As a result of Finland's expected joining of the EU on January 1, 1995, major changes are proposed for the Finnish VAT system. If enacted, these changes will become effective on January 1, 1995.
Finland will introduce the EU rules regarding intracommunity trade. Under these rules, VAT is no longer imposed at the border on imports from other EU countries. Intracommunity acquisitions will be subject to VAT in accordance with the destination principle. If a purchaser of goods is a taxable person for VAT purposes, it will be entitled to input tax credit if it uses such item in a taxable business activity. The new rules create a cash flow benefit for taxable persons because they no longer have to pay VAT when they import goods from another EU country.
The Finnish VAT Act will include special rules for the sales of new mean of transport, distance selling (sales involving the shipment of goods to another EU state, such as mail order sales) and ABC contracts (under which the same goods are sold two or more times but are transported directly from one EU member to an ultimate customer in another member state).
Primary producers (farmers and fishermen) will be subject to VAT. Primary producers will be entitled to input tax credits for certain investments (inputs) acquired on or after July 1, 1994.
The VAT tax base will be broadened in accordance with the EU's Sixth VAT Directive. The following items will be subject to VAT: sales of traditional Finnish fuels and imports of natural gas; accommodation; data processing services to banks and insurance companies; and subsidies directly linked to prices.
The standard VAT rate will remain at 22%. Lower rates will apply to groceries (17% until the end of 1997; 12% for subsequent years) and to books, medicines, sports facilities and entertainment (12%). Beginning in 1995, accommodation and personal transportation will be subject to VAT at a rate of 6%.
For further information please contact Jukka Nisonen, tax lawyer, Tilintarkastajien Oy Ernst & Young, Kaivokatu 8, 00100 Helsinki, Finland, telephone +358-0-1727 7282, or enter a text search 'Ernst & Young' and 'Business Monitor'.
The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.