Deducting the VAT charged on goods and services purchased
As a VAT taxpayer conducting business for which VAT must be paid, you may deduct the VAT included in any goods and services you buy from others. You can deduct the input VAT only if you bought the goods/services for the business operation for which you are liable for paying VAT.
If you also use the goods or services for other activities, your right to deduct the input VAT is limited to the value of the goods/services actually used for VAT purposes. It is also required that the deduction is not restricted under the provisions of the VAT Act.
For example, no VAT deduction is allowed in circumstances where a business owner – or the employees working for the company – use the goods and services privately or for an activity of the company for which VAT cannot be deducted.
Example: A self-employed person sells domestic cleaning services, subject to VAT, and also performs social services which is an activity exempted from VAT. The self-employed person’s company buys a van for business use. The van is also used privately from time to time. The self-employed person is entitled to a VAT deduction on the purchase price and running costs of the van only to the extent that it is operated for the domestic cleaning work i.e. the business for which he or she is liable for paying VAT. The self-employed person is under a duty to substantiate this, for example, by recording the kilometres in a driver's logbook to create proof of the distances driven for a VAT purpose and non-VAT purpose; the logbook would also prove the extent of private driving.
Check whether the seller is a VAT taxpayer
Buyers can deduct the input VAT only if the seller, too, is on the VAT register and if the sale is subject to VAT. Visit the Business information system website (ytj.fi) to check the VAT registrations of the people you do business with.
Sellers who are liable to pay VAT must issue an invoice to their customers. All invoices must indicate the amount of VAT included in the price.
Restrictions on the VAT deduction
Frequently, your right to deduct VAT is restricted in situations where the purchases relate to private consumption (by yourself or by your employees) rather than company business.
Examples of circumstances where no VAT deductions can be made:
- Purchases have to do with the business owner's daily commute (travel between home and work)
- Goods or services were purchased for an entertainment purpose
- Real estate property or expenses relating to it are involved, which actually have to do with the owner’s residential use, or company employees’ residential use, or they have to do with recreational or hobby use.
The input VAT on expenses connected to passenger cars can only be deductible in some circumstances.
Read more:
- Buying and operating a motor vehicle: your right to claim VAT deductions
- “The VAT guidebook” — Arvonlisäverovelvollisen opas (section 8.2, Restrictions of VAT deductibility (available in Finnish and Swedish)
Claim VAT deductions when you submit the VAT return
When completing the return for the period, fill in the period's entire input VAT on purchases under "Tax deductible for the tax period".
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