Copyright and value added tax
In accordance with Section 45 of the Value Added Tax Act, certain royalties are exempt from VAT. Royalties from the use of the works are charged VAT free in accordance with the detailed provisions in Section 45. In accordance with Section 131 of the Value Added Tax Act, acquisitions made for this activity are not VAT deductible.
When a royalty is the result of a tax exempt sale, according to the Value Added Tax Act, the royalty must also not be charged inclusive of VAT. Works whose royalties are charged exclusive of VAT are e.g. furniture and architectural works that meet the threshold of originality. If a piece of furniture or a building is also design protected, the royalty is charged for the design protected part using a VAT of 24%.
The tax authorities or the designer may ask the Copyright Council, which is under the Ministry of Education and Culture, for their opinion on whether the result of the design work is sufficiently independent and original enough to meet the threshold of originality. If the designer deemed the compensation from the work as a royalty, which he or she has charged exclusive of VAT and the tax authorities later decide, for example based on the Copyright Council's advice, that the activity is the VAT inclusive sale of design services (as the work doesn't meet the threshold of originality), the designer will have to pay the VAT retrospectively even though they didn't charge for it. For example, the Copyright Council's case 2007:18, concerned the threshold of originality for illustrations and logos, and whether the compensation received for them was VAT inclusive or not.
Industrial property rights and value added tax
Compensation from the use of industrial property rights are always VAT inclusive and the rate is 24%. Compensation e.g. for the use or sale of a model right or trade mark right is VAT inclusive sale.
Compensation for use is income that the author of the work or design receives, and which is paid for the financial exploitation of the work.
Compensation for use, which is based on the beneficiary's own activity, is earned income. Also, compensation paid for intellectual property received as a gift, is earned income. However, if the copyright has been transferred by inheritance, will or acquired for payment, the compensation received is capital income.
For example, in the case of a book illustrator, a publisher is usually the other agreeing party, who remunerates the author of the book for his work. An industrial designer, on the other hand, may make a licensing agreement with a company, that remunerates him a royalty based on terms of the licensing agreement.
Although the payment is not considered a salary according to the Prepayment Act, the payer is nevertheless obliged to withhold tax for payments that are considered compensation for use in § 25 of the Prepayment Act, if the recipient was not registered in the prepayment register.
Compensation for use is a compensation paid for the use of a copyright, a right based on a photograph or a industrial property right, such as the use of a patent or trade mark; a compensation paid for the right of use, or the sale of a right of use; or a compensation paid for information regarding industrial, commercial and scientific knowledge.
Upon application, the prepayment register enters those, who are engaged in business or self-employed activities, whose compensations are not considered salary. A prerequisite for entry into the register is the practice of professional activities with an intent to earn. However, this activity need not be continuous.
Photograph, photographic work and other works of fine art
Please note that the royalties from the sale of photographs' and photographic works' copyright are always charged inclusive of VAT using the standard rate of 24%.
A photographic work and other fine art work, which is sold directly from the artist at an introductory rate, is charged inclusive of 9% VAT. The resale of fine art and, for example, services to a fine art gallery, is charged inclusive of the standard VAT of 24%.
In the resale of fine art and photography by a professional art dealer, the dealer must pay a resale compensation for fine art. You can find more information on the resale compensation from Kuvasto ry.
The entrepreneur as employer
Making art in a team can lead to a situation, where the characteristics of employment are met and the artist or creative worker finds herself or himself in a situation of having to bear the responsibilities of the employer for the others. Labour legislation protects employees strongly and sets financial and legal obligations for the employer. The creation of an employment relationship should always be discussed, and if it is found that employment is an appropriate way to carry out a project; all relevant agreements should be made in writing.
Employment legislation and the generally binding agreements should be observed. For example, collective labour agreements for the field generally define the payment of wages, so that even a written agreement is rendered null and void, if it doesn't agree to conditions at least as favourable as those guaranteed by the collective agreement. An employee may recover their financial interests in accordance with the generally binding collective agreement even after the employment relationship and will be able to receive help for this from the authorities. A collective labour agreement may also contain provisions regarding copyright. This is the case, for example, in some of TEME's collective agreements. If you are in the position of an employer or employee, please familiarize with your field's collective agreements.
Compensation for work and social security
Compensations for use, such as royalties, do not accrue pension or other earnings-related contributions such as maternity allowance or unemployment benefit. In paying compensation for use, none of the social security contributions related to salaries are paid.
The subject of a photograph can be a human being, building or other private property. When such images are used in marketing, it must be noted that the use of both people and property in marketing is regulated by the code of advertising and marketing communication practice by the International Chamber of Commerce, which can be found on the website of the Central Chamber of Commerce.
In accordance with these rules, consent must be obtained for the commercial use of the likeness of the person in question. This agreement, which is internationally known as the model release, should always be made in writing, so that its existence can be proven. The model release should include a record of those purposes, to which the photograph is to be used. In marketing, one may not, without consent in advance, photograph private property e.g. a building, in a manner that creates the impression of the owner's consent.
In marketing, one may not, without consent, use another company's name or trade mark or another person's or company's protected intellectual or industrial property rights.
Links for entrepreneurs and start-ups
New entrepreneurs and those planning to start a business are offered a variety of services at Universities, through societies as well as at the City of Helsinki. Here are links to various services: