Value-added tax (VAT) is fully deductible only for purchases made directly for VAT-liable activities and for so-called general expenses to the extent that they relate to VAT-liable activities. Generally, the right to deduct is allocated in proportion to turnover, if no other basis can be presented. Likewise, VAT cannot be deducted at all for purchases directly related to VAT-exempt activities.
So, if, for example, consulting accounts for 10% of turnover, only 10% of general expenses (phone, internet, equipment purchases, etc.) are deductible. VAT on travel expenses related to consulting can be fully deducted, but for example, there is no right to deduct travel expenses for a meeting related to investment activities.
Yes, along the same lines. Expenses fully attributable to VAT-liable activities are fully deductible. Expenses fully attributable to VAT-exempt activities are not deductible at all. General expenses that are attributable to both are divided into deductible and non-deductible parts. Generally, for general expenses, the division is made using a fixed percentage, and by default in proportion to turnover, but indeed there can be other allocation bases.
In one of my companies, the tax authority instructed us to make the allocation based on hours worked. This suited the company perfectly, as investment activities accounted for only about 8% of the working hours. Furthermore, these working hours were very easy to demonstrate, as one person handled investment activities part-time. A revenue-based allocation would have been very disadvantageous for the company.
It’s advisable to discuss these matters with the tax authority.
Thanks for the good thread. One question has come to mind, on which I would appreciate comments:
To which asset class (in accounting, for tax purposes) are investments generally allocated, when they seek interest, dividend, and capital gains returns over periods ranging from a few months to several financial years, and when the company’s business activity is securities trading in its many different forms (e.g., day trading)?
I might join the discussion, but it’s interesting to know how this works. Many surely have some side business through a holding company, but how should its VAT (ALV) be viewed?
If my company conducts small-scale VAT-liable business, let’s say consultation.
Since I have estimated this business to be around 15k per year, I have not felt it necessary to join the VAT register. There are many reasons, but mainly because customers cannot deduct it. So the VAT is on me.
In addition to the VAT-liable business, the company engages in occasional securities trading. Because it is not financial assets but inventory, this affects the turnover.
I am wondering if the company’s securities trading affects the VAT exemption for small-scale business or the turnover calculated for it.
As an example:
On 1.1.2025, I invoice an amount of 4,999 € + VAT 0%.
On 1.2.2025, I buy shares for 10,000 € which I sell on 1.3.2025 for 15,000 €. The shares are recorded as inventory.
Is the turnover considered when calculating small-scale VAT-liable activity at this point 4,999 € or 19,999 €?
Thanks for the question! In such a company, securities are practically always classified as either
a) Investments in non-current assets (Pysyvien vastaavien sijoituksiin) and for tax purposes, Other assets (Muu omaisuus)
or
b) Current assets (Vaihto-omaisuus)
The distinction between these can sometimes be challenging. Day trading would clearly be current assets, whereas investments held for a few months to several fiscal years could fall into either category depending on other factors. If a company has various strategies simultaneously, the matter is assessed as a whole. It is also possible for different portfolios to be in different categories, although it would be clearer if all were in the same category.
I agree with Jackkk that the answer is 4,999 €. This has been clarified; section 2.2 of the Tax Administration’s guidance lists sales included in turnover, and in my view, securities trading conducted on one’s own account is not considered sales of financial and insurance services. A written ruling was once sought from the Tax Administration regarding the VAT threshold relief. When securities are sold, it is not a sale of a service.
sales of financial and insurance services (VAT Act sections 41 and 44)
Thanks for the question! In such a company, securities are practically always classified as either
a) Investments in fixed assets and, for tax purposes, Other assets
or
b) Inventories
Yes, if the company’s business (trade or business operations) is securities trading, it would somehow be illogical to classify these transactions as Other Assets for tax purposes. There are significant restrictions there anyway; for example, the right to deduct losses expires in 5 years, and they cannot be used for deductions from other securities trades that are not also classified as Other Assets.
The peculiarity here is that their values often change slowly enough that it can take several financial periods before the values are at levels where they can be disposed of. Conversely, if the values drop too low, they are then sold at a loss. The waiting period then generates, for example, dividend income. So, in this sense, they are always acquired for the purpose of sale, in which case the letter of the law EVL 10 § regarding inventories should be met: “Inventories are goods intended for transfer, either as such or processed, in business operations.”
In that situation, I would classify all of them as inventory. Inventory is generally simpler on the tax return and offers better opportunities to deduct unrealized losses. In other asset classes, unrealized losses should sometimes be recorded in accounting, but they cannot be deducted for tax purposes. In inventory, however, unrealized losses must be deducted item-by-item (at least, this is what our auditor explicitly required).
And portfolio turnover doesn’t need to be particularly fast. Indeed, goods can remain in inventory for years as long as they are current and do not expire.
The main principle, of course, is that they should be placed in the section of the balance sheet that best reflects their true intended use. For example, my own company has a couple of unlisted investments in fixed assets because there is no marketplace for them, and they cannot necessarily be easily divested. Determining their valuation is also somewhat difficult, so they are there at their purchase prices. All listed and other easily liquidatable investments (including crypto) are in inventory.
As a novice investment/holding company owner, I’m pondering the following detailed question for which I’d appreciate some help. Specifically, how should securities trading costs be accounted for in accounting and taxation? I know that trading costs can be included in the acquisition cost of securities, but is this mandatory, or can the costs also be expensed directly for the financial year?
If an investment company, for example, acquires ETFs through Nordnet’s monthly savings plan, a cost of €2.5 is incurred for each purchase. If, for instance, there are 4 securities under the monthly savings agreement, it seems completely unnecessary for that €2.5 cost to be allocated to four securities based on their acquisition costs. In such a case, tracking the true acquisition costs through the balance sheet also becomes more difficult. In my opinion, it would be considerably clearer in general, and especially with such small amounts, to record purchase and sale commissions directly as an expense for the financial year in the income statement, rather than accounting for them through the balance sheet. However, is there any specific provision in accounting or tax regulations that explicitly prohibits acting this way?
The investment assets are recorded in the company’s accounting under investments in fixed assets / other assets, if this is relevant. Thanks in advance for your help!
The correct way would probably be to record the acquisition costs as part of the acquisition cost on the balance sheet. However, if there are no other issues, I would apply the principle of materiality here, given the small amounts, and for simplicity, record those commissions on the income statement as you suggested. Other issues could be, for example, that when you eventually dispose of those ETFs and calculate capital gains/losses, the broker’s capital gains calculation might differ from your accounting by the amount of the expenses. On the other hand, it’s not a problem to adjust a small difference through the income statement even at that stage.
Does anyone have experience with opening and keeping business accounts open in Finland?
This has now become a problem, as the company has had an account with Alisa for 2-3 years. For the first time ever, I withdrew slightly larger sums at once (five-figure sums, so not millions yet) and they started asking about the origin of the funds, etc., the mandatory things banks do. I politely answered the questions. After a while, a notification came that the account would be closed.
I tried to open an account with Holvi. However, they did not agree to it, because their terms specifically prohibit companies that primarily engage in, for example, trading, and also primarily holding companies.
OP already gave us the boot in 2018. They didn’t offer explanations either, but I assume it’s related to money transfers to and from a crypto exchange.
The remaining banks are expensive places for a business account and opening an account is laborious. We have an account with Revolut and it works, but Nordnet refuses to make withdrawals to it, requiring an FI-prefixed account as a counter-account.
We are apparently victims of the so-called de-risking policy, but certainly not the only ones. Based on articles, there are several companies whose accounts have been closed - some quite large and long-established.
Where have you practically managed to get an account at a reasonable price and also kept the account open?
We have also noticed that opening new bank accounts is very challenging for companies dealing with cryptocurrencies, especially in Finland. There have also been individual account closures.
The following is speculative, but here are my own thoughts. Mere account customers are so unprofitable for banks that banks, for the revenue from account fees, do not want to create crypto connections, which apparently require difficult-to-implement regulatory clarification/reporting or similar adjustments on their part. For a bank to want to make an exception to this policy and arrange the matter on its own part, there must be a significantly greater reason for them, such as a comprehensive overall customer relationship with the bank.
One might imagine so. However, when we were ‘fired’ from OP in 2018, we had a 50 kE account limit there, which was probably quite profitable for the bank, plus personal banking services. The account was closed and the limit was due for payment immediately – though I managed to negotiate a 6-month payment period for the latter. The termination letter was very harsh. They did apologize for this and admitted the tone was wrong, but it didn’t change anything in practice. They really wanted to keep the personal banking relationship – even lowered the margin – but I got rid of it as soon as possible. Under the counter (i.e., through direct contacts), I found out the reason was a part of the business related to virtual currencies – I had, among other things, made the mistake of asking for a loan to acquire mining equipment (I didn’t get it, but six months later I was kicked out altogether).
I assumed things would be different now, and it’s not necessarily just about virtual currencies this time. The reasons haven’t even been unofficially disclosed this time.
The size of the customer relationship doesn’t seem to help anyway, neither the size of the company nor even if the business is so-called traditional business. There can apparently be countless employees. Here’s an example:
There also seem to be quite a lot of such cases nowadays anyway:
So, regardless of the nature of our business, we are certainly not alone.
Well, since it’s so difficult and opening a business account is cumbersome anyway these days, one might as well run the company entirely with cryptocurrencies soon. Then there would be no bank account at all.
My wife, however, having worked in an accounting firm, claimed that the law requires a company to have a bank account. If that’s the case, then banks should consistently also be required to open one. The law, however, is not necessarily consistent.
Funnily enough, we still have accounts for a couple of other companies open at the same bank, and these companies have the same beneficiaries. Only the largest and truly significant one for us is being kicked out.
Here is a new article from Investco’s Sampsa Leskinen.
This text is a continuation of our previous article “What happens to an investment company after the owner’s death”, which covered how the process proceeds from the owner’s death to the distribution of inheritance and the subsequent situation. This time, we focus on preparing for death. The underlying idea is that in the event of death, it should be clear to the heirs what is owned, what is done with the assets, and how the assets are distributed. An unclear situation easily leads, for example, to difficult and stressful investigative work, bad advice, exploitation, disputes, additional taxes, and other financial losses.
The text is divided into two main sections: 1) writing instructions for heirs and 2) other preparedness tools, the most important of which is a will.
The article emphasizes problem-solving, the smooth handling of matters, and taxation, but, for example, the human relationships or dynamics between the owner and heirs receive less attention. In a real situation, there are more things to consider, and they should be included in decision-making.
