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Finland has decided to raise the standard VAT rate from 24 percent to 25.5 percent
Value Added Tax (VAT) is a crucial aspect of business operations, and changes in VAT rates inevitably affect companies. The proposed and legislated changes to VAT rates require careful planning and preparation from business leaders. Time is of the essence, as the changes are expected to take effect on the first day of September. The Finnish Parliament will decide on the increase according to the proposal right after the summer recess. In this blog post, we will summarize how the VAT rate changes will impact your business and how you should prepare.
Changes Effective from September 1st:
1. Standard VAT Rate Increase from 24% to 25.5%
This affects most products and services, directly impacting pricing and costs.
2. Food VAT Rate Remains at 14%
However, the VAT on confectionery will increase to 25.5%.
3. VAT Rates for Books, Medicines, Cultural Services, etc., Remain at 10%
The September change does not affect books, newspapers, magazines, medicines, movie screenings, sports services, cultural and entertainment event tickets, personal transportation, or accommodation services, so pricing for these will remain the same for now. It has been previously indicated that many services and products currently at a 10% VAT rate will be moved to a 14% VAT rate in the future.
How Will VAT Rate Changes Affect Your Business?
1. Pricing and Costs
The increase or decrease in VAT rates will directly impact the pricing of products and services. You will need to carefully consider whether to pass the VAT rate change onto prices or absorb it in your costs. Updating your pricing strategy is crucial to maintain your business's competitiveness.
2. Cash Flow and Financial Planning
VAT rate changes will inevitably affect your company's cash flow. A higher VAT rate might also slow down consumer spending, which could impact your sales figures. Therefore, reviewing your cash flow forecasts and budget is essential to adapt to changes without major disruptions.
3. Accounting and Reporting
Changes in VAT rates will require updates to your accounting and reporting practices. Ensure that your accounting and other systems can handle the new VAT rates and that your staff is aware of the new rates.
How Can Your Business Prepare?
1. Proactive Planning
Anticipating the impact of VAT rate changes on your business is crucial. Updating budgets, cash flow calculations, and pricing strategies in advance will help your company adapt to the changes.
2. Communication and Customer Service
Clear communication with customers about VAT rate changes is important. Your business should inform customers in advance about potential price adjustments and provide clear information on how the changes will affect the products and services you offer.
3. Training and Systems
Ensure that your staff is trained to understand the VAT rate changes and their implications. Additionally, it's important to update accounting and sales systems to accommodate the new VAT rates.
Summary
VAT rate changes are significant. By anticipating and preparing for these changes, you can mitigate their negative impacts and capitalize on potential benefits. Clear communication, meticulous financial planning, and flexible pricing strategies will help you adapt to the new VAT rates effectively. Stay informed and prepare for upcoming changes to keep your business competitive and successful in a shifting tax environment. Should you need some assitance, the VAT experts of Grant Thornton Finland are happy to help.
