Unfortunately, this is only the theory. Where cross-border transactions are concerned, it is necessary to explore and use all possible arrangements in order to avoid incurring financial loss: VAT issues can often have a negative effect not only on cash flow but also on the marketing of the company in Finland. In addition, companies should avoid the risk of error inherent in overcomplicated routines. The financial damage caused can be immense if input VAT is not correctly deducted or if a company declares VAT incorrectly for its own services and deliveries.

The period of time between payment and reimbursement of VAT can vary considerably depending on the circumstances of the individual case. Entrepreneurs or companies considered non-residents for VAT purposes naturally do not receive Finnish VAT but may nevertheless incur considerable expenses subject to VAT; for example, costs involved in participating in trade fairs in Finland, or travel expenses. Finnish VAT paid in this connection can be reimbursed only upon application.

It is a little-known fact that companies do not have to wait until the end of the calendar year before applying for a VAT refund. The application can be submitted at any time, provided that it covers a period of at least three consecutive months. Applying for a refund for such short periods is of course worthwhile only if a considerable sum of money is involved. Note that if the amount to be refunded is less than €200, the application will be rejected.

If a company is VAT-liable in Finland, its input tax – for example, for purchases in Finland – may nevertheless be considerably higher than the amount of VAT collected. This may result from the business structure; for example, if a major proportion of the company’s services and deliveries are directed abroad and attract 0% VAT. The same situation may arise where larger investments are involved. In these cases, the excess input VAT cannot be reimbursed through the regular deduction procedure.

Entrepreneurs liable for VAT in Finland can apply on a monthly basis for a refund of excess input tax. The application contains the same information as the monthly VAT reports together with an explanation of the circumstances that have caused the input tax to exceed the VAT collected in the relevant month and presumably the whole accounting period. The application is admissible if the excess input tax amounts to at least €2,000. However, bearing in mind the administrative effort involved, it is unlikely that a company would find it worthwhile making an application unless the amounts in question were considerably higher.

The processing time for reimbursement requests is currently approximately three to six months for non-residents. Requests made by companies liable for VAT in Finland on the other hand are usually processed in two to four weeks. Since these companies can also apply for refunds for shorter periods, they may receive refunds approximately 4.5 months earlier than companies or entrepreneurs not liable for VAT in Finland. This may be an important factor in the decision to establish a subsidiary/branch in Finland or register in the Finnish VAT Register on a voluntary basis.

As a rule, foreign businesses can export goods or services to Finland without having to establish a Finnish branch or subsidiary or even registering in the Finnish VAT Register. In the absence of such registration, the reverse charge procedure is usually applied. Reverse charge means that the buyer (instead of the seller) is liable to pay VAT for deliveries and services in Finland.

In particular sectors, however, the reverse charge procedure is not applicable. In this case, the foreign seller or service provider is still obliged to collect Finnish VAT and pass it on to the Finnish tax authorities. Finnish VAT must therefore be included in sales invoices, which means that the deliveries and services in questions can be charged only after prior registration in the VAT Register. This is true in particular for the following transactions:

Even if registration for VAT purposes in Finland is not necessarily required, it can nevertheless be advisable purely for marketing reasons. VAT registration allows buyers to avoid a great deal of administrative work since they are not required to declare the relevant transactions in the reverse charge procedure. Registration can therefore promote sales, especially if the customers are mainly smaller enterprises not heavily involved in foreign trade, which might be deterred by unfamiliar formal requirements.

Naturally, it will enhance the image of the company even more if, following registration, deliveries to Finnish customers can be charged as domestic sales with Finnish VAT. This requires, however, that according to the legal definitions of the place of delivery or place of performance the transaction can really be considered a domestic sale. VAT registration in itself has no influence on the place of performance. An EU intra-community acquisition remains such regardless of the registration.

The desired shift of the place of performance to Finland may be achieved in some cases if the seller first imports the goods personally and declares this import as an intra-community acquisition and then delivers the goods to Finnish customers as a domestic delivery with Finnish VAT. However, the Finnish tax authorities will accept that type of procedure only if the self-import is actually carried out, and does not exist merely on paper. The goods first have to be delivered to the seller’s warehouse in Finland and stored there for some time so that the subsequent delivery to the Finnish customer really can be considered a new transaction.

The provisions on Value Added Tax are already complicated on a national basis. The most important rule to bear in mind is probably that there are at least three exceptions to every rule. In addition, when conducting international business, enterprises have to observe not only the national exceptions for foreign trade but also the VAT provisions in the customer’s home country. To make matters worse, clarification of these questions cannot be delayed since considerable damage can be caused from the very first invoice.

The customer can only deduct input tax if the invoice is formally accurate and the VAT has been charged correctly. Within the applicable periods of limitation the customer can demand a refund from the seller if VAT has been charged incorrectly. The customer is also advised to verify the validity of the VAT claim at least in cases of doubt. Incorrectly charged input VAT is also not deductible. If the customer does not check the invoices, mistakes may come to light only years later, for example in the context of a tax audit. In this situation, the customer bears the risk that a claim for refund from the seller might be unsuccessful.

On the other hand, the obligation to pass on collected VAT to the tax authorities does not depend on whether the tax was charged correctly in the first place. Mistakes in charging VAT may not only lead to strained relationships with the customer, but in the worst case scenario the seller will have to refund collected VAT to the customer while at the same time being unable to (wholly) recover the relevant amounts from the authorities if the applicable limitation periods have already elapsed.