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Tax Guide

Financial Year – 1 January- 31 December
Currency – Euro (EUR)

Corporate Tax Summary

Residence – Under the provisions of the Finnish Income Tax Act (tuloverolaki 1535/1992), taxpayers may either be residents (generally liable to tax) or non-residents (liable to tax, but with restrictions). The act additionally contains a number of special provisions on the subject of liability to tax. Residents, with unlimited tax liability, are people who live in Finland, and correspondingly, non-residents, with limited tax liability, are people living in other countries. Residents pay Finnish taxes on their income sourced in Finland and on income sourced in other countries (= liability to tax on worldwide income). Non-residents pay Finnish taxes on their Finnish-sourced income only.

Individuals, i.e. natural persons, who live in Finland are Finnish tax residents. If an individual has his or her permanent home in Finland, they are treated as a resident. An individual who stays in Finland for a continuous period of more than six months is also treated as a resident.

If a corporate entity, a joint benefit administration or the estate of a deceased individual are domestic, they are treated as residents. Corporate entities are domestic when they are registered in Finland or established in accordance with the laws of Finland. Death estates are domestic if the decedent had lived in Finland at the date of his or her death (under § 17.4, Income Tax Act).

A consortium or partnership is not treated as a taxpayer in itself. Instead, the receipts of income of a consortium or partnership are allocated to its shareholders and are taxable as the shareholders’ personal income. For this reason, consortia and partnerships are generally neither residents nor non-residents.

Residents are subject to Finnish taxes on the income they receive in Finland and in other countries (§ 9.1, line 1, Income Tax Act).

Tax treaties signed by Finland with other countries, and the Finnish Act on the Elimination of Double Taxation (1552/1995) prevent the occurrence of double taxation on an individual taxpayer’s income. However, the provisions of tax treaties are not important when the authorities determine whether an individual is a resident or non-resident. Instead, the authorities rely on the provisions of the Income Tax Act when addressing the question of residency.

All natural persons who cannot be regarded as residents are regarded as non-residents. If an individual (=natural person) does not live in Finland, he or she is a non-resident taxpayer for the purposes of Finnish income taxes. The estates of deceased individuals are treated as non-resident taxpayers if the decedent was a non-resident at the date of his or her death. A corporate entity registered in a foreign country is a non-resident.

A non-resident is only liable to pay taxes on income earned in Finland. Examples of such income include the wages received from a Finnish payor for work done in Finland, and the dividends paid to an individual by a Finnish limited company (§ 10, Income Tax Act). If a corporate entity is treated as having a permanent establishment, it must pay Finnish tax on its attributable income regardless of whether the source of the income is Finland or a foreign country (§ 9.3, Income Tax Act).

However, some types of interest income that a non-resident can receive from a Finnish source are not taxable. For example, the receipts of interest on a bank deposit, or on bonds or debentures, are tax-exempt when the beneficiary is a non-resident (§ 9.2).

Basis of Taxation
Business taxes comprise a corporation tax (profit tax) and a real estate tax. Corporation tax is paid on annual taxable income minus tax-deductible expenses and losses. The corporate tax rate is 20%. Other taxes consist of an assets transfer tax (formerly stamp duty) and a withholding tax. Employers are also required to make a social security contribution.

Value added tax (VAT) is an indirect tax assessed as a percentage of the value of all goods and services, unless specifically exempted. It is a consumption tax paid by the end consumer. VAT-registered businesses can deduct VAT paid on purchases for business activities from their VAT liability. The Finnish acronym for VAT is ALV (arvonlisävero).

Individuals pay a progressive income tax from their salaries. Foreign personnel working in Finland for longer than a six-month period are also required to pay Finnish income tax. If a foreign person works in Finland for less than six months, withholding tax of 35% is paid. If the employer is a foreign company without a permanent office in Finland and the salary is paid through a bank, taxes are paid in the home country, not in Finland. Key foreign personnel, even if in Finland for longer than six months but not longer than 24 months, may also pay the 35% income tax when their monthly salary exceeds EUR 5,800.

A preliminary tax on an employee’s income is deducted and paid monthly by the employer, who also pays social security and other compulsory premiums. Preliminary tax deduction covers:

  • National income tax, which is progressive (typically 25 – 40%)
  • Municipal income tax of 16.5 – 22.5 %, depending on location (e.g. in Helsinki 18.0% in 2020)
  • Church tax (a flat rate from 1.00–2.00 % in 2020, depending on the municipality). The church tax is carried only if an employee is a member of the Evangelical Lutheran or Orthodox churches.
Reference
Corporate Income Tax Rate (%) 20 %
Branch Tax Rate (%) 20 %
Withholding Tax Rate:
Dividends – Franked 30-34%
in general but tax treaties may allow lower rate
Dividends received by a Finnish company are, with certain exceptions, exempt from tax when the company paying the dividend is a resident in Finland or in EU/EEA country. Shareholders of a limited liability company are not taxed until they start withdrawing income from the limited liability company in the form of wages or dividends, for example. Distribution of dividends does not cause tax consequences in the distributing company (however, withholding tax requirements may arise).
Dividends – Unfranked NA
Dividends – Conduit Foreign Income Depends on tax treaties When living abroad, the taxation of Finnish-sourced dividends, interests and royalties depends on the provisions of the tax treaty. Although taxpayers may be treated as a foreign tax resident, the treaty allows Finland to collect a source tax on the receipt of dividends, interest and royalties at a rate set in the treaty (often 15 percent).
Interest 15 % When living abroad, the taxation of Finnish-sourced dividends, interests and royalties depends on the provisions of the tax treaty. Although taxpayers may be treated as a foreign tax resident, the treaty allows Finland to collect a source tax on the receipt of dividends, interest and royalties at a rate set in the treaty (often 15 percent).
Royalties from Intellectual Property 15 % When living abroad, the taxation of Finnish-sourced dividends, interests and royalties depends on the provisions of the tax treaty. Although taxpayers may be treated as a foreign tax resident, the treaty allows Finland to collect a source tax on the receipt of dividends, interest and royalties at a rate set in the treaty (often 15 percent).
Fund Payments from Managed Investment Trusts 30-34 % Capital income is the income generated through the possession of wealth, such as rental income, gains from selling an asset, dividend income, certain interest income, proceeds from a life insurance contract, and the share of profits of an investment fund. Capital income also includes the capital income portion of forestry income and the capital income portion of business income and the income of a partner in a consortium. That is, income derived from investments that the taxpayer has made is taxed as capital income.
Branch Remittance Tax NA There is no Branch Remittance tax in Finland.
Net Operating Losses (Years)
Carry Back NA
Carry Forward 10 years

 

Individual Tax Summary

Residence – Resident taxpayers are individuals whose home is in Finland or who stay in Finland for longer than 6 months. Earned income (e.g. wages and salaries) is subject to progressive state income tax, municipal income tax and the health insurance contribution.

Basis of Taxation – Finland taxes residents on their worldwide income. Earned income received by residents is taxed at progressive tax rates for national tax purposes and at a flat tax rate for municipal (and church and social security) tax purposes.
National tax rates
National tax rates for 2020, applicable to earned income, are as follows:

Taxable income (EUR) Tax on column 1 (EUR) Tax on excess (%)
From To
18,100 27,200 8.00 6.00
27,200 44,800 554.00 17.25
44,800 78,500 3,590.00 21.25
78,500 10,751.25 31.25

Capital (investment) income is taxed at rates of 30% and 34% (the latter percentage is applicable when the annual taxable capital income exceeds EUR 30,000).

Local Income Taxes
Municipal tax is levied at flat rates on the taxable income determined for municipal taxation. The rate varies between 16.50% and 23.50%, depending on the municipality.

Church Tax
Church tax is payable by members of the Evangelic Lutheran, Orthodox, and Finnish German church in Finland at flat rates on the taxable income determined for municipal taxation. Rates vary between 1% and 2.2%, depending on the parish concerned.

Public Broadcasting Tax (Yleisradio or YLE Tax)
Public broadcasting tax is levied on taxable income. The rate of public broadcasting tax is 2.5% on annual income exceeding EUR 14,000; however, the maximum amount is EUR 163. Individuals are not liable to pay the tax if their annual income is EUR 14,000 or less, if the individual is under 18 years old, or if the individual lives in the Province of Åland.

For companies and organisations the tax is based on the taxable income for a fiscal year. It amounts to 140 euros (EUR) per year if the taxable income of the organisation is at least EUR 50,000. For organisations with taxable income exceeding EUR 50,000, the tax is levied at EUR 140 plus 0.35% of the taxable income exceeding EUR 50,000. The maximum amount is EUR 3,000, which is payable by organisations with taxable income of EUR 868,000 or more. YLE tax is deductible in the taxation of a company’s income.

Foreign Expert Tax Regime
The foreign expert tax regime provides a flat tax rate of 32% (prior to 1 January 2020, a flat tax rate of 35% was applied) on Finnish-sourced salary income for those foreign employees whose work requires special knowledge and who would be otherwise taxed at the normal tax rates applicable to resident individuals. Other conditions are that the cash salary is at least EUR 5,800 in each month during the validity period of the regime. The regime cannot be applied if the person has been resident in Finland within the last five calendar years preceding the commencement of working in Finland, or is a Finnish national.

The foreign expert tax regime is applicable for a maximum of 48 months from the commencement of working in Finland. After that period, the salary is taxed according to the normal rules. The application for the regime must be filed within 90 days from starting to work in Finland.

The foreign expert tax regime was based on a temporary law until 31 December 2019. As of 1 January 2020, the law has been permanent.

Filing Status – Each taxpayer must file a separate return each financial year.

Personal Income Tax Rates

Taxable Income Tax Payable – Residents Tax Payable – Non-Residents
See basis of individual taxation Progressive 35%

Goods and Services Tax (GST)

Rate 10-24 %
Taxable Transactions The general VAT rate – 24%
This rate is applied on most goods and servicesReduced VAT rate – 14%
This rate applies to:

  • Groceries
  • Feed
  • Restaurant and catering services

Note that the reduced VAT rate of 14% is not applicable to alcohol or tobacco products.

Reduced VAT rate – 10%:
This rate applies to:

  • Books
  • Newspapers and periodicals
  • Pharmaceutical products
  • Physical exercise services
  • Film screenings
  • Entrance fees to cultural and entertainment events
  • Passenger transport
  • Accommodation services
  • Royalties for television and public radio activities

Zero rate (purchases are deductible) – 0%
This rate applies to:

  • The sale, rental and chartering of VAT-exempt vessels and work performed on such vessels
  • Tax-exempt sales of member’s magazines and advertisements to non-profit corporations
  • Tax-exempt sales relating to warehousing procedures (tax warehouse in VAT)
  • Exports outside the EU
  • Sales of goods within the EU to VAT-liable buyers (guidance on VAT in EU trade)
  • Other tax-exempt sales of goods and services relating to international trade, such as tax-exempt sales to diplomats and international organisations.

Some business operations are entirely exempt from VAT (such as health care and medical services).

Registration When turnover exceeds EUR 10,000
Filing and Payment Electronic filing, generally monthly

Other Taxes Payable

Payroll Tax Employers’ health insurance contribution 1.34 %
Stamp Duty (Transfer Tax) Transfer tax is imposed on transfers of real property (e.g. a house with land) at the rate of 4%, and securities (e.g. shares in a housing company when buying an apartment) at the rate of 2%.
Land Tax Real estate tax is set by the local municipal council and is calculated as a percentage of the taxable value of the property. Municipalities can set their own tax rates within the ranges:

  • 0.93% – 2.00% for general real estate tax
  • 0.41% – 1.00% for permanent residences
  • 0.93% – 2.00% for other residences
  • 2.00% – 6.00% for unbuilt sites

Last updated: 12.06.2020

Contact us:

Parter in Finland
Rabbe Nevalainen
Partner at ECOVIS AltumAudit
Phone: +358 40 5433 484