Accounting
A Short Guide To Calculating VAT From Gross & Net Prices
How VAT works in Finland: What You Need To Know About TAX in Finland
If you run a small business or work in Europe, then you will need to know how to calculate VAT easily and effortlessly.
What Is VAT?
According to the European Mission,
Value added tax is a consumption tax because it is borne ultimately by the final consumer. Charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain. — An excerpt from European Mission.
VAT is a consumer tax. The limit to register for VAT in Finland is 15,000€.
VAT Rates In Finland
As a general rule, the rates of VAT in Finland are as follows:
- 24% as a general rate and applies for most goods and services.
- 14% applies to food and grocery-related items.
- 10% applies to pharmaceutical goods, gym, movies, events, public transport, and accommodation.
Bear in mind that some businesses are exempt from VAT, which includes service-based businesses in the healthcare and medicinal industry as well as general education.
VAT exemption simply means that you cannot add VAT to your sales and you cannot claim any VAT deductions from your purchases.
Net Vs. Gross: What’s The Difference?
When working with goods and services you would need to know the difference between Net price and Gross price.
Net price: price without VAT.
Gross price: price including VAT (net+VAT = total)
In order to add VAT to the net price: multiply the VAT rate.
Use the net price then simply multiply the VAT rate.
You can find a list of VAT tax rates for each product category group (relevant for Finland but you can search different rates for other countries).
- Convert the VAT percentage rate to a decimal. In this example, we will use the VAT rate of 24%.
- For example: 500€ net price x VAT rate 24% (convert to decimal) = 1.24= 620€.
- If the tax rate is 0%, then converted to decimal it would be 1.00
Remember that the Net price is ALWAYS smaller than the gross price.
In Finland VAT is usually paid by the 12th of the second month, and it is paid every two months.
Gross = total price
Net = gross /(divided) by VAT
To calculate the gross price = Net x VAT.
Hope this simple formula will help you better understand simple tax calculations to help you get started in your entrepreneurial journey.
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About The Author
Noor is a second-year business student at Tredu. She is also studying for Diploma in International Smart Industry at TAMK. She is passionate about marketing and content creation. She recently launched her YouTube channel specializing in holistic healing.
