Key takeaways
- Standard VAT rate in Finland will rise from 24% to 25.5% effective September 1, 2024, pending parliamentary approval.
- Insurance Premium Tax will also increase to align with the new 25.5% rate.
- Sweets and chocolate will move from the 14% reduced rate to the standard 25.5% rate.
- The VAT hike is part of a €3 billion fiscal consolidation plan to keep the deficit below 3% of GDP.
- From January 1, 2025, certain goods and services currently taxed at 10% will increase to 14% (e.g., books, hotels, public transport, cultural events).
- Nappies and tampons will see a VAT reduction from 24% to 14%.
- The VAT registration threshold will rise from €15,000 to €20,000 per year starting January 2025.
- The new threshold applies only to resident businesses; non-residents must register immediately if they engage in taxable sales.
VAT increase to 25.5% effective September 2024
The Finnish government has confirmed a significant increase in the VAT rate from 24% to 25.5%, effective from September 1, 2024. The increase is dependent upon approval by Parliament. The change will also apply to the Insurance Premium Tax rate, aligning it with the new VAT rate.
Notably, the VAT rate for sweets and chocolate will rise from the current reduced rate of 14% to the new standard rate of 25.5%.
The announcement of the VAT hike was first made on April 16, with the Finance Minister pushing for a swift implementation to prevent the country from breaching the Euro currency membership rule, which mandates that the government deficit must not exceed 3% of GDP.
This VAT increase is part of a broader strategy to generate €3 billion in savings, aimed at stabilizing Finland's fiscal position.
Adjustments to reduced VAT rates planned
While the 14% and 10% reduced VAT rates will remain the same, the VAT rate for certain goods and services will be reclassified as of January 1, 2025.
Items previously taxed at 10% will be increased to 14%, including books (excluding journals or magazines), pharmaceuticals, public transport, hotel services, entrance fees to cultural and sporting events, film screenings, and royalties for television and public radio activities. There will be a reduction in VAT from 24% to 14% for nappies and tampons.
Additional tax increases are anticipated in 2025, targeting high earners and pensioners to further bolster the government's fiscal strategy.
VAT registration threshold to increase to €20,000
The Finnish Government has also indicated that it intends to increase the annual sales threshold for compulsory VAT registration. Starting January 1, 2025, the threshold will be raised from €15,000 to €20,000 per year.
This updated threshold is applicable to businesses whose turnover exceeds €20,000 in the current and previous years.
The VAT registration threshold only applies to resident businesses. Non-resident businesses engaged in taxable activities (e.g., domestic sales of goods) must register for VAT immediately. Businesses with sales below the new threshold can choose to register for Finnish VAT voluntarily.
Frequently asked questions
1. When will Finland’s new VAT rate take effect?
The 25.5% VAT rate will apply from September 1, 2024, subject to parliamentary approval.
2. Which taxes are affected by this increase?
Both the standard VAT rate and the Insurance Premium Tax will rise to 25.5%.
3. Are there changes to reduced VAT rates?
Yes. From January 1, 2025, the 10% rate will increase to 14% for items like books, hotels, and public transport.
4. Will any goods see a VAT reduction?
Yes, nappies and tampons will have their VAT reduced from 24% to 14% in 2025.
5. What is the new VAT registration threshold?
The threshold will increase from €15,000 to €20,000 per year starting January 1, 2025.
6. Who must register for VAT in Finland?
- Resident businesses exceeding €20,000 in annual turnover must register.
- Non-resident businesses must register immediately if they conduct taxable sales in Finland.
7. Why is Finland raising VAT?
To stabilize public finances, reduce the budget deficit, and comply with EU fiscal rules limiting the deficit to 3% of GDP.
