.

The notification duty is a simplified VAT registration type which means that in terms of VAT returns the foreign business only reports the value of the intra-community acquisitions and supplies it makes and the value of purchases of certain goods or services in the scope of the mandatory reverse charge (such as purchases of construction services under certain circumstances). There is no need to pay any local VAT in connection with these VAT returns where only the value, and not the amount of tax, is reported.

The notification duty does not allow foreign businesses to refund Finnish VAT. Instead, VAT refunds must be applied for through the specific VAT refund process for foreign companies. Due to the VAT reporting requirement that does not have the opportunity to refund local VAT on VAT returns, many foreign businesses have chosen the voluntary VAT registration instead of the notification duty.

What Has Changed?

As of May 1, 2019, the notification duty can no longer be used in situations, in addition to intra-community trade, where a foreign business either makes imports or purchases goods or services in the scope of the mandatory reverse charge in Finland. As of May 1, 2019, these operations require the “normal” mandatory VAT registration.

Since the VAT reporting liability has already been applied in the form of notification duty, the changes are mainly administrative. If a foreign business is impacted by this change, it should modify its VAT registration type into the “normal” mandatory VAT registration.

Because the notification duty also requires monthly VAT reporting, the administrative burden should not be increased drastically because of this change. If a company has refunded its local VAT through the VAT refund process for foreign businesses, the administrative burden may even decrease as it becomes possible to refund local input VAT on VAT returns only, without having to file VAT refund applications to the Finnish Tax Authorities.

Planning Points

Foreign businesses having a VAT registration in Finland should review their Finnish operations and the local VAT registration type in order to confirm whether these changes impact their VAT registration in Finland.

If a company involved in intra-community trade also makes imports or purchases goods or services subject to the mandatory reverse charge in Finland, and it has previously only been registered for the notification duty, the VAT registration type should be changed as soon as possible (retroactively as of May 1, 2019).

Foreign businesses having a “normal” mandatory VAT registration or voluntary VAT registration are not impacted by this change. Foreign businesses that make imports or purchase in the scope of the mandatory reverse charge and that have previously chosen voluntary VAT registration instead of the notification duty may change their VAT registration into the “normal” mandatory VAT registration if they prefer it. Because the voluntary VAT registration prevents the applicability of the local reverse charge (other than the mandatory reverse charge), some companies may wish to make this change in their VAT registration type.

The notification duty will still be applied in the following situations:

• a foreign business conducts zero-rated intra-community sales in Finland; and/or
• a foreign business makes intra-community acquisitions in Finland.

A foreign business can also be registered for the notification duty when they have a fixed establishment in Finland, but do not conduct VAT liable activities from that fixed establishment. Foreign companies can also carry out the following operations under the notification duty:

• sales to which the local VAT reverse charge is applied (other than the mandatory reverse charge);
• sales where the buyer is the State of Finland; and
• sales that are exempt from VAT in Finland if these sales do not affect the foreign business’s right to make zero-rated intra-community acquisitions.

No changes are required in the VAT registration of a foreign business having only these operations in Finland.

Henna Jovio is a Senior Associate at Borenius Attorneys Ltd, Finland.
She may be contacted at: henna.jovio@borenius.com