Small businesses should start preparing in advance for the changes to value-added tax that will come into force at the beginning of next year.
The key changes are:
- the abolishment of the VAT relief for small businesses and
- a new VAT system for small businesses.
While no decision has yet been made, there may also be changes to the 12-month turnover threshold below which a business is considered small in scale, which is currently set at EUR 15,000. Several unions and other parties have called for this threshold to be raised on account of the VAT relief for small businesses being set to be abolished.
The upcoming changes are based on Council Directive (EU) 2020/285, which seeks to reduce the administrative burden on small businesses and promote the cross‐border trade of small businesses located in the EU. The legislation pertaining to these changes is still under preparation in Finland, and more specific guidelines are expected to be released as the processing progresses.
Abolishment of the VAT relief for small businesses
VAT relief for small businesses has been available for businesses registered for VAT whose turnover for the financial year is less than EUR 30,000.
2024 will be the last year during which small businesses can receive VAT relief based on low turnover. This tax relief will be abolished in 2025. The abolishment of the VAT relief for small businesses will mean an increase in taxes for operators that have been entitled to the VAT relief for small businesses based on their turnover being less than EUR 30,000. For this reason, it would be desirable from the perspective of small businesses for the lower threshold for the obligation to register for VAT to be raised.
New VAT system for small businesses
The upcoming changes will facilitate the operations of small businesses looking to engage in international trade. Until now, the VAT exemption for small businesses has only applied to sales taking place in Finland. For many small businesses, the fact that the VAT exemption for small-scale business activities has not applied to sales to other EU countries has acted as a barrier to their engagement in international trade.
With the introduction of the new VAT system, the option to apply the VAT exemption for small-scale business activities will expand to cover sales to other EU countries. Applying this system is voluntary for small businesses and requires the taxable person to register with the new VAT system separately in the country where they are located.
However, the exemption only applies to small businesses whose turnover does not exceed EUR 100,000 per year within the EU and whose sales in different countries do not exceed the national threshold. In practice, small businesses must therefore be aware of the national thresholds for small-scale business activities and closely monitor the amount of sales to different countries.
Do the changes apply to your business activities?
If you have any questions about the changes, Rantalainen’s specialists, who are well-versed in this matter, would be happy to help your business prepare for the upcoming changes and plan your business activities from the perspective of VAT.
Contact our specialists so that we can help you understand how the upcoming changes will affect your business!
Rantalainen's Tax Services