VAT – What is it exactly?
In December, Dance House Helsinki and Pragma Helsinki arranged a free-of-charge course on VAT for professionals in the performing arts. Since April 2019, it has been possible for performing artists to seek VAT registration voluntarily. The course, led by tax expert Marja Hokkanen of PwC, explained what the change means in practice and in which cases it is wise to seek registration.
Let's start with the basics. Who is actually liable for value added tax?
“Basically, the same rules apply to all operators in value added taxation, regardless of their legal format. Whenever turnover for the accounting period exceeds the limit of EUR 10,000 per calendar year, the operator is liable to pay value added tax," explains Marja Hokkanen.
Operators liable for value added tax may be private persons, cooperatives, associations or limited liability companies. The key issue is that the operations fulfil the characteristics of economic activity, which are, as Hokkanen put it: “ activity is run for the purpose of earning income, continuously, the activity is directed outwards, target a broad customer base and involve a business risk."
It is important to make a distinction between income tax and value added tax: If the work is done in an employment relationship and salary is paid for it, the salary is not subject to value added tax. Both salary and copyright remunerations are subject to income tax, but exempt from value added tax, while value added tax must be paid for supplies of goods and services as part of the economic activity of the operator, if the annual threshold of EUR 10,000 is exceeded.
If the turnover of an operator liable for value added tax falls below EUR 30,000 per accounting year, the operator is entitled to so-called VAT relief, on the basis of which the taxpayer can apply for VAT relief from the Tax Authorities at the end of the accounting year, and a part of the tax paid will be refunded. By applying for the VAT relief, the liability to pay tax in full does not begin until turnover exceeds EUR 30,000, reminds Hokkanen.
As a rule, performing artists' fees are exempt from VAT
Performing artists' fees and income of non-profit organisations that is not regarded as a business income is, as a rule, exempt from VAT.
However, since April 2019, it has been possible for performing artists to seek VAT registration separately for performing artists' fees. In addition to the fees paid to the performer for the performance, this registration applies to the compensations for sale of performances, intended to be handed over to the event organisers. Non-profit organisations may also seek VAT registration voluntarily, even if their income are not considered to be business income, provided that the operations meet the criteria for economic activity listed above.
According to Hokkanen, performing artists themselves expressed the wish for voluntary registration.
“When performers seek VAT registration, they have the right to deduct costs relating to their performances. In the case of performing artists, these may include costumes, travel and hotel expenses and sales and marketing expenses," says Hokkanen.
When is it worth seeking VAT registration voluntarily?
Hokkanen advises examining the performance fees for a couple of previous years, in addition to future activities. How high are the performing fees and, on the other hand, in euro wise, how big are the purchases relating to the business?
“It is also advisable to estimate whether your customers are able to deduct the VAT, added to the sales price, in their activities. If not, this may result in fewer performances or performers having to compromise on fees due to them," Hokkanen explains.
In addition, she says that if you seek voluntary VAT registration for performance fees, the liability applies to all business by the operator, regardless of the volume of sales.
Value added taxation requires case-by-case assessment
Value added tax rates may vary from 0% to 24%, and they are based on the content of the service sold, and to whom it is sold.
The service performed is always assessed on a case-by-case basis. The tax due for the fees of a performing artist, and entrance fees of cultural and entertainment events, is 10%. The VAT for consulting, planning and design work or, for example, planning work by choreographers, is 24%. For dance lessons, the VAT rate for group lessons, in which the participants' aim is to engage in physical exercise, is 10%. However, if instruction plays a key role during the lesson, the VAT rate is 24%. The VAT rate must be determined on a case-by-case basis.
In many cases, international business and value added tax paid for it also require case-by-case consideration, and sometimes even the support of a tax expert. When services are sold to a foreign buyer, it is crucial to define the so-called place of supply for the service, that is, the country in which the service is taxed. If, for example, a dance performance is organised in another EU Member State, the VAT for the tickets sold to the performance in question must be paid in the country where the performance is held. With regard to the regulations on country of sale, teaching situations are challenging, and they must be resolved on a case-by-case basis, depending on what kind of teaching session is involved, and to whom the teaching is sold. These situations usually require the use of the services of a VAT consultant.