Tax in NY Start Up -company are personal
NY Start Up -company does not pay taxes in itself. Instead, the profits of the company are divided among the stakeholders when the company is closed down. If the members so decide, a Student company can also distribute it’s profits while operational.
The distributed profits are considered taxable earned income, which must be reported in the personal tax return in the “other earned income” field.
A Student company can not pay tax-free profits/benefits/bonuses/wages or any other compensations. The same rule applies to real companies.
If a Student company is closed in April 2017, the taxable income must be reported in the 2017 tax return, which is filed electronically to tax authorities (vero.fi) in the beginning of 2018.
Taxation of actual companies
Actual companies (Limited company) pay taxes for their profits. The amount of these taxes is calculated by subtracting the company’s expenses from it’s profits, for example according to the following calculation:
Product sales: 1000 € (e.g. bird feeders)
Total income: 1000 €
Materials: 500 € (board, glue and nails)
Sales expenses 300 € (rent for the place of sales, an advertisement plaque)
Total expenses: 800€
Taxable profits: 200 €
Income tax: 40 € (20% of the profit for incorporated companies)
Value Added Tax (VAT) / Arvonlisävero
If a company’s annual net revenue is under 10000€, it does not need to pay VAT. This is the situation for most NY Start Up -companies. Student companies. If it seems that a net revenue is rising over 10000€, an actual company must be founded and it must be registered as VAT obliged.
Deducting the VAT
Student companies are NOT allowed to do VAT deductions like actual companies. This means that e.g. the VAT of purchased materials can not deducted.
VAT in NY Start Up company’s billing
When a customer (concerns mostly companies) purchases a product, the sales price does not contain VAT. The company purchasing Student company’s products is not allowed to deduct VAT from the bill (since you have never calculated it). Private persons are not allowed to deduct VAT anyway, so this matter does not concern them.
VAT with actual companies
An actual company may deduct paid VAT from the tax that it has collected from its own customers. After the company must report and pay the difference to the tax officials.
An example of deducting and paying VAT
- Mr. Doe’s bike shop purchases a bicycle from the importer 100 € + 24% VAT = 124 €.
- Mr. Doe sells the bike to a customer for 186 € (price includes VAT).
Deductible VAT = 24 € (Mr. Doe paid this to the importer)
Due VAT 36 € (Mr. Doe collected this from the customer)
→ Mr. Doe pays to the tax officials 36 – 24 = 12 €.
Mr. Doe has already paid 24€ to the importer, so he still needs to pay VAT for the separation of the purchase and sales price (value that he has added to the product).