Starting a business in Finland: VAT, YEL, and Tax Basics Explained

Being an entrepreneur in Finland might sometimes feel as hard as pronouncing the word “entrepreneur” for a Finn. What are the must know basics for starting a business? We would like to share with you some good-to-know kind of tips to help you on your journey through the bureaucracy. If you let Valjas be your guide, we guarantee you, the journey is far less frustrating than what you expected. Here is your explanation on what are VAT, YEL, and also some important tax basics.

Suomi.fi e-Authorizations

Nowadays almost every matter can be handled online, but in order to do so, you need to be able to do electronic identification. Tokens for this are Finnish bank ID, eIDAS for Europeans and Finnish Authenticator Application for foreigners who are not able to use two previous tokens.

Easy peasy with Valjas

Once you are able to identify yourself online, Tax Administration and other public authorities will become a lot easier. However, as a client of Valjas you can leave some of these dealings to us! We recommend all our clients to authorize us to take care of all their business related dealings with public authorities. The authorization can be done thru suomi.fi online service and you can read more about it here. We are more than happy to help you to get things running smoothly.

The ABC of Taxes

A Finnish proverb says: “All you really have to do in life are two things: to die and pay taxes”. A good accountant might help an entrepreneur in Finland live longer by lowering your stress levels, but we sure can help you with your taxes! So let’s go through the basics:

What do I need to pay?

Limited companies pay 20% income tax from their profits. Usually income tax is paid as prepayments, based on an estimation of the profit. More info about income tax you can find here and about prepayments here.

In most cases companies are required to also pay VAT (value added tax) from the sales they have made. However, those companies are also allowed to deduct the VAT of their business related purchases.

What is deductible then?

When it comes to business related purchases, such as work equipment, software, premises expenses, etc., they are deductible in both; VAT and income taxation. VAT cannot be deducted from gifts to staff or entertainment expenses, but in income taxation gifts are fully deductible, entertainment expenses are 50% deductible in income taxation.

So when do I pay and how?

The Payment schedule depends on the company’s VAT period (month, quarter, year), but the due date is always one month and 12 days after the period has ended. With income tax the schedule depends on the amount of payment installments, but quite often the payment needs to be done monthly around the 25th. But how does an entrepreneur in Finland know how much you need to pay?

Don’t worry, that’s what we are here for! If your accounting software allows you to receive electronic invoices, the Tax Administration will send you the tax invoices directly as e-invoices. If that’s not possible, your accountant will inform you about the payments and you can take care of them via MyTax or the company’s online banking system.

Self-employed persons’ statutory pension insurance = YEL

Entrepreneurs are required to get so called YEL-insurance, which accrues one’s pension. It also determines the income during sick leave, for example. The payable amount depends on the average income of your field. All bigger insurance companies will gladly tell you more about YEL, but our tip for you is this: YEL insurance is fully deductible in income taxation. It is totally ok for the company to pay it even though it is kind of a personal insurance.

What do I need to know about hiring someone?

That’s a rather broad question, but lucky for you, we have even broader knowledge in the field of HR. So contact us and tell us your plans! We will help you with contracts, mandatory insurances etc.

These are just some of our tips for you, but as our client you won’t need to rely on tips or tricks, but you will have a designated specialist taking care of your business.