VAT Treatment of Social Welfare and Healthcare Services
In Finland, the supply of social welfare and healthcare services is exempt from value-added tax under certain conditions. However, if these conditions are not properly met, VAT on such services may lead to significant costs. Determining the applicability of the exemption in advance is particularly important in chain supply arrangements to ensure correct VAT treatment from the outset. Subcontracting or staff leasing may qualify for exemption only where the nature of the service, the registration status of the provider, and other statutory requirements are fulfilled. For this reason, the VAT implications of the planned supply structure should be carefully reviewed before commencing operations.
Social Welfare Services and VAT
Social welfare services are exempt from VAT when specific statutory conditions are fulfilled. For VAT purposes, tax-exempt social welfare services refer to activities organized by the state, a wellbeing services county, or a municipality, as well as private services subject to supervision by a social welfare authority. Such services aim to provide care and assistance to children, the young, the elderly, and people with disabilities, substance abuse care, and other comparable services and support measures. The definition also includes interpretation services arranged or subsidized by law or through state funding for individuals with hearing, visual, or speech impairments, or similar disabilities. Private service providers must ensure that these exemption conditions are satisfied; otherwise, the supply of services will be deemed taxable.
VAT Considerations of Subcontracted Social Welfare Services
A key condition for VAT exemption in social welfare services is regulatory supervision established through a licensing procedure. This in turn requires the service provider to be registered in the Soteri Service Provider Register with respect to the services in question. The VAT treatment is determined by the nature of the service supplied and the registration status of the provider, rather than by the qualifications or status of the individual performing the actual service.
Subcontracted social welfare services may qualify for VAT exemption if both the subcontractor and the purchasing entity are registered as service providers for the relevant services in the Soteri Register, and if the subcontractor is responsible for the performance of the services in compliance with statutory requirements. The subcontractor’s responsibility for the performance of the services distinguishes such arrangements from staff leasing to another service provider. It is therefore essential for both providers and recipients of social welfare services to ensure that the arrangement qualifies as VAT-exempt subcontracting; otherwise, the VAT may result in a non-recoverable expense for the parties involved.
Staff Leasing in Social Welfare Services – VAT Exemption Should Not Be Assumed in Chain Transactions
Staff leasing in social welfare services is always subject to VAT. In such arrangements, the recipient of the leased personnel is deemed to be the service provider. As the lessor of staff cannot be subject to public supervision in respect of providing such services, the supply does not meet the statutory requirements for VAT exemption. The professional qualifications of the leased personnel alone are not sufficient grounds for exemption.
Therefore, in chain supply arrangements involving social welfare services, each stage of the supply chain must be assessed separately for VAT purposes. The final supply being VAT-exempt does not mean that the preceding supplies in the chain are automatically exempt. Service providers must ensure that agreements with subcontractors and their registrations are appropriately in place before entering into cooperation. This helps ensure that the arrangement qualifies as subcontracting of social welfare services and not merely as staff leasing, thereby avoiding potentially significant and unnecessary VAT liabilities.
Healthcare Services and VAT
Healthcare services are exempt from VAT under certain conditions. For VAT purposes, tax-exempt healthcare services refer to activities aimed at determining, restoring, or maintaining a person’s health, functional capacity, or ability to work. These must be provided in a public healthcare unit, by a registered private provider under the law, or by a healthcare professional acting under statutory authorization. The exemption also covers the supply of services and goods customarily linked to healthcare, as well as certain ancillary goods and services listed in legislation. However, services that do not meet the substantive criteria are not VAT-exempt, even if provided by a healthcare professional. For example, massage services of a purely recreational nature are not considered VAT-exempt healthcare services.
While VAT exemption for social welfare services always requires the service provider to be registered in the Soteri Register, in healthcare services the exemption may be based either on the provider’s registration status or on the professional status of the individual supplying the actual service. Accordingly, the conditions for exemption differ between social welfare and healthcare services. An individual’s professional qualification alone is insufficient for exemption in social welfare services but may be sufficient in healthcare services.
VAT Considerations in Subcontracting and Staff Leasing in Healthcare Services
Subcontracted healthcare services may be VAT-exempt even if the supplier does not hold a healthcare operating license, provided the service itself meets the exemption criteria. However, the actual supplier of the service must be a healthcare professional as defined by law.
In some cases, staff leasing in supplying healthcare services may also be exempt. Generally, this requires that the supplying entity provides only its own employees or shareholders as staff to the service provider. If the staff is sourced from a third party, the leasing may still be exempt provided that both the initial supplier and the unit in which the services are ultimately performed are registered in the Soteri Register.
Expert Support for VAT Issues in the Social and Healthcare Sector
If you have questions concerning the VAT treatment of social welfare and healthcare services, we recommend seeking expert advice as early as possible. At Tuokko, we have extensive experience in value-added taxation within the social and healthcare sector. We are happy to assist you in assessing your contractual relationships and the nature of the services provided, and to help ensure that your activities do not result in unnecessary VAT risks or financial losses.
Social welfare and healthcare is among the sectors where correct VAT treatment is particularly important, and it is one we highlighted in our article on VAT considerations in auditing. In the article, we explain why taking VAT into account during the statutory audit process is critical, especially in sectors such as social welfare and healthcare, and how cooperation between auditing and VAT experts can help identify and correct errors that might otherwise go unnoticed. Read the article here.
