What is a real cost of Toiminimi in Finland?

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AndyVee
Posts: 2
Joined: Wed Nov 24, 2021 4:03 pm

What is a real cost of Toiminimi in Finland?

Post by AndyVee » Wed Nov 24, 2021 4:13 pm

Hello everyone.
I have been trying to make sense of real total taxation of a toiminimi to make a decision of either working as a private person or as a Toiminimi. Here's the case: for over a year I have been working as a consultant for a company located outside Finland (UK-based) and reported my incomes as foreign income and therefore paid my taxes on it.

I'm not considering a change in operations and using a toiminimi for the same purposes but i want to better understand how much I would lose in this scenario. From the get-go, my current employer shall not pay the VAT since for them it will not be an expense they could claim back and would basically mean that my services would become 24% more expensive which is not an option. However, considering that fact that my value added is outside Finnish borders, I assume I can issue the bills vat free (0%)? Correct me if I am wrong.

Next comes YEL. As far as I know, for the first 2 years I will pay approx. 20% from total sales.

Then comes the part I don't quite understand. In vero pages it says that business expenses are expenses related to production of business. As a toiminimi, all of the expenses are part of it, no? Meaning if I don't eat - I don't work and therefore don't generate income? I tried to find a "set of deductible items" for a toiminimi to wrap my head around it but so far didn't find a comprehensive list. As far as I know, instead of salary I just "withdraw" funds? Meaning I can still use my private account but somehow separate business expenses from personal?

And the last bit is the income tax. After YEL and all the deductibles, do I pay income tax as an individual on whatever is left, or, do I pay it both as a business (income - YEL - expenses) and then as an individual?

To make it more visual, let's assume I am making 3,000€ per month or 36k/year. Today I am paying 16% tax in total, give or take after the deductions. Can anyone show me the math of using toiminimi with the same numbers? I would really appreciate it!

Cheers!



What is a real cost of Toiminimi in Finland?

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FinlandGirl
Posts: 1322
Joined: Sat Nov 09, 2019 10:43 am

Re: What is a real cost of Toiminimi in Finland?

Post by FinlandGirl » Wed Nov 24, 2021 9:31 pm

AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
I have been trying to make sense of real total taxation of a toiminimi to make a decision of either working as a private person or as a Toiminimi. Here's the case: for over a year I have been working as a consultant for a company located outside Finland (UK-based) and reported my incomes as foreign income and therefore paid my taxes on it.
I do not think that what you have been doing for over a year is legal.
You cannot call yourself a "private person" to skip mandatory pension contributions or VAT registration for a consultancy business.
AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
I'm not considering a change in operations and using a toiminimi for the same purposes but i want to better understand how much I would lose in this scenario. From the get-go, my current employer shall not pay the VAT since for them it will not be an expense they could claim back and would basically mean that my services would become 24% more expensive which is not an option. However, considering that fact that my value added is outside Finnish borders, I assume I can issue the bills vat free (0%)? Correct me if I am wrong.
How are you currently invoicing the client of your consultancy business?
AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
Next comes YEL. As far as I know, for the first 2 years I will pay approx. 20% from total sales.
The basis is supposed to be the salary someone doing your work would get, not your actual income.
AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
Then comes the part I don't quite understand. In vero pages it says that business expenses are expenses related to production of business. As a toiminimi, all of the expenses are part of it, no? Meaning if I don't eat - I don't work and therefore don't generate income? I tried to find a "set of deductible items" for a toiminimi to wrap my head around it but so far didn't find a comprehensive list.
There is no comprehensive list.
The rule of thumb is that expenses you would not have without the business are business expenses that reduce your profit.
You would also eat without your business, therefore your groceries are not business expenses.
You would also live in an apartment without your business, therefore your rent is not a business expense. A room in the apartment used solely for the business might be a business expense.
AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
As far as I know, instead of salary I just "withdraw" funds? Meaning I can still use my private account but somehow separate business expenses from personal?
Accounting can be a mess without any separation of accounts.
AndyVee wrote:
Wed Nov 24, 2021 4:13 pm
And the last bit is the income tax. After YEL and all the deductibles, do I pay income tax as an individual on whatever is left, or, do I pay it both as a business (income - YEL - expenses) and then as an individual?
Pension insurance is mandatory when you work (no matter whether employed or not), this reduces your profit.
Expenses reduce your profit.
On the remaining profit you are paying income tax.

I would recommend you discuss your situation with a (free) business advisor where you are living:
https://uusyrityskeskus.fi/en/homepage/

AndyVee
Posts: 2
Joined: Wed Nov 24, 2021 4:03 pm

Re: What is a real cost of Toiminimi in Finland?

Post by AndyVee » Thu Nov 25, 2021 11:14 am

Hei there :) Thank you for the explanation.
The current situation I'm in was advised by the tax office over a year ago when I came to them with my current contracts and asked if this should be considered salary of foreign income. And they told me that in my case it is a foreign income since there is an employment contract (it's not a consulting contract, it's an employment contract that states that my services are of consulting nature) I have to submit prepayment taxes, pay them for the year ahead according to the bills from Vero and that's that.
However, now I'd want to expand my services and therefore Toiminimi is a suitable option to discover. But thank you for the info, I'll get in touch with uusyrityskeskus
Cheers!


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