VAT at 22% is due on the import, supply and acquisition of a car in Finland. Only diplomats and employees of international organisations may import or purchase a car in Finland without VAT.
Companies that purchase passenger cars solely for business purposes, such as leasing companies and car retailers, may deduct the input VAT paid on the purchase price or within the import of the car.
In the case of a financial lease the leasing company will account for output VAT when the car is delivered to the lessee.
This is because in Finnish taxation a leasing agreement is regarded as a supply of goods, if the title to the leasing object transfers to the lessee after the lessee has paid all or part of the leasing fees.
If the title will not pass to the lessee according to the leasing agreement, the leasing is regarded as an operational lease or 'pure lease'.
The lessor will then account for VAT on the lease rentals when the rentals are invoiced, or the payments are received.
Some businesses may deduct the input VAT partially on the purchase of passenger cars and on the costs related to the use of the car. For example driving schools and taxis may deduct the percentage of the input VAT that is the percentage of the business mileage of all mileage driven.
A taxi owner may use the car 10% for private purposes and can thus deduct 90% of the input VAT on the purchase price of fuel, car repair and on other costs.
In general, Finnish companies and private businessmen cannot deduct the input VAT on passenger cars.
If the car is used for private purposes, the input VAT on the purchase price, and on any costs related to the use of the passenger car is not deductible at all.
This applies also to the VAT on leasing fees paid to the leasing company. However, if the company can prove that the car has been used 100% for business driving and the business is entitled to VAT deductions, the company may deduct VAT.
This may require that the employees of the company keep a logbook showing the purposes of the use of the car.
Driver's personal tax
If an employee has a company car, which he can use for his private purposes, he will be taxed on the car benefit. There are two types of car benefits:
The taxable value of the benefit depends on the purchase price of the car or, in case of cars registered before 1992, the taxable value is based on the technical details of the car.
The value depends also on the system the employee chooses. The taxable value can be a fixed monthly sum or the benefit can be based on the amount of private mileage. If an employee chooses a fixed free car benefit and drives a new Volvo V70 (purchase price 242,000) he will be taxed on a benefit of 2800 every month.
This amount will be added to his salary.
The Finnish income taxation is progressive and, for example, a director whose withholding tax rate is 45%, pays tax on the car benefit of 2360 a month.
The tax table on car benefits is based on an estimate that the employee drives the car for approximately 18,000km for his private use in a year. If the private use is less than 18,000km the employee may require that the car benefit is lowered and instead calculated on the basis of his recorded private mileage.
His logbook has to include detailed information on the use of the car and it is attached to the employee's tax return.
On the other hand, if the tax authorities can prove that the employee drives more than 18,000 private kilometres per year they can add tax to cover the extra private mileage above 18,000km.
The Finnish National Board of taxes once a year announces the maximum amount of tax-free reimbursement for an employee who uses his own car for business purposes.
Where an employer also provides a garage near or attached to the employee's house, the employee also has to pay taxes on a garage benefit.
Taxation of passenger cars
According to the Finnish Car Tax Act, car tax shall be levied on passenger cars before they are registered or taken into use in Finland. Special provisions are applied to temporary use of cars in Finland.
Usually the person liable to pay car tax on an imported car in Finland is the importer of the car or the person who has taken the car into use.
The taxable value of a new passenger car imported to Finland from a country outside the European Community is the acquisition price for the taxable person. The acquisition price is deemed to be the Customs value determined according to the Community Customs Code (2913/92) and to the Implementation Code (2454/93) of the Customs Code.
The taxable value shall include all direct and indirect costs caused to the taxable person before taxation when the cars are delivered to Finland. Consequently, for example, freight costs are included in the taxable value. In case of cars imported to Finland as intra-Community goods, the taxable value of the cars is calculated using a corresponding method.
If the vehicle has a rear window defrosting system and headlamp cleaners, 267 is deducted from the taxable value.
Furthermore, 2757 is deducted from the taxable value of a low-emitting passenger car with a spark-ignition engine.
Car tax payable on a car registered and used abroad for more than six months is based on a tax-free price of a comparable new car in Finland. If a private individual imports a used car registered for example in the UK more than six months ago, the car tax payable on the imported car is calculated on the basis of the tax-free price of a comparable new car in Finland.
However, certain age reductions are taken into account when calculating the taxable value.
Consequently, the car tax payable is not based on the purchase price of the imported car. Because the car taxation of used cars is based on tax-free prices of new cars in Finland and the age reductions are quite low, in practice car taxation of used cars is very high in Finland.
In the case of a passenger car imported to Finland the rate of car tax is the taxable value of the car minus 2774. Consequently, the rate of the Finnish car tax payable on import of a new car is approximately 100%.
Car tax is also subject to VAT in Finland. The rate of the VAT is 22%. Consequently, if the car tax payable is for example 225,200 the amount of VAT payable on the basis of the car tax is 25,500.
In 1999 the Administrative Court of Helsinki made a decision regarding car taxation of a used passenger car imported to Finland by a private individual.
The Court considered that it was not clear whether the taxation of the car was made in accordance with Article 95 of the EEC treaty even though the car taxation was made in accordance with the Finnish Car Tax Act. According to the decision the District Customs Office was supposed to investigate whether the car tax imposed on the imported used car was higher than the tax included in the prices of the same kind of used cars in domestic markets. Furthermore, according to the decision the VAT collected on the basis of the car tax payable is not actually that kind of VAT mentioned in the Sixth Council Directive (77/388/EC). The directive is the basis of the Finnish VAT system.
The case is now before the Supreme Administrative Court of Finland and the Court has asked the opinion of the European Court of Justice. It has not yet given its decision.
Provided that the European Court of Justice considers the mentioned provisions of the Finnish Car Tax Act not to be in accordance with the EEC treaty it has been evaluated that not only the taxation of used cars but also the taxation of new cars will have to be changed in Finland. Otherwise, the amount of imported used cars will increase significantly and this has not been seen as a very desirable alternative.
Vehicle tax is payable on passenger cars registered in Finland. If the car has been taken into use on December 31, 1993 at the latest the tax is 284. If the car has been taken into use on January 1, 1994 or later the tax is 2117. Tax is payable once a year.
Finland does not levy registration tax or circulation tax on cars. However, the purchaser of new car tyres has to pay a recycling fee to the supplier (21.6 per passenger car tyre).