TMI/expenses/start up costs

[Hämeen Hitain]

Once I stop earning a wage the money will disappear!

Where would thw money disappear? Can't you save it and buy the equipment after registering the TMI?

[MC Deli]

Once I stop earning a wage the money will disappear!

Where would thw money disappear? Can't you save it and buy the equipment after registering the TMI?

This is off the point. Even I did wait to buy some equipment until after a commencement date - the question still remains about other start up costs and existing equipment?

I am really surprised that this isn't clear from Vero's documents. All the documents (from the sticky) and the aforementioned book, are all about starting a business, and start up costs are a key consideration - and surely in most entrepreneurial situations you have some tools (a computer anyone? a paintbrush, a chainsaw, sewing machine etc etc)...?

[Rosamunda]

I think Vero does not state explicitly things which are obvious. There is an order for doing things. First you register your business (which you can do today if you want, and you probably should've done weeks ago) then you buy stuff. The receipts on the things you buy will be dated after the date you registered the business. That is common knowledge and follows basic accounting rules. You are making things very complicated for yourself if you invest money in your business before you register it. For sure, you will not be able to claim back the VAT on those things you bought BEFORE you register the business.

There is an annual minimum income (it was about 6000€ in 2007 but is probably more now) you can earn before being liable to pay YEL. So if you register your business now, you will not have to start paying YEL straight away (and you are still covered anyway by the contributions out of your salary for your regular job). I am not sure how your student status will affect this.

I think you should really consider going to some of the evening classes organised by the TE-Keskus. For people like you who are starting up there is a ton of important information you need to know and it is a great opportunity to ask questions and get answers face-to-face. There are links to those courses in the other thread.

You can also try going into www.intofinland.fi or sending them an email or even emailing/phoning Vero directly (in English is OK) and asking them to confirm.

[MC Deli]

I think Vero does not state explicitly things which are obvious. There is an order for doing things. First you register your business (which you can do today if you want, and you probably should've done weeks ago) then you buy stuff. The receipts on the things you buy will be dated after the date you registered the business. That is common knowledge and follows basic accounting rules. You are making things very complicated for yourself if you invest money in your business before you register it.

...but this is the reality. And it is not just me. AFAIK this is why in the UK you can deduct start up items bought up to 4 years prior to commencement. If it is really is the case that with a TMI you can only deduct items bought after commencement then no wonder people make "arrangements" to re-buy their equipment. My hope is there is a less gray solution. My understanding so far is that the answer is to set up an Oy and for the Oy to buy all the equipment. But I am going round in circles now. Yes, intofinland, as mentioned earlier is my next port of call, if their holiday schedules allow it

Thanks for your help again. Though "Vero does not state explicitly things which are obvious" is perhaps not really fair. We must expect all Vero's rules to be publicly available surely!

[Rosamunda]

If Vero doesn't explicitly say that you CAN do something, then by default you CANNOT.

By the way, can you send me the link to the UK site that says you can deduct start-up expenses from the previous four years in the UK? I find this extraordinary. Most equipment is depreciated "straight line" over 5 years in the UK so it is almost worthless after 4 years anyway. How the hell can you estimate the value of 3-4 year old equipment for the balance sheet? I am, I admit, sceptical and it isn't a rule I have come across on hmrc.gov.uk (which I thought I knew inside out).

[MC Deli]

I have found a useful Vero document http://vero.fi/nc/doc/download.asp?id=1874;711148 (49v07) where the "fixed asset deductibles" are listed in chapter 27.

I cannot find the English equivalent. The Finnish text is:

"Kuluvan käyttöomaisuuden hankintameno vähennetään verotuksessa vuosittain
tehtävillä poistoilla. Jos irtaimen käyttöomaisuuden (koneen, kaluston tms.) käyttöaika
on kolme vuotta tai sitä vähemmän, voi hankintamenon kuitenkin vähentää
kokonaisuudessaan jo sinä vuonna, jona omaisuus on hankittu. Myös silloin, kun
hankintameno on enintään 850 euroa, sen saa poistaa kerralla. Tällaisina pienhankintoina
saadaan yhtenä vuonna vähentää kuitenkin enintään 2 500 euroa. Tavanomaisimman
käyttöomaisuuden enimmäispoistoprosentit ovat EVL:n mukaan
seuraavat:"

I don't quite get "käyttöaika" and some of the table that follows e.g. about software... but at least I feel like we are getting closer...

[Rosamunda]

I don't quite get "käyttöaika"...

The English term is "useful life" which means the time period you use for depreciating the asset. In the UK we would do 33-33-33% but in Finland fixed assets are depreciated forever as they use a % of residual value method. Which is why you need software.

[Upphew]

I have found a useful Vero document http://vero.fi/nc/doc/download.asp?id=1874;711148 (49v07)

In that document they mentioned apportti, which might be relevant to the interest of the op. http://www.prh.fi/fi/kaupparekisteri/os ... iehto.html
http://www.sanakirja.org/search.php?id=697355&l2=3

[MC Deli]

software.

I meant I did not understand this passage in the table in C27: "...patentti tms. aineeton oikeus,... esim. atk-ohjelmat tasapoisto max 10 vuotena"

I have found a useful Vero document http://vero.fi/nc/doc/download.asp?id=1874;711148 (49v07)

In that document they mentioned apportti, which might be relevant to the interest of the op. http://www.prh.fi/fi/kaupparekisteri/os ... iehto.html
http://www.sanakirja.org/search.php?id=697355&l2=3

Yes, the OP finds that of interest It seems to be with an Oy there are different ways to deal with existing equipment. However, with a TMI it seems, so far, there are not. Or it's fuzzy. And that is a good enough reason for me not to "set up a TMI as soon as possible"...

[Rosamunda]

software.

I meant I did not understand this passage in the table in C27: "...patentti tms. aineeton oikeus,... esim. atk-ohjelmat tasapoisto max 10 vuotena"

Things like intellectual property and patents, copyrights (???), and software licences can be depreciated over a longer period, eg 10 years.

If you are now considering starting up an Oy then you really need to get some face-to-face info from the TE-Keskus. As the owner of an Oy you are still liable for YEL and you will have to register for VAT as soon as you register the business at PRH. The accounting requirements are also different for an Oy (you would probably need a bookkeeper).

[Rosamunda]

I have found a useful Vero document http://vero.fi/nc/doc/download.asp?id=1874;711148 (49v07)

In that document they mentioned apportti, which might be relevant to the interest of the op. http://www.prh.fi/fi/kaupparekisteri/os ... iehto.html
http://www.sanakirja.org/search.php?id=697355&l2=3

http://www.finlex.fi/en/laki/kaannokset/2006/en20060624

In English (unofficial translation)

If, instead of cash, the subscription price is paid in full or in part with other
assets (contribution in kind), the assets shall at the time of conveyance have a
financial value to the company at least equal to the price thus paid. An
undertaking to perform work or services shall not be used as contribution in
kind.
(2) Provisions on the payment of the subscription price in kind shall be included
in the Memorandum of Association. In addition, the Memorandum of
Association shall contain an account specifying the contribution in kind and
the price covered by it, as well as the circumstances relevant to the valuation
of the contribution and the methods of valuation. If the provisions in this
subsection have not been complied with, the subscriber shall prove that the
contribution had a financial value to the company equal to the subscription
price. Any shortfall shall be paid to the company in cash.
(3) If the subscription price is paid in cash on condition that the company is to
acquire assets against consideration, the provisions on contribution in kind
apply correspondingly to the acquisition.

[MC Deli]

Things like intellectual property and patents, copyrights (???), and software licences can be depreciated over a longer period, eg 10 years.

Ah OK - IPR and licenses - I was thinking it meant software, hence I was confused

If you are now considering starting up an Oy...

I have been considering for some time hence all my silly questions

...then you really need to get some face-to-face info from the TE-Keskus. As the owner of an Oy you are still liable for YEL and you will have to register for VAT as soon as you register the business at PRH. The accounting requirements are also different for an Oy (you would probably need a bookkeeper).

Yes, I realise this. But as you said yourself, if you have a moderately sized TMI business that is VAT regsitered and pay a book keeper, there is perhaps not a great deal of difference between that and an Oy. In my case, if starting an Oy is the only way to account for the sizeable amount of equipment I have collected for starting my business, then it seems like the most likely course.

Thank you ever so much for the feedback. I will come back with what I learn from the powers-that-be

[Rosamunda]

With the Oy you will need to figure out how you are going to transfer business income into personal income eg: pay yourself a salary, draw a director's fee, or receive dividends as a shareholder. The tax treatment varies. With a TMI your net profits after tax are your own, easy. With an Oy you pay Company Tax on your profits and then personal Capital Tax on the dividends you receive. So you need to plan ahead. A lot of entrepreneurs with Oy have big cash flow problems.

[MC Deli]

-When setting up a TMI or partnership company how do start up costs work with regard to equipment/tools etc. that have already been purchased - in the UK it used to be AFAIK that you could deduct equipment bought up to 4 years before, but then at 25% of the value per year - is it similar in Finland, does it differ between TMI/partnership/Oy?

This question came up at the course filecore and I attended a few months ago. IIRC we didn't get a proper yes/no answer. In fact you rarely get a Y/N answer when it comes to deductibles and tax. Most of it is a bit grey and fuzzy "it depends" and "only if it is reasonable". When I started my Oy I already had an expensive laptop which I had bought the previous year and a ton of books. My SO (who is a beancounter by trade) said I couldn't deduct any of it because you need receipts and the receipts have to date after the registration of the company. OTOH I suppose you (the person) could sell yourself (the TMI) some of those assets for their residual value.... only Vero can say whether or not that is OK.

Courtesy of In To Finland and the Vero experts at Myyrmäki I got a very clear answer to this. I will try to logically explain:

-When you commence a TMI, partnership or Oy you do not have to state your start-up equipment.
-When you first do your accounting (at the end of the first accounting period - usually one year) that is when you state your start-up equipment.
-It does not matter how old your equipment is - there is no 4 year rule - but you must process the items with their value at the time of commencement of the business
-You should also have receipts from the items' original purchase
-Then the items can then be accounted for at 25% per year (typical depreciation)

...this seems entirely logical and means that there is no panic about "not buying equipment" before you start a business.

If I have understood this correctly, and if bookkeepers are aware of this, then my follow up question is - why are people I have come across "selling and rebuying" equipment when they start their TMI - is it just so they then have a receipt? Or am I missing another factor?

[Rosamunda]

Yes, that answer makes sense to me from a business accounting point of view. It does matter how your assets are valued and depreciated when you start up because this has a direct impact on your profit. Asset depreciation is booked as an expense in your P&L statement which will reduce your net taxable income. If your assets have a nil value on the balance sheet when you start up then you have no amortisation costs to book against your income (so your taxable profit is higher).
It's tricky (try "Understanding Business Accounting for Dummies") and probably of negligable impact for most TMIs but not if your business has a ton of expensive equipment and machines.

But VAT is something else:
Did you specifically ask Vero if you can deduct the purchase VAT of an item purchased before the start up against your business revenue VAT? Because I would be extremely surprised if they said yes. Maybe if the receipts are in the same year as the business revenues they might not notice (or might pretend not to). With VAT at 23%.... that's a big chunk of money