Legal Alert – Changes to Finnish Taxation Entered into Force in 2015
The most significant changes to taxation entered into force in 2015 relate to excise duties and other indirect taxes. However, corporate and personal income taxation was subject to very minor changes. The key points of these amendments are presented below.
Corporate Income Taxation
No major amendments were made to corporate taxation in 2015. The temporary tax incentives concerning depreciations on certain production related investments were continued until the tax year 2016. Moreover, the right to deduct 50% of the business entertainment expenses was restored. The taxation of cooperatives was amended as well, which brings cooperatives’ taxation closer to the corporations’ taxation.
The temporary tax on Finnish deposit banks, originally intended to be applied during 2013–2015, was cancelled as of 1 January 2015. Due to changes in EU regulation, the bank tax was replaced by the requirement to submit payments to the financial stability fund. Unlike the bank tax, payments to the financial stability fund are deductible.
Capital Income Tax
The taxation of capital income was tightened in 2015. The higher tax rate was raised from 32% to 33%, and the threshold for the higher tax rate was lowered from EUR 40,000 to 30,000. The base rate for capital income remains at 30%.
Personal Income Tax
The progressive income tax scale was subject to minor inflation adjustments and the threshold for the highest income tax rate was lowered from EUR 100,000 to EUR 90,000. The maximum amounts of the work income allowance as well as the municipal basic allowance and the pension income allowance were increased. In 2015, 65% of interest on housing loans is deductible.
Inheritance and Gift Tax
The inheritance and gift tax scales were adjusted. The marginal tax rate for each income category was increased by one percentage unit and the EUR 1 million income category was made permanent.
Changes to Value Added Taxation
Place of supply of electronic, telecommunication and broadcasting services
As of 1 January 2015, the place of supply of electronic, telecommunications and broadcasting services to EU consumers by EU supplies was changed. Under the new rule, the place of supply is the place where the consumer is established, has a permanent address or usually resides. Until 1 January 2015, the place of supply of these services was the place where the supplier was established. The new rule means that supplies will be subject to the VAT rules of the EU Member State where the consumer resides. The supplier will be obliged to register, charge and account for VAT at the rate applicable in that EU Member State.
To simplify the relating VAT obligations, a new special scheme called Mini One Stop Shop (MOSS) was introduced on 1 January 2015. The MOSS allows businesses to file and pay the VAT due to all Member States through a web portal of one Member State. Otherwise, the business would be required to register and submit returns in several Member States. The use of the MOSS is optional, and a business may instead register for VAT in each Member State in which it makes relevant supplies.
VAT treatment of electronic, telecommunications and broadcasting services to EU consumers by suppliers established outside the EU did not change as these services were already treated as if made in the customer’s country. The previously existing One Stop Shop scheme applied to supplies of electronic services by suppliers established outside the EU was, however, amended to cover the supplies of telecommunications and broadcasting services as well.
Mandatory reverse charge applied to certain supplies of scrap and waste
To prevent VAT frauds, Finland introduced a mandatory reverse charge to be applied to supplies of metal scrap and waste on 1 January 2015. The reverse charge means that the person liable for the payment of VAT is the taxable person to whom the supply is made. The reverse charge is only applied between businesses. It is also applicable in case of incidental sales of waste and scrap in the scope of the new rule. The goods to which the reverse charge is applied are determined based on the customs tariff codes which are listed in the new legislation.
Supplies of newspapers and magazines transported from the Åland Islands to mainland Finland become taxable
As of 1 January 2015, the supplies of newspapers and magazines, which are published once a week or more infrequently, and which are transported from the Åland Islands to customers in mainland Finland, are subject to VAT. As the Åland Islands are not in the territorial scope of the VAT Directive, these supplies were previously treated as zero-rated exports.
The aim of this change is to prevent the avoidance of Finnish VAT by sending newspapers and magazines to Finnish consumers from the Åland Islands. This derives from a recent VAT rate change on newspapers and magazines. Until 1 January 2012, the supplies of newspapers and magazines, which were published once a month or more infrequently, were zero-rated (currently taxable at the rate of 10%). However, due to the VAT exemption on low value goods (EUR 22 or less), imports of newspapers and magazines from the Åland Islands to mainland Finland remained outside the scope of Finnish VAT. Many publishers and suppliers took advantage of this exemption and transferred their dispatching or printing activities to the Åland Islands.
As a result of this new legislation, supplies of magazines and newspapers published once a week or more infrequently and transported from the Åland Islands to mainland Finland will no longer be considered exports but local supplies. Thus, they are subject to Finnish VAT.
Changes to Excise Duties
In addition, several changes were made to excise duties as well in 2015. However, these changes are not limited to but include the following most relevant changes.
Car and motor vehicle tax
The partial exemption available for taxis was decreased, and the exemption on cars imported in connection with immigration was abolished, however, with transitional rules spreading to 2017. In addition, several technical changes were made and the motor vehicle tax levied on the use of motor vehicles was tightened by several changes to the tax rates.
The excise duties on tobacco products were increased in average by 9%.
Energy and electricity tax
Energy taxes were increased by raising the excise duties on fuels used in traffic and heating. However, excise duty on fuel peat was lowered. The electricity tax was increased by raising the tax rate by EUR 0.35 cents per kWh in the tax class I applied to the electricity used by households, the public sector and service industries. Refund of the electricity tax available to the agriculture was, however, increased to compensate the increase in the tax rate. In addition, the electricity tax on several activities of the mining industry was increased by applying the higher tax rate class to the activities and by removing the right to refund of the electricity tax.
The tax on recyclable materials taken to landfill was increased from EUR 50 to 55 per 1,000 kilos of waste. In addition, some changes to the reporting obligations were made as well.