Updated guidance about importation and VAT

Unofficial translation:

Chapter 1.2 of the instructions. has been changed. To chapter 1.4. mentions regarding initial delivery and an example have been added. A definition of re-export has been added to the same chapter. Chapter 2.3. has been summarized, the example in the chapter has been specified about the VAT-freeness of unloading and loading costs and transport costs, and an addition has been made to the chapter about calculating the tax basis for VAT-free imports. Clarified expressions used in chapter 2.4. To chapter 2.5. an addition has been made regarding the declaration of special import procedures with the self-initiated taxes tax declaration. In Chapter 3, a mention has been added about the effect of the business ban on the imposition of a special procedure. Chapter 5 has been removed from the instructions.

1 General information on VAT on imports 

1.1 The most significant changes from 1 January 2018

VAT on the importation of goods will be transferred from Customs to the Tax Administration on January 1, 2018 for imports entered in the register of persons liable for VAT. These importers calculate and report the import tax and the basis of the tax on their own initiative with their VAT declaration, as well as other information regarding transactions assigned to the tax period. The import tax is allocated to the calendar month during which the customs clearance decision has been issued, and the corresponding deduction is allocated to the same month. If the imported goods are used entirely for a deductible purpose, there is no value added tax to be paid on the import.

Customs performs import customs clearance as before. Customs no longer confirms the amount of VAT to be paid on imports or whether the import is VAT-free from those in the VAT register. Customs will continue to collect duties and fees on the goods, as well as taxes other than value added taxes. The fees charged by customs are determined based on the goods’ customs title, origin and customs value for all customers.

Customs will continue to be responsible for VAT on imports for imports made by other than those entered in the register of persons liable for VAT. Customs is responsible for VAT even when the importer is a natural person registered in the VAT register and the importation is not related to his business.

The importation of goods means the importation of goods into the EU tax area and it is generally taxable.

Distance sales of imported goods to consumers are discussed in the guideline VAT on distance sales of goods . For shipments worth up to 150 euros, it is possible to declare and pay the tax on remote sales of imported goods to consumers in the import system. The import system is discussed in more detail in the guide Special systems of value added tax .

1.2 Competent Authority

The new jurisdiction regulations between the Tax Administration and Customs entered into force on January 1, 2018. The decisive point in time for the determination of jurisdiction between the Tax Administration and Customs is the moment of creation of the obligation to pay value added tax, i.e. the time of acceptance of the customs declaration, which is automatically printed on the customs clearance decision confirmed by the Customs.

The competent authority decides whether the importer is entered in the VAT register at the time of acceptance of the customs clearance decision confirmed by the Customs. The importer’s registration status can be checked in the Company and Community Information System (www.ytj.fi) using the y-ID. The tax administration is competent if the importer is in the VAT register at the time of acceptance of the customs declaration.

Customs is the competent authority for import VAT if the importer is not registered in the VAT register. Such importers are mainly private individuals and non-profit organizations that do not engage in any VAT activity. In addition, Customs is competent for all customers’ imports that violate customs regulations. The importation of goods is in violation of customs regulations, for example, when the goods have not been presented to Customs at all or the Customs’ procedural regulations have not been followed.

Customs is also responsible for VAT on imports made by natural persons liable for VAT that are not related to the importer’s business. Natural persons entered in the register of persons liable for value added tax must use the company and corporate identity in customs declarations when it comes to imports for business purposes. In this case, the competent authority is the Tax Administration. In other import situations, natural persons registered in the VAT register must use their personal identification number in the customs declaration. In this case, the competent authority is Customs.

In the case of imports made by legal entities, the decisive factor is whether the importer is registered in the VAT register at the time of acceptance of the customs declaration. In this way, retroactive registration of the importer in the VAT register or retroactive removal from the register after importation does not affect the decision of the competent authority. It does not matter for what use the individual items of goods are brought. For example, it is not necessary for municipalities to separate goods imported for different purposes at the time of import. It also does not matter on what basis the importer is registered in the VAT register. The register of persons liable for value added tax may include, for example, the transferors of the right to use the property or primary producers.

The register of persons liable for value added tax may also include foreign operators not established in Finland, e.g. those performing joint procurements, who are required to report. A business operator registered as a reporting obligation cannot report the tax to be paid or deducted or the importation with his VAT return. A trader who is registered as a person subject to notification must register as a person liable for VAT if he imports.

The members belonging to the group of persons liable for VAT act as importers completely independently. Members of the tax liability group are treated as VAT liable, so the competent authority is the Tax Administration. The state and state agencies and institutions are also liable for VAT. The VAT status of an individual agency is not separately reflected in the company and community information system. If the importer is a government agency or institution, it must use the Y code of its accounting agency for imports, and the competent authority is the Tax Administration.

1.3 Åland’s tax limit

The province of Åland does not belong to the European Union (EU) VAT or excise tax area. However, Åland is part of the EU’s customs union and territory. Åland has the status of the third region in terms of value added tax in relation to the rest of Finland and other EU countries.

As a result of Åland’s special status, there is a VAT tax border between Åland and the EU VAT area. In practice, the EU VAT area refers to EU countries, which also includes the rest of Finland. The tax limit means that the sales and transfers of goods between the province of Åland and the EU VAT area are subject to the export and import provisions of the VAT Act relating to trade with third countries. Export trade is exempt from tax, because the tax is paid at the destination of the transport upon importation. Imports by both traders and other importers from Åland to the rest of Finland and from the rest of Finland to Åland are taxable, unless they are separately stipulated as tax-free.

There is more information about the rules and procedure regarding Åland’s tax limit in the separate Tax Administration’s instruction Åland’s tax limit in value added taxation .

1.4 Import into Finland

The importation of goods means the importation of goods into the territory of the EU. The import of the goods takes place in Finland if the goods are in Finland when they are imported into the EU. This is the main rule for imports from outside the EU customs and tax area, i.e. when goods are imported from China directly to Finland, for example. Importation is also the importation of goods from the EU’s customs area but outside the tax area, i.e. import from the Canary Islands to Finland, for example.

The time of occurrence of the obligation to pay value added tax is the same as the time of occurrence of the customs debt. The obligation to pay VAT usually arises when the customs declaration for goods released for free circulation is accepted.

Importation is also considered to take place in Finland when the goods are placed in the customs territory of the European Union during one of the following procedures according to customs legislation and the goods are in Finland when they cease to be in that procedure:

• temporary storage (Article 144 of the Union Customs Code)
• storage procedure referred to in Article 237 of the Union Customs Code
• inward processing procedure (Article 256 of the Union Customs Code)
• the procedure of temporary importation completely free of import duty (Article 250 of the Customs Code of the Union)
• external transit procedure (Article 226 of the Union Customs Code)
• internal transit procedure (Article 227 of the Customs Code of the Union) or one of the aforementioned procedures when importing goods from the EU customs territory but outside the EU tax territory. If, for example, the goods imported from the Canary Islands to Finland are in Finland when the internal transit procedure ends, the import will take place in Finland.

These procedures postpone the taxation event of the importation until the procedure is concluded for release for free circulation.

Favorable customs treatment according to a certain purpose of use (end-use) and temporary import procedure with partial import duty are not procedures that would postpone import VAT. In these cases, the obligation to pay the tax arises at the time when the customs declaration for placing in such a procedure is accepted. Value added tax is declared and paid in the normal way.

Re-export is the event that ends the procedure that postpones import. According to the Customs Code, re-export is when non-Union goods are exported from the customs territory of the Union. Non-EU goods are goods that have not been manufactured in the EU or cleared for free circulation in the EU. Uncleared goods under customs control, to which customs procedures delaying importation have not ceased to be applied at the time of re-export, can be re-exported outside the EU without being released for free circulation. In this case, the import does not take place from the point of view of value added tax either. More information on re-export can be found in the Customs instructions on re-export .

Goods from outside the EU can be delivered to vessels and aircraft used in professional international traffic in Finland, depending on the situation, applying different customs procedures. When the goods are transported from outside the EU directly to a ship engaged in professional international traffic using the external transit procedure, importation subject to VAT is not considered to take place if the ship delivery procedure determined by Customs is followed. In addition, the condition is that the import of the goods would be free of value added and excise tax. There is more information about the ship delivery procedure in the Customs’ guide Ship delivery procedure .

When EU goods have been placed under the internal transit procedure in another EU country (in the customs and tax area of ​​the EU) and these goods are brought to Finland through an area outside the customs and tax area of ​​the EU, the import is not the importation of goods as referred to in the Value Added Tax Act.

The import of the goods is considered to take place in Finland also when non-EU goods are in Finland in the internal processing procedure, customs warehousing procedure or temporary importation completely free of import duty and the provisions of the customs legislation regarding the use of similar goods are applied to them and the non-EU goods become EU goods. You can find more information about Customs procedures on the website of Customs (Import customs procedures) .

No value added tax is charged on the import of goods transferred to the tax warehousing procedure. There is more information on the tax warehousing procedure in the Tax Administration’s instruction on Tax warehousing in value added taxation .

2 Value added tax procedure 

2.1 Self-initiated tax

Import value added tax, which is the responsibility of the tax administration, is a self-initiated tax. The procedural provisions of the customs legislation do not apply to it. Self-initiated tax means a tax that the taxpayer calculates himself and pays on his own initiative. Importers liable for VAT calculate and declare the tax to be paid on the importation and the basis of the tax on their own initiative in their VAT declaration, as well as other information regarding transactions assigned to the tax period. Customs hands over the customs-cleared imported goods to its customers in the VAT register, regardless of whether the import VAT has been paid.

An importer entered in the register of persons liable for VAT shall declare the VAT to be charged and deducted at the same time on the goods imported for the purpose of his business, if the goods are used by the taxable person for a deduction. Then there is no tax left to pay. This procedure is called a deferred procedure and it is automatically applied to all importers entered in the VAT register. The procedure does not require a permit procedure or special criteria or general guarantees.

2.2 Taxpayer

The person liable for tax on imports is the declarant (AVL § 86 b), i.e. the person in whose name the customs declaration is submitted. The declarant also means a person in whose name a temporary storage notification, a general arrival notification, a general departure notification, a re-export notification or a re-export notification is given.

A customs declaration can be submitted by a person who is able to provide all the information needed to apply the provisions on the customs procedure to be declared to the goods. This person must also be able to present the goods in question to customs. However, if the acceptance of the customs declaration results in special obligations for a certain person, he must submit the relevant customs declaration himself or through his representative.

If the representative acts in his own name on behalf of the principal, it is an indirect representation. The taxable person is then the importer of the goods, i.e. the principal and not an indirect agent. The person who is in the position of the declarant of the goods or his principal at the time of importation from the customs territory of the European Union to the Community is also liable for VAT on importation. Only the principal, i.e. the importer of the goods, has the right to deduct the import VAT. The tax to be paid on the importation and the basis of the tax are reported in the principal’s VAT return, as is the corresponding deduction when the import has taken place for a use entitling to the deduction.

In indirect representation, the agent must enter the personal identification number of the principal in the customs declaration, if it is a private import made by a natural person. In other situations, the company and corporate ID of the principal must be stated.

2.3 Basis of tax in value added tax

In calculating the value added tax on the importation of goods, the basis of the tax is basically the customs value determined by Customs according to the EU customs legislation (AVL § 88), to which the items referred to in AVL § 91, § 93 and § 93 a have been added. Customs value is determined by Customs in accordance with EU customs legislation. The provisions for calculating the tax base have not changed. The importer liable for value added tax must calculate the basis of value added tax and the amount of the tax himself. The tax amount is obtained by multiplying the tax basis by the applicable tax rate (24, 14 or 10 percent). The tax rate is determined by the type of goods.

The basis of the import tax is determined in the same way for both VAT- and VAT-free imports. In VAT-free imports, there is no obligation to pay VAT on the importation. Value added tax-free imports are regulated in sections 94–96 and section 72 h of the AVL.

Customs determines the customs value primarily based on the trade value of the goods. The trade value is the price that has actually been paid for the goods or must be paid when they are sold for export to the EU customs territory. According to customs regulations, a sales invoice must be presented for the goods during customs clearance, which shows, among other things, the price of the goods and the terms of delivery. The Customs issues a customs clearance decision in connection with the import customs clearance, in which the customs value and the charges borne by the Customs are indicated. If the purchase price or the related item is in a currency other than euros, the amounts are converted to euros using the exchange rates confirmed by Customs.

When calculating the tax basis, the taxes, duties, import fees and other fees charged to the state and the EU for the importation of the goods at customs are added to the customs value, but not the value added tax. Taxes and other payments paid outside Finland are also included in the tax base. However, for example, car tax and oil protection fee are not included in the basis of value added tax. (AVL § 93)

The import VAT basis must also include the costs of transporting, loading, unloading and insurance of the goods listed in Section 91 of the AVL, as well as other import-related costs up to the first destination in Finland according to the transport contract. If it is already known at the time of the obligation to pay the tax that the goods will be transported to another destination in Finland or another EU member state, these costs up to that other destination are added to the tax basis. The destination is determined from the cargo or other transport documents related to the import. If the destination cannot be determined otherwise, the destination can be considered the first cargo unloading place. The regulation applies to transport organized by both the seller and the buyer. AVL § 71:

More detailed information on determining the import tax base can be found in the guide Import value added tax base

2.4 Temporal Alignment

When the imported goods have been released for free circulation, the taxable person has access to the customs clearance decision, which shows, for example, the customs value, duties and charges borne by customs, as well as the date of acceptance of the customs declaration and the date of release for free circulation. The tax to be paid to the Tax Administration on imports is allocated to the calendar month during which the customs clearance decision was issued (AVL § 135 a). The date in question is indicated in the customs decisions under “release for free circulation” or in a separate section under “customs date”.

If the special procedure referred to in § 100 a is applied to the taxable person’s imports, the tax is allocated to the calendar month during which the obligation to pay the tax arose, i.e. according to the date of approval of the customs clearance decision. There is more about the above-mentioned special procedure according to Section 100 a of the AVL in section 3 Special procedure.

The dates of the obligation to pay VAT and the tax reduction coincide. The tax on imports is allocated to the same tax period as the corresponding deduction. If the imported goods are used entirely for a deductible purpose, no tax remains to be paid.

2.5 Notification and payment

Importers liable for value added tax report the tax on import on their own initiative in the value added tax declaration, as well as other information regarding transactions assigned to the tax period. Value added tax must be paid on your own initiative every tax season. The self-initiated taxes reference number must be used for payment. Every taxpayer has their own permanent reference number.

If the taxable person’s tax period is a calendar month, the due date for the VAT return for the tax period is the 12th day of the second month following the tax period (AVL § 147).

The VAT declaration has two points regarding import VAT:

• The basis for import VAT is stated in the section “Imports of goods from outside the EU”
• The tax on importation is indicated in the section “Tax on the importation of goods from outside the EU”

Imports in Finland are tax-free in certain situations (AVL 94 – 96 and § 72 h). This applies, for example, to the import of investment gold. Such imports are reported in the VAT declaration as follows:

• The basis for import VAT is stated in the section “Imports of goods from outside the EU”
• Tax-free import is not charged tax. In the section “Tax on the importation of goods from outside the EU” EUR 0.00 is indicated.

If, upon import, the goods have been subjected to a procedure delaying the import mentioned in § 86 a of the AVL, such as for example an external transit procedure, the aforementioned import information will not be reported in any part with the VAT declaration. The information regarding VAT on importation will only be announced when the procedure is concluded for release into free circulation, if the goods are in Finland at the end of the procedure.

The provisions of the Self-initiated Taxes Taxation Procedures Act (OVML) apply to imports made by VAT payers under the jurisdiction of the tax administration. The rule on the minimum chargeable amount of 5 euros does not apply to these imports. (AVL § 101 b)

If the information that affects the calculation of the import VAT basis changes afterwards, for example the customs value or the charges borne by the Customs, the VAT declaration must be corrected to reflect the changed information. The correction must be notified to the Tax Administration on its own initiative with a replacement tax declaration for self-initiated taxes. More information on correcting VAT information can be found on the website of the Tax Administration ” How to correct information on a VAT return? “.

The customs clearance decision and related documents must be kept as part of the accounting records. They are also a prerequisite for the right to deduct VAT (AVL § 102a).

3 Special procedure 

The tax administration can order a special procedure to be applied to the imports of an importer who has committed or is likely to commit misconduct, instead of the normal deferred procedure, for a maximum period of 36 months (AVL § 100 a). In a special procedure, the company declares and pays the import VAT separately to the Tax Administration and receives the goods from Customs only when the VAT declaration has been submitted and the payment has been made. The tax to be paid on imports is allocated to the calendar month during which the customs declaration has been accepted.

The tax administration can transfer the taxable importer to a special procedure if the taxable person has substantially neglected during the previous 12 months or if it can be assumed that he has substantially neglected his tax obligations as referred to in section 26 subsection 3 of the Advance Collection Act (EPL) or in another similar manner. According to the criteria for removal from the withholding tax register (EPL Section 26, subsections 2-3), the negligence of entities or groups previously managed by the taxpayer, or the previous negligence of persons managing the taxable entity or group, or other entities or groups managed by them, can also be taken into account. Neglects take into account all types of tax and accounting obligation neglects of the company.

The tax administration can refer a taxable importer to a special procedure if he has repeatedly or seriously violated customs legislation. Customs monitors the fulfillment of the last mentioned criteria and reports them to the Tax Administration.

The tax administration can transfer the importer to a special procedure also if the taxpayer has been subject to a business ban as referred to in the Business Ban Act (1059/1985). If the taxpayer is a corporation or group, the taxpayer can be transferred to a special procedure if the managing person of the corporation or corporation has been banned from doing business.

The Tax Administration issues an appealable decision on the transfer to a special procedure. The decision will be notified to the taxpayer before it enters into force, and he will be given an opportunity to provide an explanation. The appeal period is 60 days from the notification of the decision. However, the decision is enforceable under § 31 subsection 2 of the Administrative Use Act (586/1996) despite the appeal. If the importer wants to take possession of the imported goods as quickly as possible, he can report and pay the import tax separately to the Tax Administration immediately after the customs declaration has been accepted, even before the general deadline for declaration and payment (AVL § 147).

4 Preliminary ruling and written guidance

The tax administration can issue a preliminary ruling on the customer’s written application on how the value added tax law is applied to the applicant’s specific transaction. The tax administration can also give the taxpayer written guidance (AVL § 189). 

An advance ruling application regarding import value added tax can be processed either by Customs or the Tax Administration. The decisive factor is whether the applicant for a preliminary ruling is in the VAT register when the application starts. An advance ruling regarding the tax on the importation of goods is issued by the Tax Administration, if the applicant is registered in the VAT register at the time the advance ruling application is initiated. However, a preliminary ruling is issued by Customs if the applicant is a natural person registered in the VAT register and the import referred to in the application is not related to his business. Regarding the issuance of a preliminary ruling and its validity, the provisions on the preliminary ruling issued by the Tax Administration apply to the applicable parts. (AVL § 190 subsection 5)

If the applicant has been registered in the VAT register at the time the preliminary ruling application is initiated, it is irrelevant that the applicant is removed from the VAT register during the validity period of the preliminary ruling or already before the preliminary ruling is issued. Correspondingly, it is also irrelevant that the applicant for a preliminary ruling issued by the Customs is registered in the VAT register during the validity period of the preliminary ruling or already before the ruling is issued. A preliminary ruling is binding even in these situations, provided that the facts affecting the legal issue have not changed. Removal from the register or registration in itself does not in practice affect the binding nature of the preliminary ruling, because the substantive provisions regarding import taxation are the same regardless of whether

More information on advance ruling applications can be found in the Tax Administration’s instructions ” Making an advance ruling and exception permit application and the decision to be issued thereon “.

leading tax expert Mika Jokinen

tax expert Jussi Levänen 

Source: vero.fi