How to invoice when not collecting VAT?

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te14gb
Posts: 16
Joined: Tue May 23, 2017 1:52 pm

How to invoice when not collecting VAT?

Post by te14gb » Mon Jun 19, 2017 9:51 pm

I have a tominimi and collect under the 10,000 euros annually in charges to my customers, therefore I understand I'm not required to collect VAT from my customers. It's a side business for extra income that I do here and there when I have the time.

I haven't been doing this when providing a bill/statement to my customers, but I understand I need to state that I'm purposely not collecting VAT from them. Is there an exact way this legally needs to be worded or is it enough that I just put something like "(Company name) is not required by Vero to collect VAT from client for this service."

Is that sufficient or is there an exact why I am legally required to say it?



How to invoice when not collecting VAT?

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betelgeuse
Posts: 4353
Joined: Thu Aug 29, 2013 1:24 am

Re: How to invoice when not collecting VAT?

Post by betelgeuse » Mon Jun 19, 2017 11:28 pm

te14gb wrote: I haven't been doing this when providing a bill/statement to my customers, but I understand I need to state that I'm purposely not collecting VAT from them. Is there an exact way this legally needs to be worded or is it enough that I just put something like "(Company name) is not required by Vero to collect VAT from client for this service."

Is that sufficient or is there an exact why I am legally required to say it?
No exact wording is required. Your wording is not good though because it is ambiguous between entities not liable for VAT and services freed from VAT.

te14gb
Posts: 16
Joined: Tue May 23, 2017 1:52 pm

Re: How to invoice when not collecting VAT?

Post by te14gb » Wed Jun 28, 2017 2:58 pm

Hi another question here. In these cases where I don't collect VAT on my invoices because my total charges for the year are under 10,000 EUR, are my clients still responsible for to pay taxes on my services directly to Vero? According to Vero, I need to indicate that on the invoice if that's the case. Thanks to anyone here who may know for clarifying this.

betelgeuse
Posts: 4353
Joined: Thu Aug 29, 2013 1:24 am

Re: How to invoice when not collecting VAT?

Post by betelgeuse » Wed Jun 28, 2017 3:00 pm

te14gb wrote:In these cases where I don't collect VAT on my invoices because my total charges for the year are under 10,000 EUR, are my clients still responsible for to pay taxes on my services directly to Vero? According to Vero, I need to indicate that on the invoice if that's the case.
The question is unrelated to VAT and depends on whether you have withholding registration (ennakkoperintärekisteröinti) or not. I have not heard that this would be a legal requirement to have the info on the invoice. The customer is required to check on their own any way.

te14gb
Posts: 16
Joined: Tue May 23, 2017 1:52 pm

Re: How to invoice when not collecting VAT?

Post by te14gb » Wed Jun 28, 2017 4:41 pm

Thank you, you've been a big help to both my questions.

Rosamunda
Posts: 10650
Joined: Fri Jan 02, 2004 12:07 am

Re: How to invoice when not collecting VAT?

Post by Rosamunda » Wed Jun 28, 2017 4:56 pm

betelgeuse wrote:
te14gb wrote:In these cases where I don't collect VAT on my invoices because my total charges for the year are under 10,000 EUR, are my clients still responsible for to pay taxes on my services directly to Vero? According to Vero, I need to indicate that on the invoice if that's the case.
The question is unrelated to VAT and depends on whether you have withholding registration (ennakkoperintärekisteröinti) or not. I have not heard that this would be a legal requirement to have the info on the invoice. The customer is required to check on their own any way.
If you are not required to charge VAT then, no, your customers do not have to pay anything to Vero. There is no mechanism in place for that - assuming you are delivering/invoicing within Finland. (It can happen when importing goods from outside the EU that the customer has to pay VAT when receiving a delivery.)

One thing to bear in mind is that - when/if a day comes when you decide to register for VAT and start collecting it from your customers (ie when you exceed the 10K€ threshold), your prices will increase (eg by 24% if you are selling non-food items). This could cause problems if you have a loyal customer base that would resent paying so much more for the same goods/services. Especially if you are selling B2C (not really a problem for B2B). So, sometimes it is worth taking that into account when fixing your prices, better to charge a bit more now so that when you do start charging VAT you can "eat" the difference, at least partially, yourself. If you see what I mean.

betelgeuse
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Joined: Thu Aug 29, 2013 1:24 am

Re: How to invoice when not collecting VAT?

Post by betelgeuse » Wed Jun 28, 2017 10:20 pm

Rosamunda wrote: If you are not required to charge VAT then, no, your customers do not have to pay anything to Vero. There is no mechanism in place for that - assuming you are delivering/invoicing within Finland. (It can happen when importing goods from outside the EU that the customer has to pay VAT when receiving a delivery.)
My source is this:

http://www.finlex.fi/fi/laki/ajantasa/1 ... 1118#L2P25
Suorituksen maksajan on toimitettava ennakonpidätys, jos saajaa ei ole merkitty ennakkoperintärekisteriin:
What is yours?
Rosamunda wrote: One thing to bear in mind is that - when/if a day comes when you decide to register for VAT and start collecting it from your customers (ie when you exceed the 10K€ threshold), your prices will increase (eg by 24% if you are selling non-food items). This could cause problems if you have a loyal customer base that would resent paying so much more for the same goods/services. Especially if you are selling B2C (not really a problem for B2B). So, sometimes it is worth taking that into account when fixing your prices, better to charge a bit more now so that when you do start charging VAT you can "eat" the difference, at least partially, yourself. If you see what I mean.
This would only be correct if there was no competition. In an efficient market, one is not able to arbitrarily choose prices.

Rosamunda
Posts: 10650
Joined: Fri Jan 02, 2004 12:07 am

Re: How to invoice when not collecting VAT?

Post by Rosamunda » Thu Jun 29, 2017 6:03 pm

betelgeuse wrote:
Rosamunda wrote: If you are not required to charge VAT then, no, your customers do not have to pay anything to Vero. There is no mechanism in place for that - assuming you are delivering/invoicing within Finland. (It can happen when importing goods from outside the EU that the customer has to pay VAT when receiving a delivery.)
My source is this:

http://www.finlex.fi/fi/laki/ajantasa/1 ... 1118#L2P25
Suorituksen maksajan on toimitettava ennakonpidätys, jos saajaa ei ole merkitty ennakkoperintärekisteriin:
What is yours?
I guess it's the same as your since I am agreeing with you.
Rosamunda wrote: One thing to bear in mind is that - when/if a day comes when you decide to register for VAT and start collecting it from your customers (ie when you exceed the 10K€ threshold), your prices will increase (eg by 24% if you are selling non-food items). This could cause problems if you have a loyal customer base that would resent paying so much more for the same goods/services. Especially if you are selling B2C (not really a problem for B2B). So, sometimes it is worth taking that into account when fixing your prices, better to charge a bit more now so that when you do start charging VAT you can "eat" the difference, at least partially, yourself. If you see what I mean.
This would only be correct if there was no competition. In an efficient market, one is not able to arbitrarily choose prices.
Many start-ups deliberately price their goods and services below the going rate to attract customers and they can do this because they are not collecting VAT ie It is not a level playing field (BTW in the UK the VAT threshold is much higher giving entrepreneurs and small businesses a competitive advantage). But, in Finland VAT kicks in at 24% at only 10K€ turnover. At that moment the entrepreneur has to increases their customer price, massively, and that can - and does - put many out of business as their customers disappear. So, it's a very bad idea to undercharge your customers if you hope your business is going to grow and probably a good idea to register and charge VAT from the outset unless you know your business will remain a hobby. That's all. Not rocket science.

betelgeuse
Posts: 4353
Joined: Thu Aug 29, 2013 1:24 am

Re: How to invoice when not collecting VAT?

Post by betelgeuse » Fri Jun 30, 2017 10:49 am

Rosamunda wrote: I guess it's the same as your since I am agreeing with you.
I am confused. Did you change your mind or do you interpret the legislation differently? My interpretation and experience is that the client has to withhold taxes for human work (työkorvaus) and pay them to Vero if the seller is not registered.
Rosamunda wrote: Many start-ups deliberately price their goods and services below the going rate to attract customers and they can do this because they are not collecting VAT ie It is not a level playing field (BTW in the UK the VAT threshold is much higher giving entrepreneurs and small businesses a competitive advantage). But, in Finland VAT kicks in at 24% at only 10K€ turnover. At that moment the entrepreneur has to increases their customer price, massively, and that can - and does - put many out of business as their customers disappear. So, it's a very bad idea to undercharge your customers if you hope your business is going to grow and probably a good idea to register and charge VAT from the outset unless you know your business will remain a hobby. That's all. Not rocket science.
So let's see the two options for someone with revenue of 9k in competitive market selling to consumers. Ceteris paribus everyone else has over 10k revenue.

a) Registered for VAT. You will charge the market price and make good profit since you get to keep the VAT as subsidy.
a) Not registered for VAT. You will also charge the market price and it just has higher profit in it.

When your revenue goes over 10k you will still have to charge the market price or you will not have customers. Now your profit margin is lower since the subsidy per sale is lower. It is a good idea to register for VAT if there is danger of going over the limit, but that was not my point.


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