Finland is a parliamentary republic with a head of government (the prime minister) and a head of state (the president). Central government is based in Helsinki, while local governments are located in 311 municipalities (cities and urban centers). The country comprises 19 regions and 70 sub-regions. The smallest region, Åland, is an archipelago southwest of the mainland. The northern region of Lapland comprises the home area of the Sami, where about half of Finland's indigenous Sami (Lapps) population lives.
CIT = Corporate Income Tax - corresponding to IRPEG
SSC = Social Security Contribution - corresponding to the Social Contribution (Employee + Employer)
The most important sectors of the Finnish economy in 2018 were industry (21.3%), public administration, defense, education, health and social care (20.2%), trade. wholesale and retail, transport, hotel and restaurant services (15.5%).
Finland exported 59% to the EU: Germany 15%, Sweden 10% and the Netherlands 7%; in non-EU countries it exported 7% to the United States and 6% to China.
Finland imported 70% from EU Member States: Germany 17%, Sweden 16% and the Netherlands 9%; from non-EU countries it imported instead for 14% from Russia and 3% from China.
The income of individuals subject to tax is divided into two categories: income from work and capital
Finland has a highly industrialized economy. In the twenty-first century, the key features of the modern Finnish welfare state are a high level of education, the promotion of equality and a national social security system.
Trade has a very significant value, with exports accounting for over a third of the gross domestic product (GDP). The country is highly competitive in the manufacturing, wood, metals, engineering, telecommunications and electronics sectors. A member of the European Union since 1995, Finland was the only Nordic country to join the "Euro zone" at the beginning of January 1999.
Among the tax changes, it should be noted that, starting from 1 January 2019, employers must communicate the compensation paid to employees to the National Income Register (tulorekisteri). The Registry is a national online database of income information that contains information on each individual's income and pensions. Reporting to the Income Register replaces the previous monthly and annual returns from employers. Also from January 2019, other payments such as earnings, ancillary allowances and other income from work must also be communicated to the Income Register within five days of payment. Foreign organizations that do not have a physical presence in Finland but have employees working in the country are obliged to submit salary data to the Income Register when the employee resides in Finland for more than six months or when the employee is covered by obligations Finnish social insurance.
Individuals: income taxes
A natural person is tax resident in Finland if he has his main residence or if he is continuously present in Finnish territory for a period of more than six months. The following presumption applies to the tax residence of individuals: if a Finnish resident leaves the country, he is considered a resident for the following three years (starting from the end of the year in which he left the country). In order to overcome this presumption, it is necessary to demonstrate that they no longer have any links with the State of Finland.
Taxation on the income of resident individuals
Individuals resident in Finland are taxed on their income, wherever they are produced. Income - subject to tax is divided into two categories: labor income and capital income.
The national income tax is characterized by the following progressive rates:
up to 17.600 Euro rate 0%
from € 17,600 to € 26,400 at a rate of 6.00%
from € 26,400 to € 43,500 at a rate of 17.25%
from 43,500 Euros to 76,100 Euros at a rate of 21.25%
over € 76,100 at a rate of 31.25%
The tax rate on income from capital is 30% which can reach 34% for income classes above 30 thousand euros.
Income taxation of non-resident individuals
Anyone who resides in a country other than Finland, stays in the national territory for a period of less than six months and wishes to continue to maintain residence in the country of origin is considered non-resident by the tax legislation whether it is a natural or legal person.
A non-resident individual (e.g. working occasionally in Finland) is only taxed on income of Finnish origin. Unless lower rates are stipulated in a tax treaty, the tax rates are 35% on earned income and 30% on dividends, interest (however, interest income is not normally taxable for non-residents) and royalties.
A non-resident person can also apply to be taxed on income received in Finland through tax assessment (i.e. national ordinary progressive taxation) instead of fixed taxation at source. This applies to non-residents living in the European Economic Area (EEA) or in a country with which Finland has concluded an agreement on enforcement assistance and exchange of information in tax matters.
In place of ordinary taxation, the "tax regime for foreign experts" provides for a fixed rate of 35% on Finnish income and is reserved for foreign employees whose work requires specific knowledge and who have a salary of at least 5,800 Euros. The scheme cannot be applied to persons residing in Finland in the last five years before starting work in Finland.
Mandatory pension premiums and mandatory insurance premiums are fully deductible from earned income. Interest expense on certain loans is deductible from capital gains.
Company: income taxes and other direct taxes
Corporate income is subject to corporate income tax. The amount collected in this capacity is intended for the State, the municipalities and the two recognized churches. The taxable persons are resident companies (with the exception of general partnerships and limited partnerships, whose income is taxed by the shareholders) and the resident offices in Finland of foreign companies. The tax is applied on a taxable basis determined on the basis of the result emerging from the profit and loss account (to be attached to the tax return), making the changes required by tax legislation. The tax rate is 20%. Non-resident companies in Finland, meaning those that are not incorporated under the law of that State and are not registered in the national register of companies, are taxed limited to specific types of income identified by law. This includes income from real estate and permanent establishments located in Finland.
The value added tax
In general, subjects who professionally carry out sales of goods and services are subject to VAT. The tax is applied on a taxable basis consisting, normally, of the consideration agreed for the sale of goods or provision of services. The ordinary tax rate is 24%. Furthermore, the following reduced rates are envisaged:
14% which applies to the supply of food products, catering services and animal feed;
10% applicable on certain goods and services, including books, passenger transport services, medicines, cinematographic performances, cultural and entertainment events.
In some cases, a zero rate applies (for example for intra-community supplies of goods and exports of goods). In addition, some services (e.g. financial services, insurance services and some educational services) are exempt from VAT.
Inheritance and gift tax
Inheritance tax and gift tax apply to the recipient of immovable property located in Finland if the deceased, heir, donor or beneficiary resided in Finland at the time of the death or donation. The tax is applied to both resident and non-resident beneficiaries. The taxable value of the inheritance or legacy is based on the fair market value of the property at the date of death or gift.
Municipalities in Finland collect property tax. The tax is calculated on the taxable value of the asset. In general, the rate can vary between 1.34% and 3.6% of the value. The municipalities will decide annually within the limits allowed which percentage to apply.
There is a tax of 4% on transfers of real estate, of 2% on transfers of shares of companies whose business is mostly made up of real estate (directly or indirectly) and of 1.6% on transfers of other titles. The tax is calculated on the transfer price.
Alcohol and alcoholic beverages, tobacco products, liquid fuels, electricity, natural gas and coal are subject to harmonized EU excise duties. National excise duties are levied in Finland for waste delivered to landfills, lubricating oil, soft drinks, beverage containers.
It is a tax imposed on members of the Evangelical Lutheran or Orthodox church. The tax is collected by the Municipalities which also establish the rate. The rate of the church tax varies between 1 and 2.2% according to the municipality.
The municipal tax, set by the individual municipality, provides for rates ranging between 16.5% and 22.5%.
Public broadcasting fee
The public broadcasting tax rate is 2.5% and is applied to annual incomes exceeding € 14,000 (the maximum amount is € 163). You are not required to pay the tax if your annual income is € 14,000 or less, if you are under 18, or if you live in the province of Åland.
Tax on the sale of berries
The tax administration of the Scandinavian country has specified that there are no taxes on the amateur harvest of berries. Those who collect the berries in open land for civic use can then also resell them in market areas or in rest areas along the road, without owing anything to the tax authorities. The income of those who work in the collection, as an "employee" even if seasonal, is instead subject to taxation. Foreign workers who travel to the Scandinavian country to harvest blueberries and raspberries can choose to be taxed progressively, like residents. In this case, it is necessary to apply for a tax card for non-residents and the Finnish identification code. The following year the worker receives a pre-filled declaration relating to the collection work done in Finland. The option to be taxed progressively and to receive the pre-filled in can only be exercised by those coming from countries of the European Economic Area or from States that have signed the convention against double taxation with the Scandinavian state.
Declarations, instrumental obligations and payments
Each individual receives a pre-filled tax return from the tax authorities in April of the year following the tax year. If the taxpayer agrees with the data contained, it is not necessary to return the declaration; otherwise, it is required to communicate and transmit the document with the changes made by mid-May.
Non-resident individuals generally do not file any tax returns because the final tax is withheld at source from their Finnish origin income. However, for taxable income not subject to withholding tax (e.g. taxable rental income in Finland), a tax return must be filed in the normal way.
Social security contributions
The contribution rates indicated below are confirmed for 2020. The health insurance premium payable to the tax authorities is divided into two classes, a daily allowance premium of 1.36% and a premium for medical assistance of 0.68% (in total 2.04%). Only the daily allowance premium is deductible for individual taxation. The daily allowance premium is not collected if the total amount of the salary is less than 14,766 euros. The premium for medical assistance on retirement income and social benefits is collected at a rate of 1.65%. The employer collects the aforementioned premiums from the employee's salary and pays them together with the withholding tax to the tax authorities. If the employee's salary is taxed under the "foreign experts" tax regime, the health insurance premium is included in the flat rate of 32%. In addition, the employer must withhold the pension insurance contribution from the employee's salary (7.15% for employees aged 17 to 52 or 63 to 67 and 8.65% for employees of aged 53 to 62) and the unemployment insurance contribution (1.40% for employees aged 17 to 64). These contributions are paid to the relevant insurance companies together with the employer's social security contributions. However, if you get a certificate of coverage (A1, E101 or similar) for an employee sent to Finland, you are essentially not due in Finnish social security contributions (depending on the applicable social security treaty, some contributions may still remain payable in Finland). For employees taxed under the "foreign expert" regime, the tax rate remains the same flat rate of 32% regardless of the A1 or certificate of coverage even if the health insurance premium is incorporated into the rate.
A foreign employer who sends an employee to work in Finland for a maximum period of two years can be automatically exempted from Finnish pension insurance for the employee (in principle other social insurance must be taken out). If the worker remains in Finland for more than two years, the exemption must be applied for (although the stay is initially expected to exceed two years, the automatic exemption is not applicable). The above exemption rules apply to employers who are not resident in the European Union (EU) / EEA or in countries with which Finland has concluded an aggregation agreement (social security).
OUR PRESENCE IN FINLAND
Our Helsinki office can count on the support of a firm of Accountants and Auditors founded in 2013 consisting of 1 Partner as well as a staff of 10 people who work daily in the areas of auditing, payroll processing, accounting, tax assistance and compliance.