VAT (Value Added Tax) Rate Change in Finland: What to Expect from ERP Changes
The general VAT rate in Finland will increase to 25.5 percent on September 1st. Most likely, this change will be treated similarly to numerous other indirect tax rate changes by large, globally operating corporations, as they may face several such changes throughout the year. The indirect tax-related system settings for larger international corporations are designed to facilitate rate changes, which are typically the simplest changes. In our experience, companies with a more established geographical footprint have already updated their systems and have gained substantial experience with the change process, making the VAT increase much easier to handle.
The VAT rate change is currently a pressing matter in Finland, and many ERP system providers are ensuring their systems can handle the change. When should one be concerned, and what should be flagged if the last required change was in 2013, when the general VAT rate last changed in Finland?
Indirect Tax Determination in ERP Systems
The exact logic of how tax rates are determined differs across systems, and it can be enhanced and fine-tuned almost without limits, depending on your ERP system. However, you should reserve more time and prepare for potential issues if the tax codes in your system are linked to master data: i.e., customers, vendors, products, or GL accounts. Such circumstances typically require mass changes to the system’s master data and therefore demand your full attention and a well-structured change process. Additionally, if it is not possible to limit the use of tax codes with validity dates, you should plan and time the changes with special attention to detail.
Indirect Tax Transition Rules in ERP Systems
How does the system consider the transition rules related to indirect taxes: when should the new rates be used, and when should the old rates still be in effect? How are the transition rules modeled in the system? For example, how is the handover of goods or services handled, and how are advance payments considered? In many systems, these can be included in the VAT determination logic, allowing correct rates and tax codes to be applied accordingly. However, if these rules have not been implemented, you should closely monitor the creation and acceptance of invoices.
Customizations in ERP Systems
In our experience, customizations are quite common across different fields of business, and this is especially prevalent in companies with both VAT-relevant and non-VAT-relevant sales. Remember to include all tax codes directly used in the change, whether embedded in the system code (yes, these cases exist) or in separate custom tables. As with all customizations, it is imperative that they do not break the system’s basic functionalities and are well documented to support an easy transition the next time there are VAT-related changes.
Interested in learning more? If you want to discuss the topic in more detail, leave me a message, and I will be in touch.
