Only diplomats and employees of international organisations may import or purchase a car in Finland without VAT.
Companies that purchase passenger cars solely for their 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 transfer 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 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 for his private purposes 10 % and can thus deduct 90 % of the input VAT on the purchase price fuel, car repair and other costs.
In general, Finnish companies andprivate 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.
This also applies 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 the VAT.
This may require that the employees of the company keep a logbook showing the purposes of the use of the car.
Finland forced to amend car taxation
A decision made by the ECJ (case C-101/00) forced Finland to change its car taxation.
The court found that the Finnish tax legislation discriminated against used cars imported from other EU member states. As a consequence, Finland had to amend its tax system, where tax on passenger cars was 100 % of the acquisition value of the car minus €770.
For used cars imported into Finland the tax was based on the value of a similar new vehicle, however, a certain reduction was made for each month the car had been used abroad. The system did not follow the actual depreciation of the vehicle.
As this led to a situation where car tax levied on an imported used car was higher than the tax included in the value of a similar used car on the domestic market, ECJ regarded the Finnish taxation discriminatory.
The amended Car Tax Act entered into force 15 May 2003, however, the new rules are applied retroactively to cars and motorcycles imported into Finland after December 31, 2002. If the taxpayer so chooses new rules can be also applied to cars imported in Finland as used cars and taxed in Finland after January 1, 1999.
Tax changes boost car sales in Finland
The recent changes in the car tax system boosted car sales in Finland this year increasing the state tax income almost by 25 % compared to the first quarter of 2002. According to a rough estimate given by the car dealers more than 130 000 new cars will be sold this year in Finland.
According to the new Finnish Car Tax Act car tax shall be levied on passenger cars before they are registered or used in Finland. Special provisions are applied to the temporary use of cars in Finland. The person liable to pay car tax on an imported car in Finland is the importer of the car. However, it is possible to agree that the tax liability is shifted to another person. If it is unclear who is liable to pay the tax, the tax can be charged to the owner of the car.
The taxable value of a new passenger car imported into Finland from another EU member state or from outside the EU is the actual retail price of a similar car in Finland at the time of the importation.
Retail price is the price which would be paid on a similar car in the market. Customs will publish the retail prices for each car type and make a table, where the retail prices are based on information collected from car importers and car dealers. Car importers and other persons liable to pay car tax have to inform customs of the planned retail price of the car.
The retail price includes all taxes (car tax and VAT) but excludes financial charges and delivery costs up to €600. It is assumed that each vehicle is equipped to meet the Finnish requirements for use on public roads and other standard equipment for the given model.
It is to be seen how this system will work in practice and what will be the final tax on passenger cars in Finland. Car tax on new passenger cars is 28 % on the taxable value of the car less €650 (€450 if it has a diesel engine).
Car tax on used vehicles must be based on the estimated retail price of a similar used car in Finland at the time of import. Car tax on vans will be based on a different method.
Finland does not levy any other registration tax or circulation tax on cars.
Vehicle tax is payable on passenger cars registered in Finland and used on public roads. If the car has been taken into use on December 31, 1993 at the latest, the tax is €84. If it has been taken into use on January 1, 1994 or later the tax is €117. Tax is payable once a year.
Recycling fee on tyres
The purchaser of new car tyres has to pay a recycling fee to the supplier (approximately €1,85 per passenger car tyre). Finland has one of the highest recycling rates for car tyres as 90% of passenger car tyres are recycled.
Company car drivers pay for private use
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, for 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 he drives a new Volvo S80 (purchase price including all the equipment €46.000) he will be taxed on a free benefit of €884 each month. This amount will be added to his cash salary.
Finnish income taxation is progressive and, for example, a director whose withholding tax rate is 45 %, pays tax on the car benefit of €398 a month.
The tax table on car benefits is based on an estimate that the employee drives the car for approximately 18,000kms 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 enclosed with the employee's tax return. On the other hand, if the tax authorities can prove that the employee drives more than 18.000 private kms per year they can add tax to cover the extra private mileage above 18.000kms.
The Finnish National Board of taxes announces once a year the level of the tax-free reimbursement. If an employee uses his own car for business purposes, he may also receive a tax-free reimbursement.
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.
FINLAND FACT FILE 2003
Corporation tax rate: 29 %
Standard VAT rate: 22 %
Next budget: January 1, 2004
Dates of tax year: Generally the calendar year, but companies may choose other periods of 12 months.