The VAT rate for several products and services will increase from 10% to 14% at the turn of the year. The updated 14% VAT applies to, for example, medicines, books, travel tickets and passenger transport as well as sports, exercise, and cultural services. Newspapers and magazines will remain under the reduced 10% VAT rate. The VAT on hygiene products, such as menstrual and incontinence pads and children’s nappies, will decrease from 25.5% to 14%.
The increase in the VAT rate will especially impact sales invoicing and there are a few things to consider when choosing the right VAT rate. The regulations are different when selling goods or services already produced and when invoicing in advance.
General principle in VAT
At the time of the VAT rate change, the general principle of VAT is applied. The supply of goods and services is subject to the accrual principle, i.e. the moment when the goods or services are supplied to the purchaser. Services and goods supplied before 1 January 2025 will be invoiced with 10% VAT, while services and goods supplied after 1 January 2025 will be invoiced with 14% VAT.
Examples:
- Company sells the goods on 12 December 2024 and sends the invoice on 1 January, 2025. The company applies a VAT rate of 10% to the sale, because the goods were delivered to the buyer before 1 January 2025.
- Company has provided a service to its customer in December and will invoice this on 2 January, 2025. The company applies a VAT rate of 10% to the sales, because the service was provided before the VAT rate increase on 1 January, 2025.
- Company has received the order for goods on 27 December, 2024, and delivers the goods on 10 January, 2025. The company must apply the new VAT rate of 14%, because the goods have been delivered after the VAT change on 1 January, 2025.
Advance payments and invoicing
In the case of advance payments, the cash principle is applied in VAT. This means that the applicable VAT rate is determined by the actual time of payment and not by the accrual principle.
Examples:
- In November, the company invoices in advance for goods that are due to be delivered in January. The due date of the advance invoice is 15 December, 2024, and the customer pays the invoice on the due date. The VAT rate applicable to the advance payment is 10% because the payment was received before 1 January, 2025. If the customer should pay the invoice only on 1 January, 2025, the applicable VAT rate would be 14%. The company should issue a credit note for the invoice issued in November and issue a new sales invoice with the new increased VAT rate.
- A person buys a ticket in November 2024 for a show that will take place in January 2025. Since the payment is made before the event, it is considered an advance payment, and a 10% VAT rate applies. However, if the person pays for the ticket in 2025 but before the show, a 14% VAT rate would apply.
- A customer has a gym membership, with the option to pay membership fees monthly or for several months at once. Starting from January 2025, membership fees will be subject to a 14% VAT rate. If the customer pays the membership fees in December 2024 for the period from January to April 2025, it is considered an advance payment, and a 10% VAT rate applies.
Discounts, credit notes, and credit losses
The company may receive or give annual, seasonal or other discounts. The VAT rate applicable to discounts and credit notes issued is the VAT rate in force when the goods or services were supplied.
Any potential credit losses will have VAT deducted according to the tax rate applied to the original sale.
