What actually is VAT?
VAT (value added tax, ALV in Finnish) is a tax you add on top of your invoices. It is not your money — you collect it from your customer and pass it on to the Tax Administration. Think of yourself as a tax collector on behalf of the state.
Example: You invoice work for 1,000 euros. You add 25.5% VAT, making the total invoice 1,255 euros. The customer pays 1,255 euros, of which 1,000 euros is your income and 255 euros is VAT that belongs to the Tax Administration.
What is the VAT register?
The VAT register is a register maintained by the Tax Administration of entrepreneurs who are liable for VAT. When you are in the VAT register, you must add VAT to every invoice. If you are not in the register, you may not add it.
You join the register when you establish your business or when your turnover exceeds the threshold. PalkkaOnline checks your register status automatically from the Tax Administration.
When must I join the VAT register?
From 2025, you must join the VAT register when your annual turnover exceeds 20,000 euros.
If your turnover stays below 20,000 euros per year, you can apply for exemption from VAT liability ("small-scale activities", Section 3 of the VAT Act). In this case, you do not add VAT to your invoices.
If your turnover exceeds 20,000 euros, you must be in the VAT register and add VAT to your invoices.
Most self-employed individuals using PalkkaOnline are in the VAT register.
Note: Even if your turnover is below the threshold, you can voluntarily join the VAT register. This can be beneficial because it allows you to deduct VAT on your business expenses.
Are you in the VAT register? How to check
PalkkaOnline shows in your profile whether your business is in the VAT register or not. This information is fetched directly from Tax Administration registers. If you are unsure, you can also check it yourself at the Business Information System (ytj.fi) using your Business ID.
VAT rates — which percentage do I use?
Finland has several VAT rates. The correct rate depends on what you sell:
25.5% — The standard rate. Use this unless your work falls under a reduced rate. Most services and goods.
14% / 13.5% — Food, restaurant and catering services.
10% — Books, medicines, sports services, passenger transport, accommodation.
0% — Only in specific cases (see below).
When can I invoice at 0% VAT?
You may only use 0% VAT in specific situations defined by law. You cannot decide on your own to invoice at zero. The most common situations:
Small-scale activities (Section 3 VAT Act) — Your turnover is below 20,000 euros AND you are not in the VAT register.
Reverse charge (Section 8c VAT Act) — Construction subcontracting work for another construction company. The buyer accounts for VAT.
Sales to EU or non-EU countries (Section 69 VAT Act) — Services sold to a foreign company.
Healthcare services (Section 34 VAT Act) — Treatment provided by a licensed healthcare professional.
Social welfare services (Section 37 VAT Act) — Services under the Social Welfare Act.
Insurance services (Section 44 VAT Act) — Sale of insurance.
Performance fees (Section 45 VAT Act) — Artists' performance fees.
Important: If you are in the VAT register, you cannot invoice regular work (e.g. driving services, cleaning, consulting) at 0% VAT. For these, always use 25.5%. An incorrectly issued invoice must be corrected.
Frequently asked questions — VAT rates in real life
These are real situations that self-employed individuals encounter. The correct VAT rate always depends on what you sell and who you sell to.
"I do massage therapy — what VAT rate?"
Answer: It depends on your qualifications.
If you are a licensed healthcare professional (e.g. trained massage therapist registered with Valvira): 0% (Section 34 VAT Act, healthcare services). This is the correct 0% basis.
If you are not a licensed professional (e.g. you offer relaxation massage): 25.5%. This is normal service sales.
In PalkkaOnline, a massage therapist selects the correct VAT rate on the invoice row. If you use the zero rate without a Section 34 basis, the invoice is incorrect.
"I do cleaning work — can I invoice at 0%?"
Answer: No, if you are in the VAT register. Cleaning is a normal service, VAT rate is 25.5%. Exception: If your turnover is below 20,000 euros AND you are not in the VAT register (Section 3), then you do not add VAT to the invoice at all.
"I do construction subcontracting for another company — what rate?"
Answer: 0% reverse charge (Section 8c VAT Act), IF:
The buyer is a construction company
The work is construction services or construction cleaning
The buyer handles VAT (reverse charge)
This is a common situation among PalkkaOnline users. Note: If you sell construction services to a private individual (e.g. home renovation), you use the normal 25.5% VAT rate.
"I'm a DJ / performing artist — what VAT?"
Answer: 0% performance fees (Section 45 VAT Act), IF it is a performance fee. That is, you perform for an audience (gig, concert, event). Other DJ services (e.g. sound equipment rental, event production) are normal service sales at 25.5%.
"I sell services to a foreign company — what VAT?"
Answer: 0% (Section 69 VAT Act). When you sell services to a company in another EU country or outside the EU, VAT is not added to the invoice. The buyer accounts for VAT in their own country (reverse charge).
Note: This applies to business customers. If you sell to a private individual abroad, the rules are different.
"I do hourly work / consulting — can I use 0%?"
Answer: No, if you are in the VAT register. Hourly work, consulting, project services and similar are normal service sales. VAT rate is 25.5%.
"My turnover is small — do I need to pay VAT?"
Answer: If your turnover is below 20,000 euros per year, you can deregister from the VAT register (small-scale activities exemption, Section 3). Then you do not add VAT to your invoices. In PalkkaOnline, these users select the VAT rate "Small-scale activities (Section 3)".
Note: If you are already in the VAT register, you cannot unilaterally stop adding VAT. Deregistration requires a notification to the Tax Administration.
"What happens if I choose the wrong VAT rate?"
Answer: An incorrect invoice must be corrected. If you invoiced at 0% when you should have used 25.5%, you must correct the invoice and remit the missing VAT to the Tax Administration. This can cause extra work and potentially late payment penalties.
PalkkaOnline helps you choose the correct rate, but the final responsibility is on the entrepreneur. If you are unsure, ask us before sending the invoice.
What does PalkkaOnline do with VAT?
PalkkaOnline handles VAT administration for you:
Invoicing — When you create an invoice, you select the VAT rate. PalkkaOnline calculates the VAT amount automatically.
Withholding — When the customer pays the invoice, PalkkaOnline withholds the VAT portion in the client funds account. You receive the invoice amount minus VAT.
VAT report — PalkkaOnline compiles the invoices and expenses for the period into a VAT report automatically.
Filing with Tax Administration — When you approve the VAT report, PalkkaOnline submits the VAT return to MyTax (OmaVero) on your behalf.
Your responsibility is to choose the correct VAT rate when invoicing and to approve the VAT report on time.
VAT reporting period
VAT is reported periodically. The period depends on your turnover:
Quarterly — Most common. Turnover below 100,000 euros/year.
Monthly — Turnover over 100,000 euros/year.
Annually — Turnover below 30,000 euros/year.
The deadline is the 12th day of the second month after the period ends. For example, Q1 (January-March) deadline is 12 May.
VAT and purchase deductions
If you are in the VAT register, you can deduct the VAT on expenses related to your work. So when you buy tools or materials, the VAT they contain is deducted from the VAT you owe.
Example: You have collected 500 euros in VAT from customers. You bought materials with 100 euros of VAT. You pay the Tax Administration 500 - 100 = 400 euros.
Self-employment and personal taxation — an important distinction
A sole trader (toiminimi) is not a separate taxable entity. Your business income is taxed as your personal income, just like salary income. This means:
Your business profit (income minus expenses) is added to your other income (e.g. salary, capital income).
Taxation is progressive — the more you earn in total, the higher your tax rate.
PalkkaOnline handles your business accounting and tax return, but your personal taxes (such as salary income taxation) are not part of our service.