SY disappointed VAT threshold not rising

The Government is not proposing a change to the VAT threshold.

The lower threshold for VAT is not rising from €15,000, as the Government of Petteri Orpo is not legislating to change it.

Suomen Yrittäjät, the Finnish SME association, has been one of the organizations to propose increasing the threshold to €30,000. The Tax Administration has also called for raising the threshold from the current €15,000 to €25,000 in a statement.

“Not raising the threshold is a disappointment and difficult to understand when compared to the vast majority of statements submitted about the draft Bill that supported raising the threshold. It would also have been an opportunity for lightening the administrative burden,” says Laura Kurki, a tax expert at Suomen Yrittäjät.

Kurki says that the end of the VAT relief scheme has a bigger impact on tax takings than a potential increase of the VAT threshold under the options reviewed in the Bill (€20,000 or €30,000) would.

“The need to balance the public finances is clear, but in this respect, the Government would still be in the black after raising the threshold — to the tune of €35 million under one estimate included in the Government Bill, if the new threshold were €30,000,” Kurki says.

The Government Bill stated that tax incomes would increase by €70 million if the threshold were raised to €20,000.

No gesture to the smallest businesses

The sliding relief for VAT paid by businesses with turnover between €15,000 and €30,000 is being withdrawn from the start of 2025 due to an EU directive. The Tax Administration says that a total of 80,000 companies applied for VAT relief in 2023.

Raising the VAT threshold would have been a gesture to the smallest companies as the VAT relief scheme was being withdrawn.

“Scrapping the VAT relief scheme from the start of 2025 raises the taxes on the smallest companies, nor do all companies have the opportunity to raise their prices. And when you add to these the fact that the general VAT rate is rising in the autumn, when the smallest businesses face the same challenge of passing on the increase, the message in general is not music to business owners’ ears,” Kurki says.

“According to an estimate referred to in the draft Bill on the VAT increase, around two thirds of the VAT increase will be passed on to prices. Hopefully, business owners’ concerns will be taken seriously when Parliament debates the Bill,” Kurki says.

Businesses can still apply for VAT relief for 2024. Businesses apply for the relief in the last VAT filing of the financial year.

When should a company join the VAT register?

If a company’s turnover is under €15,000, a company does not need to register as VAT liable or add VAT to the prices for its goods and services.

The Tax Administration says a new development is that the VAT threshold is set based on the current and previous calendar years’ turnover. The obligation to register as VAT-liable is changing: VAT liability will only begin when the lower threshold is exceeded.

“So, turnover for 2024 also has an impact on whether a company needs to join the VAT register in 2025. If the turnover in both years is less than €15,000, there is no need to register as VAT-liable,” says Senior Tax Expert Mika Jokinen of the Tax Administration in a press release.

However, a company can generally voluntarily apply to join the VAT register even if its turnover is less than €15,000. That allows it to offset the VAT included in purchases made for business purposes against taxation.

Are you a Suomen Yrittäjät member yet? Read more about member benefits and advantages!