Tax as sole trader.

[cybertiger]

I've done a bit of work trawling through the tax documents, and I'm sure I've made a few mistakes here, but I think I managed to get the jist of it, here's an explanation of the tax appliable to people in my situation as I understand it. (It was mostly written for my own benifit, but other people might find it useful).

This is all based on 2005, if someone can point me where to get the various rates for 2007 I'd be quite grateful.

It relates only to self employed persons (not limited companies), I've ignored other sources of income such as share dividends etc, they're not applicable to me, not only that it makes it even more bloody complicated.

VAT (brief):

Total VAT payable (this can be negative when your income is derived from abroad)
=
VAT charged to customers/clients -
VAT charges on business expenses.

Pension Insurance:

- Must start paying within the first 6 months of operating a business.
(If you do not, they will do it for you and probably make you pay for all
of the first 6 months).
- For the first 48 months you can reduce payments by 25%.
- Flat charge based on earned income at 21.4%, 22.6% above the age of 53.

Taxable Income:

All expenses should NOT include VAT, VAT is handled seperately (this relates mainly to travel and business expenses).

Expenses A: "Natural deducations"
- Unemployment fund payments
- Travel expenses from place of residence to place of work (500-4,700)
- Expenses for work related equipment and work related literature

Expenses B:
- Obligatory pension contributions
- Supplimentary pension contributions upto 5,000
- Standard deduction for work related expenses - 640 (not sure a sole trader can claim this as they already claimed business expenses).

Expenses C:
- Not applicable unless you have income from a pension.

Expenses D:
- Earned income allowance (This has it's own section because it's
as complicated as income tax).

Expenses E:
- Does not apply to me, may apply to you if you're subject to student loan
repayments, child support payments or you are disabled.

State income tax is levied on:

Gross Earnings - A - B - C - E

Municipal tax, Health insurance, Church tax is levied on:

Gross Earnings - A - B - D

Pension insurance contributions are work out on:

Gross Earnings - A

Earned Income Allowance:

This is deducted before calculating municipal taxes, and is calculated using Gross Earnings - A, in a similar way to how state income tax is calculated, except that earnings over 14,000 count against your allowance. (hence the -4% in the following table)

0 - 2500, 0%
2,500 - 7,230, 49%
7,230 - 14,000, 26%
14,000 - 110,870, -4%

It is capped at 3,850, and you get 0 if you earn more than 110,870.

Right, the taxes:

State Income Tax:

This is levied in a sliding scale:

0 - 12,000 : 8 euroes. (8 seems to be a flat base rate)
12,000 - 15,400 : 8 + 10.5% of earnings over 12,000.
15,400 - 20,500 : 365 + 15% of earnings over 15,400.
20,500 - 32,100 : 1,130 + 20.5% of earnings over 20,500.
32,100 - 56,900 : 3,508 + 26.5% of earnings over 32,100.
56,900 - : 10,080 + 33.5% of earnings over 56,900.

Communal tax:

This is levied as a flat percentage (It isn't because of the earnings allowance which is a deductable for the purposes of Cummunal tax) at between 16-21 % depending on the area you live
- Earned income allowance (This has it's own section because it's
as complicated as income tax). e in.
- Earned income allowance (This has it's own section because it's
as complicated as income tax).

Church tax:

Assuming you're a member of one of the two state churches this is a flat percentage between 1% and 2.5% depending on where you live.

Corporate Income Tax:

Not applicable except for taxable entities other than people such as limited companies.

Other taxes:

Health insurance contribution: 1.5%
Unemployment insurance: Voluntary for entrepreneurs,
I can't find out how much this costs as the
pages are all in bloody finnish, if anyone can point me
in the right direction I'd be grateful.
Accident insurance: Not required unless you employ people.

I'll try to write out an example of taxes next, now I think I grok this.

[cybertiger]

The following is a rough tax estimate based on my understanding of taxes above.

Gross income: 2,500 per month.
Business expenses: 2,440 per year inc. VAT.

Gross per year: 30,000

VAT rebate: 440 (assuming all business expenses @ 22% VAT)

Expenses A:
2,000 Euro

Expenses B:
Pension contributions @ 0.75 * 0.214 * (30,000 - 2,000) = 4,494
Supplimentary pension contributions: 0
Personal expenses (standard deduction): 640
Total: 5,134

Expenses C:
Total: 0

Expenses D:
Income allowance: (0.49 * (7,230 - 2,500)) +
(0.26 * (14,000 - 7,230)) -
(0.03 * (28,000 - 14,000))
= 3,657.90

Expenses E:
Total: 0

Taxable Income For State Income Tax:
30,000 -
2,000 -
5,134
= 22,866

State Income tax = 1,130 + 0.205 * 2,366 = 1615.03

Taxable Income For Other Tax Purposes:
30,000 -
2,000 -
5,134 -
3,657.90
= 19,208.10

Communal (Municipal Tax) at 17.5% = 0.175 * 19,208.10 = 3,361.42
Health Insurance at 1.5% = 0.015 * 19,208.10 = 288.12

Right, I think I got everything, summing up:

Gross Income: 30,000.00
Expenses: -2,440.00
Vat Rebate: +440.00
Pension Insurance: -4,494.00
State Income Tax: -1,615.03
Communal Tax: -3,361.42
Health Insurance: -288.12

What you take home: 18,241.43

% paid as tax and pension: 28,000 - 18,241.43 / 28,000 = 34.85 %

That sound about right ?

[buggedcom]

Wow, this is just what i needed. However a question arises... Travel expenses with regards to trips are different to everyday travel expenses are they not, and if i understand this correctly there is to be no limit to that kind of travelling? do you know?

Also I'm putting together an Excel spreadsheet based on this on will attach for future readers when it is done.

[buggedcom]

Also other readers in English may find this usefull.

http://www.vm.fi/vm/en/04_publications_ ... _netti.pdf

I know it's 2005 but the rules are generally relavent to today. It basically covers everything to do with taxation.

[Hank W.]

Oi, Cyber, theres this new mucca unclehairy who asked weird questions, he'd much benefit of your recent experience.

[raamv]

Dont forget your deductible expenses:
Travel to and from work/Work travel expenses/fuel charges/domestic perdium/meals etc
Expenses relating to renting/using your home as workplace
Expenses relating to buying office things ( like books, pencils pens, paper, printer, computer etc etc)
Claiming deductible for Children ( tick box and making sure that if your go over that amount, your spouse can claim that extra)
expenses relating to the interest paid on a loan/mortgage for house/company ( no car, or personal loan allowed)
OTOH, some expenses relating to the leasing may be claimed..but I am not sure about this in a self-employed situation
Expenses relating to hiring (only 60% expenses can be claimed)/using other companies for "Services" (cleaning, repairing, remodeling, etc ) relating to either the house and/or the business.

[haider254]

I'm considering starting up a toiminimi as a little part time thing to do along side my studies. I'll mainly be doing Järjestyksenvalvoja (Order Supervision Office, Rent-a-cop, bouncer) work and maybe if I find the need some IT work also. But this thread just scared the Baa-Jeesus(In finnish) out of me...

I've spoken to several people about the process of getting a Y-Tunnus and the hassle that comes with it, they say it's as simple as keeping a track of your income and expenses and keeping all receipts, then at the end of the year filling telling the tax office your Income and VAT Reclaimable expenses and paying off the taxes. Now, is this really the case? I also had someone tell me that you have to pay Ennakkovero (Pre-payed Tax I suppose is a decent translation)? When does this have to be payed? Will I have a chance to earn something before this Ennakovero is sprung on me? I assume I will inform them of my taxable income and they just take it out of the ennakkovero and return whatever isn't used of the prepayed sum. How do they calculate the Ennakkovero? Is it from your expected income?

I think what I wanna know is just more info on this ennakkovero, and what to expect from the first month or so of getting a Y-Tunnus, before I've had a chance to get much work done and earn anything.

[karel]

You're only VAT and ennakkovero liable if you make more than 8500 euros per year.
Assuming that being a student, you're receiving some money from Kela for your support? That means that you can't make a fortune next to your studies without losing the right to the Kela money. I'm not completely sure how much it is, but I think it was around 10 000 euros a year?
I'd say stay under the 8500 and that'd save you a lot of trouble and accounting.

(unless of course you ARE going to make a fortune Then go ahead. Ennakkovero is based on your estimated net income, so the more you get, the more you pay).

[haider254]

You're only VAT and ennakkovero liable if you make more than 8500 euros per year.
Assuming that being a student, you're receiving some money from Kela for your support? That means that you can't make a fortune next to your studies without losing the right to the Kela money. I'm not completely sure how much it is, but I think it was around 10 000 euros a year?
I'd say stay under the 8500 and that'd save you a lot of trouble and accounting.

(unless of course you ARE going to make a fortune Then go ahead. Ennakkovero is based on your estimated net income, so the more you get, the more you pay).

SWEET! Thanks for the advice!. So this should be pretty easy then, just register the Y-Tunnus, estimate my income at like 5000€ (which it wont even reach), then just make sure not to spend my money so I have enough moneys to pay the taxes

That 5000€ is after business expenses isn't it? I'm gonna need to buy around 1000€ worth of equipment (Safety Vests, Hand Cuffs, Baton, Slash Proof Gloves, clothes, shoes, OC Spray etc.). Also, will courses I take be business expenses? Is reclaiming VAT on business expenses only possible if you're VAT liable?

[karel]

If you are not liable for VAT, you're not allowed to deduct expenses.
Sorry, every pro has its con

Don't forget to put the income on your tax form, because you DO have to pay tax over it.

[Rosamunda]

If you are not liable for VAT, you're not allowed to deduct expenses.
Sorry, every pro has its con

Don't forget to put the income on your tax form, because you DO have to pay tax over it.

Not exactly true.

You can deduct your normal business expenses from your income in order to calculate your taxable income even if you do not pay VAT.

But, if you are not adding VAT to your customer invoices then you cannot deduct the VAT from your supplier invoices.

Or something like that!

[Rosamunda]

If you are not liable for VAT, you're not allowed to deduct expenses.
Sorry, every pro has its con

Not exactly true.

You can deduct your normal business expenses from your income in order to calculate your taxable income even if you do not pay VAT.

But, if you are not adding VAT to your customer invoices then you cannot deduct the VAT that you pay on your supplier invoices.

Or something like that!

[buggedcom]

Whilst everyone is active, anybody got any advice on which pension insurance company to go with?

[karel]

You're right, it was what I meant, but I didn't put it very clear.

[haider254]

Ahaa, oh well, I'd rather pay the VAT on what minimal business expenses I have than have to be VAT Liable

Another Question, not exactly related, hopefully I'm not completely highjacking this thread

On the Y3 form, it sais;
"Contact person or company, such as an accounting firm, providing the Tax Administration with further information"

Does this mean I actually have to get an accountant?