Tax allowance for household services, Finland


Construction and woodworking
Target Groups: 


Undeclared work may be responsible for a significant proportion of total output in the Finnish economy, particularly in certain economic sectors such as construction, hotels and restaurants, or personal services. Given the high proportion of undeclared work in small household repair activities, Finland decided to introduce a tax refund system to help legalise such work and curtail the level of undeclared work in this area.



According to Nurminen (2008), undeclared work is most pervasive in small household repair activities because no permit is required. As a result, Finland introduced a system whereby households are eligible for a tax refund when they show an official receipt provided by the company completing the renovation work. It can be assumed that the introduction of this refund system has reduced the amount of undeclared renovation work. The system has been in force throughout the country since the start of the 2004 tax year, with some amendments introduced at a later stage. Before the introduction of this system, refunds had been available regionally on a trial basis.

The initiative has been implemented by the Ministry of Finance (Valtiovarainministeriö), industry and business organisations, trade unions and employer organisations in the construction sector, and the country’s tax administration (Verohallinto).


The aim of this initiative has been to reduce the amount of undeclared work in renovation and other household services.

Specific measures

The initiative allows purchasers of household renovation work to claim a tax refund on the money paid for such services. In terms of the amounts eligible for a tax refund, some 60% of the money paid out, including value-added tax (VAT), is refundable if the party performing the work is a company or small entrepreneur registered for the prepayment of income tax. Overall, 30% of the total costs incurred for hiring an employee is eligible for a tax refund, including the employee’s wages and social security costs. The maximum tax refund that each person can receive is €2,300 a year.

The size of the allowance has since been increased and its applicability extended with regard to work performed in the households of family members (see Tax Administration website for more details). In its latest budget, the government decided to increase the maximum tax allowance amount to €3,000 in 2009. In addition, a full allowance will be available for renovation costs – that is, the maximum allowance of €3,000 instead of the previous allowance amount of €1,500.

Outcome and evaluation

Achievement of objectives

According to Hirvonen (2008), no research reports or factual information are available on the effects of the tax allowance for household services on the informal economy. The initiative has no doubt brought enterprises that previously operated on an entirely informal basis to the advance tax register and consequently under the scope of the taxation system. However, there are no guarantees that these entrepreneurs report all of their income. Hirvonen surmises that while the tax allowance for household services has contributed towards the reduction of undeclared work, its effect has not been very significant.

Obstacles and problems

According to Nurminen (2008), renovation work is a typical activity of households, both for the purchasers and suppliers of such activities. Nevertheless, work conducted without an official receipt is still very common, even though the tax refund system has changed the situation somewhat. Unauthorised new construction can occur illegally to some degree, which is classified as undeclared construction work in the national accounts. The tax authorities have completed various risk enterprise analyses for different industries – for example, in relation to negative VAT balances. The data only point to certain trends, however, and do not provide a basis for accurate estimates.

Lessons learnt

According to Hirvonen (2008), no research reports or factual information exist regarding the effects of the tax allowance for household services on the informal economy. Addressing this shortcoming is therefore among one of the goals that needs to be achieved.

Impact indicators

No accurate data or research figures are available at present regarding the impact of this initiative.


Confederation of Finnish Industries (Elinkeinoelämän keskusliitto, EK)

Ministry of Finance (Valtiovarainministeriö, VM)

Confederation of Finnish Construction Industries (Rakennusteollisuus, RT)


Hirvonen, M., Some background information about the Finnish shadow economy and measures against it, Memorandum, Ministry of Finance, 2008.

Lith, P., Harmaa talous suomalaisessa elinkeinoelämässä [Underground economy in Finnish business life, Memorandum, 2007.

Nurminen, R., Finland’s non-observed economy, Statistics Finland, 2008.

Arto Miettinen, Statistics Finland


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