Global expansion is a great way to grow your business and Finland offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in Finland.
Dealing with tax, payroll, and employment regulations for your staff from overseas is a tricky process. Finland is no exception, with fines, sanctions and other penalties applying for not complying with the complex and many-layered aspects of taxation.
We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in Finland.
Overview of Finland Taxes:
- Individual Income Tax - 6% - 31.25% depending on income
- Foreign Expert Tax Regime - 35%
- VAT - 24%
- Corporate Income Tax - 20%
- Capital Investment Tax - 30% or 34%
- Municipality Taxes - 16.5% - 22.5%
- Broadcasting Tax - 2.5%
- Employer Social Insurance Contributions - 20.3% (average)
Individual Tax Finland – Single, Married
Finland residents are taxed on their worldwide income at various rates, plus flat rates for church taxes (where applicable) and municipal taxes. Individuals are considered tax residents if they have a home in Finland or have stayed there for more than six months.
Non-residents are taxed only on their Finnish income at 35% unless tax treaties apply. The rates are as follows:
- EUR 18,600 (US$22,023) - 27,900 (US$33,035): 6%
- EUR 27,900 (US$33,035) - 45,900 (US$54,350): 17.25%
- EUR 45,900 (US$54,350) - 80,500 (US$95,320): 21.25%
- EUR 80,500+ (US$95,320): 31.25%
There are no joint tax returns in Finland. Spouses file separately usually by pre-completed assessment forms.
Tax returns are due April 2 (if they have received a pre-completed tax assessment) or May 5, 12 or 19, with the due date printed on the pre-completed assessment form. Individuals receive the pre-completed tax return in March or April of the previous year to check and make amendments, with the final assessment made at the end of the following tax year.
The first instalment is generally due in August, but extra instalments must be paid in February or July if insufficient tax has been withheld or paid in advance.
Taxable income includes all the employees’ remuneration or compensation, including sums directly or indirectly arising from their employment. Taxable earned income categories include:
- Basic salary, bonuses, fringe benefits
- Cost of living and housing allowances
- Reimbursed expenses for travel, accommodation, meals
- Entertainment expenses
- Profit-sharing schemes
Taxable investment income includes:
- Income from property
- Capital gains
- Any income earned from assets
Individuals also pay towards the social Insurance pension fund at 7.15% for those under 53 years old, 8.65% between 53 and 63 years and 7.15% for over 63 years.
Finland Individual Tax Rules
Liability to pay Finnish income taxes generally depends on residence qualifications. Individuals are considered tax residents if they own a home in Finland or have resided in the country for six months.
Finnish individuals are taxed on their worldwide income, while foreigners are taxed only on income earned in Finland, usually at a flat rate of 35%. Foreigners can apply to pay progressive taxes in Finland if they pay tax on their worldwide income and provide the Tax Administration with relevant accounts and information.
Foreign employees in Finland must register in person with their local tax office to receive a tax card and a Finnish ID to be able to deal with the authorities.
Couples in Finland are taxed individually and cannot file joint returns.
Finland’s tax year runs from January 1 until December 31, with returns due by April 2 if they have received a pre-completed assessment form, or by May 5, 12 or 19 if not. Final assessments are made by the end of the following tax year, with extra instalments or refunds due if too much or too little tax has been paid; interest charges apply if the final assessment exceeds preliminary payments.
Employers must report employees’ earnings to the Incomes Register of the Tax Administration within five days of payment, via the ‘real time’ e-Register with the amount deposited in the tax offices account by the 12th of the following month.
VAT and Excise Duty
The general rate for Value Added Tax (VAT) is 24%, with reductions for certain areas. A rate of 14% applies to food, animal feed, restaurant, and catering services with 10% applying to books, newspapers, and magazines.
Excise duties on such as alcohol, tobacco, electricity, natural gas, and coal are harmonized with the European Union directives.
Inheritance, gift, and estate taxes also apply in Finland to both Finnish nationals and non-residents. Municipalities collect property tax at rates of up to 2% on the assessed value of a property in a calendar year, while transfer tax is applied to income earned from the transfer of property (4%) or shares (2%).
Finland Employers’ Social Insurance and Statutory Contributions
Finland’s Social Insurance Institution (Kela) manages a world-leading mix of services and financial support for its citizens and foreigners who work in the country. The benefits and entitlements cover inability to work through illness or injury, unemployment, and maternity leave, while employers are compensated for entitlements such as sick leave, maternity benefit, and occupational health care.
The system is put into action by a combination of Kela, the municipalities, unemployment funds, pension companies and insurance providers. It is financed by taxes and insurance contributions from employers and their employees.
Finnish social Insurance laws stipulate local and foreign employers must make various social insurance contributions on behalf of their employees. Withheld health insurance deductions are paid to the Central Tax Administration and other contributions to the Employment Fund and insurance providers.
- Health Insurance: 1.53% (no cap)
- Pension Insurance: 16.95% (average, no cap)
- Unemployment Insurance: 0.50% up to €2.17million (US$2.55m) of gross salaries; 1.9% above
- Group Life Insurance: 0.07% (average, no cap)
- Accident Insurance: 0.8% (average, no cap)
- Pension Insurance: 7.15% (for under 53 years old); 8.65% (between 53 and 63 years); 7.15% (over 63 years)
- Unemployment Insurance: 1.40% (between ages 17 and 67)
To be covered by the social insurance system, individuals planning to live in Finland for more than one year must register with the Population Information System, giving the same personal details as Finns must supply. After receiving their personal identity code, they can apply for a Kela card online.
Once registered they can apply for benefits including:
- Family, maternity, and sickness allowance
- Parents’ cash benefits and childcare support
- Reimbursed medical costs
- Unemployment benefit
Finland Corporation Tax and Other Taxes
Resident Finnish companies are liable for Corporation Tax at 20% on their worldwide income. Additionally, Finnish permanent establishments (PEs) of non-resident foreign companies are liable for Corporation Tax on their worldwide income.
Companies must file their return no more than four months after the end of their accounting period. Payments are made either twice a year (March and September) or monthly depending on if income exceeds €2,000.
Capital Gains Tax
Capital gains are liable for a 30% tax rate up to €30,000 and 34% for the excess above.
85% of dividends from publicly quoted shares are taxed at 30% on the taxable capital income up to €30,000 and 34% above that.
Employers must withhold tax on all employees’ salaries at a percentage – which is determined by the tax authorities and is based on the employee’s annual salary (including fringe benefits) and what is stated on the employee’s tax card.
Foreign employers paying salaries from abroad are not liable for withholding taxes if they have no permanent entity in Finland. The resident employee must then make monthly withholding payments to the regional tax office. If the salary is paid by a payroll provider, they must withhold the tax.
Non-resident foreign employees with a tax-at-source card have 35% of their salary withheld. If the employee provides neither a tax card nor tax-at-source card, 60% of tax is withheld.
Withheld taxes are remitted monthly to the authorities by the 12th of the month following the payment date.
Permitted deductions from taxable income in Finland include:
- Work-related expenses up to €750
- Union membership fees
- Unemployment fund contributions
- Voluntary pension insurance premiums
- Second apartment necessitated by work
Avoid risks – make the right move
Finland’s complex tax regulations require expert advice and guidance for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation. Interested in learning more about how we can help you with your payroll and tax issues? Contact us today.