Finland will raise the general rate of value added tax (VAT) from 24% to 25,5% on 1st September 2024.
The VAT rate increase involves updating and reviewing, for e.g., accounting systems, pricing strategies and contracts. This checklist highlights key points to consider.
Internal Training and Communication
Ensure that finance and payroll staff have up-to-date knowledge of the VAT rate changes and revised processes. This helps reduce errors and misunderstandings.
System and Process Updates
The VAT rate change must be updated not only in financial systems but also in payroll systems that handle travel and accommodation expenses. If your staff travel frequently, the change may significantly impact costs. This should be considered when updating the budget.
Updates need to be made to the following systems:
- Sales systems, including invoicing software, cash register systems, and e-commerce systems
- Purchasing and procurement systems
- Accounting systems
- Inventory management systems
- Reporting systems
- Budgeting and forecasting systems
- Payroll systems: travel and expense claim systems
Ensure that staff are aware of the new processes and know how to handle, for example, expense claims correctly in payroll.
Budget, Cash Flow Statement, and Forecast Updates
The budget, cash flow statement, and forecasts must be updated to reflect the new costs. This is particularly important if the VAT on the products or services you sell or buy increases significantly. You need to ensure that your company has sufficient liquidity to cover the increased costs. You may need to cut costs elsewhere or find new, cheaper service providers.
- Update sales forecasts: the impact of potential price increases on the sales of your products.
- Cost assessment: potential cost increases for the products and services you purchase.
- Cash flow forecasts: higher costs and potentially changing sales volumes will affect cash flow.
- Evaluate the impact of higher VAT on the amount of taxes you pay.
Personnel-Related Costs
- Assess the impact on travel and accommodation expense claims for staff.
- Assess the impact on employee benefits where VAT increases.
Accounting
Check which sales and purchases the VAT rate increase affects. The VAT rate is generally determined on an accrual basis, meaning the applicable rate is determined by when the goods are delivered or the service is performed (before 1 September 2024, the old rate applies, and from 1 September 2024, the rate is 25.5%). For example, the date of the order, order confirmation, contract, or invoice is irrelevant.
For advance payments, the decisive factor is the accrual (receipt) of the advance payment: the 24% rate applies to advance payments received before the new rate comes into effect, even if the project is completed later. The final sale price is based on the accrual principle. If advance payments are charged, sales during the transition period must be divided into different VAT rates as necessary.
Discounts, bad debts, and other adjustments are subject to the VAT rate that was in effect when the goods were originally delivered or the service was performed.
In instalment sales, VAT is determined by the time of delivery of the goods or services for the entire price.
For imports, VAT is determined by the month of customs clearance, i.e., the month in which the customs decision is issued.
For intra-community acquisitions, VAT is determined by the month following the delivery month or, if the invoice is received in the delivery month, by the delivery month.
For goods or services taken for own use, the VAT rate is determined on an accrual basis. For contract-based services, own use occurs when the service is performed. There are specific rules for the timing of own use for construction services.
Actions
- Ensure the correct handling of advance payments and adjustments.
- Ensure the correct VAT codes are in use.
- Update invoice and report templates.
- Consider intra-community acquisition and import situations, as well as reverse charge situations, where determining the applicable VAT rate is the buyer’s responsibility.
VAT Deductions Review
Check and update your information on VAT deduction rights and planned changes. Pay particular attention to representation, marketing, negotiations, and costs related to various vehicles, where the boundaries can be challenging.
Pricing Strategy Update
Develop a new competitive pricing strategy: passing the cost increase caused by the VAT change directly onto the selling prices vs. the potential negative impact on sales.
Contract, Contract Template, and Offer Updates
Sales:
- Check how the applicable VAT rate is expressed.
- Update current contracts and contract templates as necessary.
- Check VAT on open offers.
Purchasing:
- Review your contracts with service providers and check how the VAT increase affects them.
- Assess whether contract terms need to be renegotiated.
Payroll
From a payroll perspective, the change affects, for example, employee benefits based on leasing agreements, as the benefit value is based on the leasing payment. The increase in travel and accommodation costs due to higher VAT must also be considered.
Check the updated value of employee benefits based on leasing and other ongoing agreements. If the new value exceeds the tax-free limit, determine how the excess is handled: does the employee or employer pay the excess?
Customer Communication
Explain to customers how the VAT rate change affects prices and invoicing. Update the correct information in brochures, websites, and other marketing and communication channels and materials.
Azets Can Help
The change is approaching quickly, and there are many actions to take. We can support you through the change.
- Pricing strategies and cash flow impacts
- Budget and forecast reviews
- System updates, installations, training
- Invoice and report template modifications
- Contract reviews and updates
Let us support you in making this change as smooth and efficient as possible.
- Email: sales.fi@azets.com
- Phone: (+358) 010 756 4500
