VAT understanding suitable for business
VAT understanding suitable for business: Prices for private social and health services include an average of 8% hidden VAT. Service providers providing VAT-exempt services cannot deduct VAT on purchases of goods and services or capital goods from their own taxation. A similar phenomenon applies to private service providers providing school meals.
Prices for private social and health services include an average of 8% hidden VAT. Service providers providing VAT-exempt services cannot deduct VAT on purchases of goods and services or capital goods from their own taxation. A similar phenomenon applies to private service providers providing school meals.
- As per the general principles of VAT law, sales as a business is subject to VAT.
- Certain activities are excluded from taxation by law. This includes the private sale of goods and services related to health and medical care and social welfare.
- The background to the VAT exemption is the EU VAT Directive. Accordingly, Member States may, by national decisions, exclude certain private activities from the exemption, but the scope of the exemption is not limited to Finland.
- Common to private tax-free social and health services is that the production of services is subject to licence, regulated by public authorities and often at least partly financed by public funds.
Hidden VAT increases prices
From the VAT exemption of sales of private social and health services, it follows that VAT on supplies for the production of services cannot be deducted for tax purposes. As a result, sales prices of services contain hidden VAT on purchases. Its size depends on the company’s industry and how they have organized their operations.
Hidden taxes increase the price of final products in the eyes of the consumer and do not necessarily encourage private operators to organize their service production in the most sensible and efficient manner. For consumers, the fact that reimbursement for private or dental charges under the Health Insurance Act has reduced to a fraction of the actual cost.
Of particular importance is the Finnish government’s decision to cut reimbursement for private medical care in 2015-16. As a result of the surgery, the number of customer visits decreased, especially in private dental care. Actions were taken, however the likely transition to a new client selection system for dental care will not take place until early 2022. There is also the use of a small business tax rate.
Municipal outsourcing and procurement affect services
Hidden VAT can also result in distorted competition between municipal and private service providers. Municipalities have the right to fully deduct VAT from their own social and health care production costs. This may reduce the desire for municipal outsourcing or private procurement services for their own service production.