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Cooperation between The Finnish Tax Administration and JA Finland

JA Finland got clarified instructions from the Finnish Tax Administration regarding JA companies. Read the instructions provided by the Tax Administration concerning taxation and activity of a JA company here (only in Finnish)

 

Personal taxation

A JA company itself is not subjected to paying taxes, but when the company is closed down, the profits made are divided and distributed as revenues among the participants of the company. If the participants choose to give out company revenues during the active period of the company, they can do that, too. The shared revenue is liable to personal taxation of the participants of the company, and every participant must report it in their personal tax return, in the section of other earned income.

A JA company cannot disburse revenue/benefit/reward/earnings or any kind of monetary payment without taxation. Same applies for genuine companies as well.

If a JA company is closed down for example in the month of April in 2020, the taxable income is to be reported in the 2020 Tax Proposal, which will be mailed to the recipients at the beginning of the year 2021.

Taxation of companies

Genuine companies pay taxes off the profits of their activities. The amount of the taxes is calculated by subtarcting the company expenses off the company revenues using, for example, the following calculation:

Revenues:
Product sales: 1000 € (bird feeders, for example)
Total revenues: 1000 €

Expenses:
Materials: 500 € (boards, glue, and nails)
Sales expenses 300 € (sales location rent, making an ad sign)
Total expenses: 800€

Profit: 200 €
Income tax: 40 € 
(in 2017, limited companies’ tax off profits was 20%)

If needed, read additional information about company taxation on the Finnish Tax Administration website here.

The effect of revenue on support available

The revenue of the JA company is added into the participants’ annual income. If you have received revenues from your own JA company, you will have to take note of the sum as a part of your annual income. The revenue of the JA company may have an effect on the amount of various forms of monetary support and benefits available.

Check the guidelines and the annual income ceiling for student allowance on the website of The Social Insurance Institution of Finland (KELA).

Value Added Tax in a JA company

The turnover limit of a JA company is 10,000 euros. If the turnover of a JA company does not exceed 10,000 euros within a year, the company does not need to pay Value Added Tax (VAT).

If the JA company turnover is exceeding 10,000 euros, a genuine company has to be established and registered for VAT liability to account for the periodic VAT taxation.

Deducting the VAT

JA companies are not allowed to deduct VAT the way genuine companies are, so, for example, VAT for bought materials cannot be deducted.

VAT in a JA company invoice

When a client (merely a company) buys a product from a JA company, VAT is not included in the sales price.

Thus a company buying products or services from a JA company is not allowed to deduct VAT off the invoice, because the JA company has never charged them VAT in the first place. Private persons are not allowed to deduct VAT anyway, so this is doesn’t make a difference to them.

VAT of a genuine company

A genuine company is allowed to deduct the VAT it has paid off the tax it has collected off its own customers. After this, the company must report the difference to the Tax Administration.

An example of deducting and reporting the VAT.

  1. Matt’s Bike Shop buys a bike from an import company for 100€ + 24% VAT = 124€.
  2. Matt’s Bike Shop sells the bike to their customer for 186€ (the price includes 150€ sales price and a VAT of 36€).

Calculating the VAT and the tax due

Deductable VAT = 24€ (this is what Matt’s Bike Shop paid the import company)
VAT due = 36€ (this is what Matt’s Bike Shop collected from the customer)
→ Matt’s Bike Shop reports (pays) the Tax Administration 36 – 24 = 12€ 
Matt’s Bike Shop has already paid the import company 24€, therefore they still need to pay the VAT on the difference between the purchase price and the sales price.  This sum can be considered as value added to the product by Matt’s Bike Shop.

More information about VAT on the website of the Finnish Tax Administration here.

Advance Tax Deduction and Withholding Tax

  • A JA company is allowed to sell products without having a business ID.
  • A service sold by a JA company, however, is compared to compensation for work, and therefore the following actions must be taken in order to avoid the client needing to make an advance tax deduction (i.e. pay wages) off the income:
    • selling to a company by billing on an invoice, a business ID is needed. The owner of the business ID must be registered in the Finnish Tax Administration prepayment register. ATTN! Using a business ID is always subject to license, check the permission with your instructor.
    • without a business ID, services can be sold to a household for 1,500 euros annually. This, however, does not apply to a service directly linked to the customer’s livelihood or other means of income generation (for instance, relief services sold to farmers).

More information about business ID and its use in the JA company toolbox.

Advance tax deduction and reimbursement of costs

  • A JA company cannot pay its participants mileage or daily allowance, or any comparable compensations.
  • Expenses caused by being active in a JA company can be deducted off the profits made.

For example, We buy fabric for 50 euros.
We sell T-shirts for 200 euros.
The shared profit is 150 euros.

Tax credit for household expenses

Work done by a JA company is not tax-deductable. Because a JA company is a practise company not officially reported in the Trade and Prepayment Register, it is not possible to deduct tax credit for household expenses off work done by a JA company.

According to the Finnish Tax Administration, a part of the paid salary and all of the salary-related costs can be deducted if the work is done by a hired worker. If the work is done by a company reported in the  Prepayment register or by a nonprofit organization, a part of the cost of the work i.e. compensation for work recorded in the invoice can be deducted. Compensation for work stands for the reward that cannot be considered a salary that is paid under the Advance Payment Law to an entrepreneur, a company, or a nonprofit organization for working.

As for a JA company, paying a salary is not the case as the client pays the invoice to the JA company, not a direct salary to the members of the company. If they were hired workers, the household would have had to make a separate contract with each worker individually and would pay them salary using their personal tax deduction card.

According to the Finnish Tax Administration, the activity of a JA company is comparable to the participants’ individual income-generating activities, which can be done without setting up a company. Income made this way is to be taxed like any income made by an individual, which means as a salary subjected to the income tax law regulations.  The members of a JA company report the income they’ve made on their personal tax return (in ’earned income’) after the company activity has ended.

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