This summary covers preliminary tax for sole proprietors in general. Taxation is influenced by several factors, and for precise information about your taxation, you should always consult the tax authorities. In this summary, we have not mentioned all possible situations that affect taxation.
Tax prepayment, as the name suggests, means that taxes arising from the company's profit are paid in advance, and the amount of prepayment is based on an estimate of taxable income. Essentially, the amount of prepayment is determined by the difference between income and expenses. For businesses that have been operating for a longer period, this estimate is usually based on the previous tax year's results for the following year. This estimate can also be adjusted as needed, much like an employee can update their tax card at the beginning of the year.
We recommend that you also include preliminary taxes in your bookkeeping. This is not mandatory for single-entry bookkeeping, but it will help you keep better track of your company's financial situation. A preliminary tax decision, prepayment invoice (available from OmaVero), or a receipt for a bank transfer can serve as proof.
Preliminary tax for new businesses
New businesses must apply for preliminary tax separately, even if the business is registered in the prepayment register. You can do this conveniently either through OmaVero or by contacting the tax authorities. You provide the best estimate of how much profit your business will make in the current year, and based on this estimate, you will pay preliminary taxes. This estimate can be updated throughout the year as needed.
For new businesses, preliminary tax is determined based on the estimated result for the first accounting period provided when the business is established. It can be challenging to predict future results accurately when starting operations. Therefore, it is advisable to monitor the result of the first accounting period and assess the need for possible adjustments to preliminary taxes well in advance. Underpayment of preliminary tax may result in additional tax, commonly referred to as additional taxes to be paid. Therefore, you can update this estimate as needed during the year, either through OmaVero or by contacting the tax authorities.
Do I pay tax every time I withdraw money from the business's account?
Tax is not paid on withdrawals, but income tax is paid in advance monthly based on the estimated entrepreneur's income or the business's profit according to the progressive tax scale. In other words, withdrawals do not affect how much tax you pay. What matters is the business's profit, and tax is paid progressively based on how much profit your business makes.
You can see your income in the UKKO system. Navigate to "Reports" and open the financial years. You will see the income statement. Your business's profit, based on which you can enter an estimate of income for the following year in your preliminary tax application, can be found there.
Refund or additional tax?
After submitting your tax return, the taxation is confirmed, and additional taxes may be paid or refunds received based on it. In practice, this is very similar to the practice of an employee: the tax authorities determine how much profit your business made and how much tax you should have paid according to that. If you paid more taxes than this amount, you will receive back the excess amount you paid, and if you paid too little, you will have to pay "additional taxes" or additional tax.
Payment dates for preliminary tax
The payment dates for preliminary tax for sole proprietors are largely determined by the same principles as for the owner of a partnership. The exception is that part of the sole proprietor's profit can be allocated to be taxed on the spouse's income. This requires the spouse to work in the company. In this case, preliminary tax payments are made not only by the entrepreneur but also by the spouse.
When the business's profit is taxed as the entrepreneur's/spouse's personal income, the amount of preliminary tax is also affected by all other personal earned and capital income. Therefore, personal rental income, pensions, start-up grants, etc., are taken into account in the amount of preliminary tax.
The payment installments of preliminary tax are determined by the amount of preliminary tax to be paid.
Payment installments of preliminary tax can be changed in MyTax starting from November 27, 2023, after you have received a decision on preliminary tax for 2024. For example, if the payment installments are divided only for some months but you want to pay preliminary tax evenly every month, you can change the installments yourself. The choice is valid indefinitely, so in the future, if there are any preliminary tax installments, they will be divided evenly for all months.
Preliminary tax is determined for the tax year. The amount of preliminary tax and the timing of changes to preliminary tax affect the number of payment installments during the year. There are up to 12 installments.
If business activity is regularly seasonal (e.g., running a summer kiosk or ski instruction), you can apply preliminary tax for those months in which you earn income.
The smallest payable preliminary tax is 170 €. Taxes smaller than this are paid in the final tax assessment.
Additional advance tax
An entrepreneur can pay additional advance tax based on the previous year's preliminary taxes collected during the previous financial year. This advance is paid if you have not paid enough preliminary tax during the tax year.
Additional advance tax is an advance that can be used to supplement withholding tax or preliminary tax after the end of the tax year. Additional advance tax can be applied for several times until the end of the taxation. Additional advance tax cannot be paid during the tax year; instead, changes to preliminary tax must be applied for.