We often get questions about the Finnish tax system. No wonder, tax systems seem to always be so different in every country and it does not help that the used language is so complicated that barely anyone can understand it. So, we try here to open it up and explain what you need to know about the Finnish tax system. First, we will explain what is so-called “OmaVero” that Finns always talk about. Then we will explain the tax differences between an employee and a sole trader. After that, we explain the sole trader’s taxation in more detail, and at the end of the page, you can find a summary of the things to remember. Finally, we have also listed some other subjects that could be beneficial to know.
What is MyTax (OmaVero)?
MyTax is a Finnish tax administration’s online service where you can check your tax information, update them and order a new tax card for example. Here you can handle almost all your tax matters. It is really handy if you do not want to call the tax office or physically visit the place. All your tax-related mail can be found here as well.
The difference between an employee and a private trader
The way of paying taxes depend on if you are an employee or self-employed. Employees are getting salaries and the taxes are deducted before you get your salary to your account. You then need to just make sure that your tax card is up-to-date and update your yearly salary estimate if needed. After each year, you also need to check your personal pre-completed tax return and make sure that all needed information is there. At this point, you can also add tax deductions there if you haven’t done so previously. If you have paid too high taxes, you will get refunded and if you haven’t paid enough taxes, you will get an invoice where is stated the missing amount that you need to pay to the tax administration.
As a private trader, the main points are still similar to this, but now you are responsible for paying taxes by yourself. Also, you pay taxes depending on your company’s profits, not on your “salary”. Instead of ordering a tax card which shows your tax percentage, you give an estimate of your company’s yearly taxable profits. Regarding that, you will get tax prepayment invoices from the tax administration that you need to pay. If the estimate changes, you can just call to the tax administration or navigate to MyTax and update the number. If you have paid too high taxes in the previous year, you will get this refunded to you. Same in the other way round, if you haven’t paid enough taxes, you will need to pay those taxes back with possible interest. End of each year, you need to fill the sole trader’s tax return. If you are UKKO private trader -service user, we will do this for your company and do the possible tax deductions. So far, quite similar processes in both cases. Then next we will talk about the liability to pay VAT as a private trader.
Private Trader’s taxation
When you are a sole trader, you generally pay two types of taxes:
- Earned income taxes (tax prepayment) - if you make any profits, that is, you get “salary” for yourself.
- Value-added tax (VAT) - if you are obligated to pay VAT.
Private trader’s taxes are paid in advance (prepayment tax). The amount of taxes is determined by the yearly profit estimate of the company. If the company has no previous activity, then the entrepreneur must estimate the profit for the coming year. Previously created a business plan and profitability calculations can be helpful when thinking about this estimate. Also, you can update this estimate during the year if needed.
You pay private trader’s prepayment taxes based on your earnings, meaning if you earn something, you pay taxes on that profit. The tax prepayment is paid based on the profit estimate you have given. A tax administration informs then you how much you need to pay taxes and you will get those prepayment tax invoices either to your home or to MyTax service.
If you paid too high taxes, you would get your money back later as a tax refund. If, on the other hand, you paid too little, you need to pay back taxes.
VAT is a consumption tax that the seller includes in the selling price of a good or service. VAT is intended to be paid by the consumer. So, in the most basic way, you need to add the VAT price to your product or service price when you are selling something to the consumer. For example, with the VAT rate of 24%, you sell something to a consumer at a price of 100 euros. You will add VAT to this price at the VAT rate of 24%, so the total price is 124 euros (100 + 100*24%). Therefore 100 euros goes to your company and 24 euros are VAT that needs to be paid to the tax administrator. There are different rates of VAT and you can read more about them in the tax administration’s website.
In business-to-business transactions, the purchasing entrepreneur can deduct the VAT charged to him or her by another taxable entrepreneur. The condition is that the goods or services are used in a business that qualifies for a VAT deduction. More information can be found in the tax administration’s website.
If your business operates in small-scale, you might be eligible for VAT relief. Tax administration is explaining this in more details in their website.
No worries if this sounds like a complicated thing. We are here to help you. As a UKKO private trader -service user, we enter your company to the VAT and prepayment registers when you start a company through us, and file your VAT returns to the tax administration and make sure you will get the VAT reliefs if you are eligible to them.
The “salary” of the private trader
When working as a sole trader, an entrepreneur cannot pay themselves a salary, but withdrawing money from a company's account is interpreted as a private withdrawal. In practice, private withdrawal works so that when you withdraw money from your company’s account for your private use, it does not affect your company’s profits. The private withdrawal is therefore not an expense.
Example: You have sold a consultation service for the price of 10 000 € + 24% VAT (2 400 €). You have received the amount of 12 400 € including 24% VAT in your account. The 2 400 € VAT amount must be paid to the tax administration.
An amount of 10 000 € excluding VAT remains in the account. You withdraw the full amount to your own account and use the whole amount. In the taxation of a sole trader, the share of 10,000 € has been the profit of the sole trader on which tax must be paid. So, you always need to keep enough cash at your disposal to be able to pay the necessary taxes and expenses.
What I need to do as a private trader?
Here are a few action points to follow when you are starting a new business
- Apply for Business ID – UKKO service provides this for sole traders for free
- Check if you need to be in the VAT and prepayment registers – UKKO does this for new sole traders
- Take YEL insurance if needed – you can do this through UKKO
- Do accounting – UKKO does this for you
- File VAT-returns* to tax administration – UKKO does this for you
- Update your yearly profit estimate for prepayment taxes – easily done in MyTax
- After each year file a tax return – UKKO does this for you
- Enjoy your life as an entrepreneur – that is your job, we just make your life easier
*you need to file VAT returns if you are liable of paying VATs.
Other important information
- YEL insurance
- More information about sole traders
- Start your own business with UKKO Entrepreneur
- Tax administration’s information about starting a business
Please note that this is a general guide where special cases are not considered. Tax administration is the authority who decides matters related to taxation. You can always be in contact with them to get correct answers related to your case.