Rounding of VAT from 1 October 2019

An amendment to the VAT Act was approved together with a tax package, and it changed the provision governing the method of calculating and rounding VAT. The amendment as a whole is effective from April 2019, but according to the interim provisions, the existing VAT calculating method can be used until the end of September. The first impression could be that such a change is not really substantial, but omitting the change can influence the correctness of issued tax documents. We recommend to all VAT taxpayers that they check their accounting software and their preparedness for the change so that the method is applied correctly in October.

Change to the top-down calculation of VAT

In cases where the price is determined as VAT inclusive and VAT is calculated using the top-down method, there is a change in the calculation and coefficient used for stipulating the VAT amount and the tax base. In the future, VAT will be determined as the quotient of received payment and the coefficient 1.21 or 1.15 or 1.10 depending on the applied VAT rate. The calculated VAT will be rounded to two decimal places. The tax base will be determined as a difference of the received payment and the VAT calculated by the top-down method.

Change to rounding VAT and the possibility to determine the final amount of a payment

The original wording of the act effective until 30 September allowed the calculated VAT to be rounded to whole crowns when the price was stipulated without VAT and the VAT was calculated and added to the price as a multiple of the tax base and the tax rate, and hence, rounding the final amount of the payment for the given supply to a whole number. The difference created by rounding the VAT and the whole amount to whole crowns did not enter the tax base.

Starting from 1 October, VAT can be rounded to whole crowns only when the price is paid in cash. In other cases, the calculated VAT and subsequently the final amount must be left as decimal numbers with two decimal places, because in such cases, the act does not allow rounding of VAT. If a payer rounds the final amount to the whole number and the payment is done cashless, the difference from the rounding causes a change in the whole payment and the VAT should be re-calculated and the tax base changed. This could cause many problems in real life, and we recommend not rounding the amount in invoices after 1 October except for cases where the invoice is paid in cash.