Tax Deductions for Sole Traders and Limited Companies – A Comprehensive Guide for Entrepreneurs

Table of Contents

1. Introduction: The Mythical “Company Tab”
2. What Does a Tax Deduction Actually Mean?
3. Business Start-up Costs
4. Tools, Equipment, and Supplies
5. Marketing, Representation, and Meeting Expenses
6. YEL Pension Insurance and Other Business Insurances
7. Business Travel and Cars
8. Occupational Health Care and Well-being
9. Salaries and Personnel Costs
10. Financing and Interest Expenses
11. Work Clothing – What Is Deductible?
12. Membership Fees, Training, and Professional Literature
13. Summary: Carefulness Pays Off

Introduction: The Mythical “Company Tab”

Have you ever heard the legend that as an entrepreneur you can buy everything “on the company tab”? In coffee table conversations, stories sometimes pop up where company expenses have been padded with personal grocery shopping, gym memberships, or even the hot tub at the summer cottage. Reality is a bit more ordinary—and that’s a good thing, because the Finnish Tax Administration is strict about these things.

As an entrepreneur, you do have the right to deduct from taxation those expenses that relate to earning income. This is one of the great benefits of entrepreneurship: when you understand which expenses are deductible, you can save significant amounts of money fully legally.

For many new entrepreneurs, tax deductions feel like a complicated jungle. What can you deduct? What is VAT deduction? What if you also use your phone in your free time?

In this article, we’ll go through clearly and understandably what the most common deductible expenses are for sole traders and limited companies. Whether you’re an experienced pro or just starting out, this list will help you see how you can optimize your company’s finances.

Tip: If paperwork feels heavy, Bisse.fi is designed to make everyday life easier for entrepreneurs. With our service, you can handle invoicing and expense tracking effortlessly, leaving you more time for the actual work.

What Does a Tax Deduction Actually Mean?

Before we dive deeper into different types of expenses, it’s important to understand the basic mechanics behind a tax deduction. Many new entrepreneurs may think that if they buy a €1,000 computer, their taxes will decrease directly by €1,000. That’s not how it works.

A tax deduction means that the expense is deducted from your company’s revenue (sales) before the taxable profit is calculated.

Example of the impact of a tax deduction:

1. Your company’s sales (revenue) are €50,000.
2. You have deductible expenses (computers, phone bills, marketing) totaling €10,000.
3. Your company’s taxable profit is: €50,000 − €10,000 = €40,000.

So you only pay tax on that €40,000 profit, not on the full €50,000 revenue. The more genuine business-related expenses you have, the smaller your taxable profit—and the less tax you pay.

In addition, if your business is VAT-registered, you can deduct the VAT included in your purchases from the VAT you must remit on your sales. This is another significant saving.

Business Start-up Costs

Entrepreneurship often begins with expenses even before you’ve earned a single euro. The good news is that expenses related to setting up a business are generally deductible.

Even if you made purchases before officially receiving a Business ID, you can record them as business expenses as long as they clearly relate to the business you are starting. Remember to keep all receipts carefully!

Typical start-up costs include:

• Registration fees: Filing with the Trade Register (PRH) always costs something, whether you’re a sole trader or a limited company.
• Advisory services: If you used a paid lawyer or consultant to prepare incorporation documents.
• Domains and websites: Domain fees and web hosting purchased for the business.
• Marketing materials: Logos, business cards, and brochures ordered before launch.

Remember: If, for example, you bought a computer right before starting the business specifically for business use, you can transfer it into the business bookkeeping. In that case, the value is determined by its fair value (i.e., what it would have cost used at the time of purchase).

Tools, Equipment, and Supplies

This is perhaps the most common and clearest expense category. To do your work, you need tools. Whether you’re a developer, a builder, or a graphic designer, tools are deductible.

Deductible items include, for example:

• Computers, tablets, and peripherals (mice, keyboards, monitors)
• Phones
• Software licenses (e.g., Microsoft Office, Adobe Creative Cloud, invoicing tools like Bisse.fi)
• Professional tools (drills, hammers, saws)
• Office supplies (pens, paper, ink, stamps)

Small purchase or depreciation?

For tax purposes, it’s important to distinguish between small purchases and fixed assets/equipment.

1. Immediate expense (deducted in full): If the purchase costs up to €1,200 (VAT 0%) OR its useful life is under 3 years, you can generally deduct the full amount in that year’s taxation.
2. Depreciation (spread across multiple years): If the purchase is more expensive (over €1,200) and long-lasting (e.g., an expensive production machine or high-end computer), the cost is spread over several years through depreciation. Typically, depreciation is 25% of the remaining balance per year.

This is good to keep in mind when planning larger investments at the end of the financial year.

Marketing, Representation, and Meeting Expenses

This category often becomes a grey area, so it’s important to be precise with terminology. The tax authorities clearly distinguish between marketing expenses, meeting/negotiation expenses, and representation expenses.

1. Marketing expenses (100% deductible)

Marketing is generally aimed at a broad, undefined audience or potential customers.

• Google and Facebook advertising
• Newspaper ads
• Website maintenance
• Trade fair booths
• Customer gifts that are promotional items (e.g., a pen or cap with your logo), as long as the value is low

2. Meeting/negotiation expenses (100% deductible)

These relate to internal meetings or negotiations, for example with an auditor or authorities.

• Coffee/refreshments at the office for employees or partners
• A lunch in connection with a meeting (note: often a matter of interpretation—light catering is usually ok)

3. Representation expenses (50% deductible)

Representation targets customers or business partners and aims to create new business relationships or maintain existing ones. In taxation, only half of representation expenses are deductible, and VAT cannot be deducted at all on them.

• Client lunches and dinners at a restaurant
• Theatre tickets or hockey tickets with a client
• Client gifts (e.g., a bottle of wine at Christmas) that are not promotional items

Example: If you take a potential customer out to eat and the bill is €100, your company pays the full amount, but only €50 is deductible in taxation.

YEL Pension Insurance and Other Business Insurances

Insurances are a significant part of an entrepreneur’s protection and cost structure.

• YEL pension insurance (Self-employed persons’ pension insurance): Mandatory for most entrepreneurs when earned income exceeds a certain threshold. YEL contributions are 100% deductible. You can deduct them either in the company’s taxation or in your personal taxation. Often it’s sensible to deduct them from the business result.
• Liability insurance: Essential in many industries. If you cause damage to a customer, this insurance helps. Fully deductible.
• Property insurance: If you insure business premises or valuable equipment (e.g., camera gear, computers), these premiums are business expenses.
• Business interruption insurance: Protects income if operations are interrupted, e.g., due to a fire. Deductible.

Business Travel and Cars

Does your business run on wheels? Travel expenses are one of the most common deductions, but the rules are strict.

Business travel vs commuting (home–workplace)

It’s important to separate two things:

1. Travel between home and your primary workplace: This is deducted in your personal tax return (based on the cheapest means of transport), not in the company bookkeeping.
2. Business travel: Temporary travel to a specific place of work (e.g., to a client, trade fair, training). These are company expenses.

How are costs reimbursed?

• Public transport: Train tickets, bus tickets, taxis, and flights are deductible with receipts.
• Own car: If you use your own car for business driving only occasionally (less than 50% of driving is business), you can charge your company kilometre allowances. In 2024, the basic rate is 57 cents/km. These are an expense for the company and tax-free income for you.
  • Requirement: You must keep a driving log showing the date, route, kilometres, and purpose.
• Company car: If the car is owned by the company (more than 50% of driving is business), all car costs (fuel, maintenance, insurance) are paid from the company account. If you use the car for private driving, you will be taxed on a car benefit.

Daily allowances

If a business trip lasts over 6 hours (partial allowance) or over 10 hours (full allowance) and extends more than 15 km from your home or workplace, you can pay yourself a tax-free daily allowance. This is a deductible company expense.

Occupational Health Care and Well-being

Your ability to cope is the most important resource of your business.

• Occupational health care: An entrepreneur can arrange occupational health care for themselves. The costs are deductible as long as the agreement is made with a service provider (e.g., a medical clinic) and includes preventive health care. Treatment costs are deductible only if they are included in the occupational health agreement and are reasonable (Kela has annual maximum reimbursement limits).
• Exercise and culture vouchers: A sole trader cannot deduct their own exercise/culture vouchers in the same way an employer can provide them to employees as a tax-free benefit. In a limited company, an entrepreneur who receives a salary can use the exercise benefit (e.g., €400/year) if it is offered to the entire staff.

Salaries and Personnel Costs

If your company has employees, all their wages and related employer costs are naturally deductible.

Note the difference between business forms regarding the entrepreneur’s own “salary”:

• Limited company: The entrepreneur pays themselves a salary. The salary is an expense for the company and reduces profit.
• Sole trader: The entrepreneur does not take a salary but makes private withdrawals. A private withdrawal is not a business expense and does not reduce taxable income. A sole trader pays tax on the entire business profit regardless of how much money is transferred to their personal account.

Financing and Interest Expenses

Money costs money. If you took out a loan for business purposes, its costs are deductible.

• Interest on business loans: Deductible.
• Bank service fees: Account fees, online banking IDs, and card fees are business expenses.
• Debt collection costs: If you have to collect receivables from customers, these costs are deductible.

Work Clothing – What Is Deductible?

This is where many entrepreneurs make mistakes. The rule of thumb is strict: Only clothing that cannot be used in your free time is deductible.

• Deductible: Protective overalls, safety shoes, medical coats, chef’s clothing, or clothing with a large and clearly visible company logo (promotional clothing).
• Not deductible: A suit, a blazer suit, smart office clothes, sneakers. Even if you only wear a suit in client meetings, the tax authorities consider it something that could also be worn socially, so it’s treated as a living expense, not a business expense.

Membership Fees, Training, and Professional Literature

Keeping your skills up to date is important.

Training

You can deduct training costs if the training maintains or improves your current professional skills.

• Example: An accountant takes a course on new tax laws → Deductible.
• Example: A developer learns baking to start a bakery → Usually not deductible (considered acquiring a new profession, i.e., a personal living expense).

Professional literature and magazines

• Professional magazines (e.g., Kauppalehti, Talouselämä, or industry publications) are deductible.
• Professional books directly related to your work are deductible.
• General newspapers (like Helsingin Sanomat) are deductible only if subscribed to the business premises (not to your home).

Membership fees

• Memberships in business-related organizations (e.g., Suomen Yrittäjät, the Chamber of Commerce) are deductible.

Summary: Carefulness Pays Off

Entrepreneurs’ tax deductions aren’t rocket science, but they do require systematic habits. The most important rule is: keep your receipts. Without a receipt, there is no deduction. And the expense must always relate to your business.

When you use deductions correctly, your company’s profit becomes smaller on paper, you pay less tax, and you have more money left to invest or live on.

Checklist:

1. Get receipts for everything.
2. Add a note to the receipt if the purpose isn’t obvious (e.g., “Client lunch, Matti Meikäläinen, Oy Firma Ab”).
3. Keep marketing and representation separate.
4. Don’t mix personal and business money.

Want the easy way? Bisse.fi is an excellent partner for both new and more experienced entrepreneurs. With our service, recording expenses is fast, and you ensure your bookkeeping stays up to date without grey hairs.

Good luck with entrepreneurship—and smart purchases!