VAT 2025 A Clear Guide for Entrepreneurs on Value-Added Tax

Table of Contents

1. VAT 2025: An Entrepreneur’s Survival Guide to the Value-Added Tax Jungle
2. What on Earth is VAT (Value-Added Tax)? Explained in Simple Terms
3. Who is Liable for VAT? Or, When You Need to Join the Merry Band of Tax Collectors
4. VAT Rates in 2025: Which Percentage for What?
5. How Does VAT Work in Practice? Sales, Purchases, and Deductions – The Entrepreneur’s Holy Trinity
6. The VAT Deduction: How to Get Your Money Back from the Taxman (Legally, of Course)
7. The Light Entrepreneur and VAT – What You Need to Know
8. Special Situations That Make Your Head Spin: The Reverse Charge Mechanism
9. Summary: Why Understanding VAT Makes You a Better Entrepreneur

VAT 2025: An Entrepreneur’s Survival Guide to the Value-Added Tax Jungle

VAT. Those three magic letters that can make even the most seasoned entrepreneur’s heart race and coffee spill onto the keyboard. Value-Added Tax often feels like a complex monster hiding behind stacks of receipts, just waiting for the right moment to strike.

But what if I told you that VAT isn’t a boogeyman, but rather a tool? Understood correctly, it’s a logical part of business that allows the state to collect funds and can even help you save money. Yes, you read that right.

In this blog post, we’ll break down value-added tax into bite-sized pieces—in plain language, without the bureaucratic jargon, and with a dash of bad humor. We’ll cover everything you need to know about VAT in 2025: what it is, who has to pay it, how it’s calculated, and how you can master VAT deductions like a pro.

So, get comfortable, grab that spilled coffee, and prepare to become a VAT guru. We promise fewer headaches and more “aha!” moments.

What on Earth is VAT (Value-Added Tax)? Explained in Simple Terms

Let’s start with the basics. Value-Added Tax (VAT) is a consumption tax. This is the most important thing to understand. It is not a tax on your income or your company’s profits—those are different things. VAT is added to the selling price of a product or service, and it is ultimately always paid by the end customer.

Think of yourself as an intermediary for the tax authority—but much more stylish and with better ideas, of course. Your job is to collect this tax from your customers and remit it to the state.

When you sell something, you add VAT to the price. When you buy something for your business, you pay the VAT included in the price. At the end of the tax period, you calculate how much VAT you’ve collected from your sales and how much you’ve paid on your purchases. You remit the difference to the tax authority.

If you have paid more VAT on your purchases than you have collected from your sales (typical at the beginning of a business with many investments), you get the difference back. This is called a VAT refund. It’s a bit like the tax authority saying, “Good job, here’s some pocket money.”

This makes VAT, for the most part, a pass-through item for your business. It is not an expense or income for your company; it just visits your company’s bank account for a moment on its way to the state treasury.

Who is Liable for VAT? Or, When You Need to Join the Merry Band of Tax Collectors

The general rule is simple: almost every business that sells goods or services in Finland as part of its business operations is liable for value-added tax, or VAT-liable.

But as always with taxation, there are exceptions and thresholds. The most important of these is the threshold for minor business activity.

The Magic €20,000 Threshold from 2025 Onwards

Starting from the beginning of 2025, the game changes! The threshold for minor business activity will increase from €15,000 to €20,000.

This means that if your company’s turnover during a 12-month financial period is less than €20,000, you are not required to register in the value-added tax register. You can therefore sell your services and products without adding VAT.

Note! This sounds appealing, but it has a downside. If you are not in the VAT register, you cannot deduct the value-added tax included in your own purchases. Every laptop, phone, and office supply you buy will cost you the full, tax-included price.

Is It Worth Registering for VAT Voluntarily?

Even if your turnover remains below €20,000, you can still register for VAT voluntarily. Why on earth would anyone do that?

There are several reasons:

• The Right to Deduct: This is the biggest one. When you are registered, you can deduct all the VAT included in purchases related to your business activities. If your business requires many expensive acquisitions at the start (e.g., equipment, machinery, software), joining the register can be very financially beneficial.
• Professional Image: For many corporate clients, it’s important that their partners are in the VAT register. It creates an image of an established and professional operator.
• Room for Growth: If you believe your business will quickly grow beyond the €20,000 threshold, it’s often easier to join the register from the very beginning. It saves you from later paperwork and having to change your prices mid-stream.

The decision is a bit like voluntarily joining a gym in January. It requires a little effort and reporting at first, but in the long run, it can strengthen your company’s financial “core.”

Attention: The Lower Limit Relief Scheme is Discontinued in 2025!

An important change for 2025 is that the old, familiar VAT lower limit relief scheme (arvonlisäveron alarajahuojennus) will be completely discontinued. Previously, small businesses could get relief on the VAT they had to pay if their turnover was under €30,000. Now, this benefit is gone, replaced by a clearer “all or nothing” model: either you are below the €20,000 threshold, or you are above it and pay VAT normally.

VAT Rates in 2025: Which Percentage for What?

In Finland, we don’t just have one VAT rate, because that would be far too easy. We have several different tax rates for various products and services. Here they are in all their glory, based on information for 2025.

Standard Rate: 25.5%

This is the most common, all-encompassing percentage. If you’re not sure which VAT rate applies to your product or service, it’s probably this one.

Note! The standard value-added tax rate was increased from 24% to 25.5% in the autumn of 2024. This is the government’s latest hit, so remember to update this new percentage in your invoicing software and price lists in a timely manner!

This rate applies to, for example:

• Most goods (electronics, clothing, furniture)
• Most services (consulting, cleaning, hairdressing)
• Alcohol and tobacco products

Reduced Rate: 14%

This rate mainly applies to things you put in your mouth.

• Foodstuffs
• Animal feed
• Sports services (gyms, swimming halls, group exercise classes)
• Passenger transport (trains, buses, taxis)
• Restaurant and catering services (but not the sale of alcohol and tobacco products)
• Accommodation services
• Pharmaceuticals
• Books (including e-books and audiobooks)
• Cinema screenings
• Admission fees for cultural and entertainment events

Reduced Rate: 10%

• Newspapers and periodicals (printed and electronic publications)
• Public broadcasting services

Zero Rate: 0%

The zero rate sounds the same as tax-exempt, but it is a completely different thing. When you sell a zero-rated product, you do not add VAT to the price, but you still get to deduct the value-added tax on purchases related to the product’s manufacturing or acquisition.

The zero rate applies to, for example:

• Sale of goods outside of EU countries (export)
• Sale of goods to a VAT-liable buyer in another EU country
• Certain watercraft and related services (if you’re a shipowner, you’ll know this)

Tip: Always check the current VAT rate on the Tax Administration’s website if you are unsure. Using the wrong percentage can lead to unpleasant surprises during a tax audit.

How Does VAT Work in Practice? Sales, Purchases, and Deductions – The Entrepreneur’s Holy Trinity

Theory is theory, but how does all this work in daily life? Let’s walk through a simple example.

Imagine a graphic designer, Kaisa, who is VAT-liable. The standard VAT rate is 25.5%.

1. Sale: Kaisa designs a logo for a client and sends an invoice.

   • Price of the work (tax-free): €1,000
   • Add VAT 25.5%: €255
   • Total invoice amount: €1,255
   • This €255 is the VAT on sales, which Kaisa has collected from the customer and must remit to the tax authority.

2. Purchase: During the same month, Kaisa’s old monitor breaks. She buys a new, professional-grade monitor.

   • Price of the monitor (tax-included): €627.50
   • This price includes 25.5% VAT. Let’s calculate the tax portion: €627.50 * 25.5 / 125.5 = €127.50.
   • The tax-free price of the monitor is therefore €500, and the VAT included is €127.50.
   • This €127.50 is the VAT on purchases, which Kaisa can deduct.

3. Remittance to the Tax Administration: At the end of the month, Kaisa calculates her taxes.

   • VAT from sales: +€255
   • VAT from purchases: -€127.50
   • VAT payable to the Tax Administration: €127.50

So, Kaisa only pays the difference between these two amounts to the Tax Administration. In the end, it’s pretty simple math.

The VAT Deduction: How to Get Your Money Back from the Taxman (Legally, of Course)

The VAT deduction is an entrepreneur’s best friend. It is the mechanism that ensures tax is not paid multiple times along the production chain.

The Golden Rule: You can deduct the value-added tax on purchases that are directly related to your VAT-liable business activities.

If you buy a good or service that you use for both business and private purposes (e.g., a phone plan), you can only deduct the portion of the VAT that corresponds to its business use.

Examples of Deductible Purchases:

• Tools and equipment: Computers, software, cameras, tools, office furniture.
• Materials and supplies: Everything you need to manufacture your product or provide your service.
• Marketing and sales: Advertising costs (Google, Facebook), trade show participation, brochures.
• Expert services: Accountant’s fees, lawyer’s services.
• Premises costs: Rent, electricity, cleaning (if the premises are used for business).
• Business-related travel expenses: Train and plane tickets, hotel accommodation.

What Can You NOT Deduct?

Here are a few common pitfalls:

• Private expenses: Your own groceries, clothes (unless they are specific work uniforms), hobbies.

  No matter how hard you try to argue that your Netflix subscription is for market research, the tax authority will likely disagree.

• Entertainment expenses: Entertaining clients is only partially deductible in income taxation, and the value-added tax on it cannot be deducted at all.
• Purchases related to tax-exempt activities: If your business has both taxable and tax-exempt activities (e.g., you sell physiotherapy, which is taxable, and training, which is tax-exempt), you cannot deduct the VAT from costs related to the tax-exempt part.

The Light Entrepreneur and VAT – What You Need to Know

Light entrepreneurship is a popular way to get started, but it often causes confusion regarding VAT. There are two main models, and it’s vital to understand which one you are using.

1. Light Entrepreneur without Your Own Business ID

This is the most traditional model. You operate through an invoicing service that handles all the bureaucracy for you.

• You are not VAT-liable.
• The invoicing service is VAT-liable.
• Therefore, even if your turnover is less than €20,000, you cannot invoice without VAT.
• When you agree on a price with a client, you agree on your own compensation (e.g., €1,000). The invoicing service automatically adds the current VAT to this amount and invoices your client for €1,000 + VAT.
• You cannot deduct the value-added tax on your own purchases because you are not officially an entrepreneur and not in the VAT register.

This model is easy and hassle-free, but it does not offer the benefits of VAT deductions.

2. Light Entrepreneur with Your Own Business ID (i.e., a Sole Trader)

Many invoicing services now also offer services for sole traders. In this model:

• You have your own Business ID and are yourself VAT-liable (if your turnover exceeds €20,000 or you have registered voluntarily).
• You are responsible for adding VAT to your invoices and remitting it to the tax authority.
• You get to deduct the VAT included in all of your business purchases.
• The invoicing service here acts mainly as a tool to help with bookkeeping and invoicing.

This model gives you the full rights and responsibilities of an entrepreneur, including VAT deductions.

Special Situations That Make Your Head Spin: The Reverse Charge Mechanism

Sometimes, the world of VAT throws a real curveball. One such case is the reverse charge mechanism (käänteinen arvonlisäverovelvollisuus).

Normally, the seller is liable for the tax, but in a reverse charge situation, the liability to pay the tax shifts to the buyer. It’s like the “Uno Reverse” card of taxation.

The most common sector where you’ll encounter this is the construction industry. If you sell a construction service to another business that in turn sells construction services, you do not add VAT to your invoice. Instead, you add a note stating “reverse charge (VAT Act 8 c §)“. The buyer handles the VAT in their own accounting by calculating it as both output and input tax, making the effect neutral in many cases.

The reverse charge is also applied in certain situations in trade between EU countries and in the scrap metal trade. If you operate in these sectors, study the rules carefully or use a professional accountant.

Summary: Why Understanding VAT Makes You a Better Entrepreneur

Phew, you made it to the end! If your head is still spinning a little, don’t worry. Here are the most important points to remember:

1. VAT is a pass-through item. It’s not your money. Collect it from the customer and pass it on to the taxman. Never use the VAT portion in your company’s account for your own expenses.
2. Know your limits and percentages. From 2025, the threshold for VAT liability is €20,000. The standard tax rate is now 25.5%. Know which rate to use.
3. Deduct everything you’re allowed to. VAT deductions are a legal and effective way to reduce your tax burden. Keep your receipts and take full advantage of this right.
4. Price is psychology. Remember that for your business customers, VAT doesn’t matter because they can deduct it. For a consumer, it’s part of the final price. Take this into account in your pricing.

Once you understand the basic logic of value-added tax, it ceases to be a scary monster and becomes a tool you can use to manage your company’s cash flow and pricing more effectively.

And you are an entrepreneur—using tools and solving problems is your superpower. Good luck!