The general VAT rate rises to 25.5% starting 1 September 2024. Make sure to do necessary changes and updates in the company’s invoicing software, web shops, cash registers, payment terminals, and other financial programs, as well as contract templates, quotation templates, price lists, sales materials, and so on, in time.
The following guidance is based on the Tax Administration’s guidance “Change of the standard VAT rate on 1.9.2024 – declaration instructions,” assuming the change takes effect on September 1, 2024. The guidance may be useful, at least for individuals managing the company’s sales, invoicing, and contracts.
For supplies of goods: The date of delivery determines the VAT rate
In general, the timing of delivery of the goods determines whether the old tax rate (24%) or the new tax rate (25.5%) should be applied.
- If the goods are transferred or delivered to the buyer by August 31, 2024, the applicable tax rate is 24 percent, even if the buyer pays for the goods in September or later.
- If the goods are transferred or delivered to the buyer on September 1, 2024, or later, the applicable tax rate is 25.5 percent.
Example 1:
The customer ordered the item in June 2024. The item is delivered to the customer on September 1, 2024, and the customer pays for the item at the time of delivery. The sale is subject to the new tax rate of 25.5 percent. The timing of when the item was ordered does not matter. The tax rate is determined according to the main rule based on the delivery time of the item.
Example 2:
The supplier sends the goods to the customer on August 31, 2024. The goods arrive at the customer’s warehouse on September 1, 2024. If the supplier is responsible for the transportation according to the agreement, the tax rate of 25.5 percent applies. However, if the customer is responsible for the transportation, the goods are considered delivered when the transportation begins on August 31, 2024, and in that case, the tax rate of 24 percent applies to the sale.
Also in installment purchases, the obligation to pay VAT arises based on when the goods are transferred to the buyer. If the goods are transferred on September 1, 2024, or later, the tax rate of 25.5 percent applies to the sale.
Sales of services: The point in time when a service performance is completed determines the VAT rate
Value-added tax on a service is allocated to the tax period when the service was given i.e. provided to the recipient. If the service performance is in an unfinished state at the time when the VAT change comes into force, the percentage rate to be applied will be the one in effect at the date when the finished service is provided. This means the date when the end result becomes available to the recipient of the service.
Example 3:
The service company conducts an inspection of a property that began on July 15, 2024, but was completed on September 1, 2024. The tax rate of 25.5 percent should be applied because it is the applicable tax rate at the time of completion.
Example 4:
The service company conducts an inspection of a property that began on July 15, 2024, but was completed on August 31, 2024. The invoice is prepared and sent in September. The tax rate of 24 percent should be applied because it is the applicable tax rate at the time of completion.
Goods supplied or services provided on a continuous basis
When the supply of goods or services to the buyer is of a continuous nature, the payment for it is based on the passing of time. As an example, rental service involves performance of services in a continuous way.
Continuous supply is deemed as having been supplied at the end of each period that determines the remittance of the payment. For example, if it is agreed that one single payment of rent to the property owner concerns the entire 1 June 2024–30 September 2024 period, the date when the service is provided to its recipient is 30th September. In this example, the VAT rate would be 25.5% for the entire period. If the payer of rent were to make a full payment to the property owner in advance, thus covering the June to September period fully before 1 September 2024, the rental service would be subject to 24% VAT instead.
If the property owner charges rent by the month, the period determining remittance would also be the month. Accordingly, the date that determines the VAT rate is the end date of that period. In other words, rent for August 2024 is subject to 24% VAT – and rent for September 2024 is subject to 25.5% VAT.
It should be noted that no continuous supply of goods or services is in question – although payment may be effected in many instalments over time – for a purchase of a single good or for a purchase of a construction service.
Prepayments
If an advance is paid to the seller, the seller must report VAT for it relating to the tax period when payment was made. If the seller is deemed as having received the advance before the VAT changes came into force, the VAT rate of 24% is applicable.
Bad debts, sales discounts and miscellaneous adjustments
For writeoffs of bad debts, granted discounts, and other adjustment entries, the tax rate applicable is the one in force at the time when the goods were delivered or the service was rendered.
Full instructions that need to be followed if the changes listed in the Government Proposal are adopted fully can be found here:
