Finland

Basic taxes (briefly)

Personal tax 0-31.25%
Corporate tax (in detail) Corporate tax is levied at a fixed rate of 20%.
Capital gains tax. Details Capital gains are included into the corporate tax base.
VAT. Details The standard VAT rate is 24%. Reduced rates of 14% and 10% apply to some goods and services.
Other taxes Social Contributions, Municipal Property Tax, Property Transfer Tax, Inheritance and Gift Tax
Government fee
Stamp duty No

International tax agreement

Tax treaties entered Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Egypt, Estonia, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kosovo, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, New Zealand, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Tajikistan, Tanzania, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet nam, Zambia
   
Tax Exchange Information Agreement (TEIA) Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, Brunei Darussalam, Cayman Islands, Cook Islands, Costa Rica, Curaçao, Denmark, Dominica, Faroe Islands, Gibraltar, Greenland, Grenada, Guatemala, Guernsey, Iceland, Isle of Man, Jamaica, Jersey, Liberia, Liechtenstein, Macao (China), Marshall Islands, Mauritius, Monaco, Montserrat, Niue, Norway, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Seychelles, Sint Maarten, Sweden, Turks and Caicos Islands, United Arab Emirates, Vanuatu, Virgin Islands (British)


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TAXATION

Taxation Policy

All individuals resident in Finland in a given tax year and domestic corporations have unlimited tax liability.
Corporations registered in Finland or otherwise incorporated under Finnish law are regarded as domestic corporations. Individuals and corporations with unlimited tax liability are liable to pay tax in Finland on all their income from Finland and abroad, unless a certain income is exempted from tax in the legislation.
Foreign corporations and individuals who were not resident in Finland during the given tax year have a limited tax liability. As a rule, they are only liable to pay tax in Finland on Finnish-source income.
Direct taxes include state income tax, inheritance and gift tax, and asset transfer tax - which are payable to the State - municipal tax payable to the appropriate Municipality and church tax payable to the Church.
Indirect taxes include value added tax, excise and customs duties.
The taxable income is, in all cases, calculated on the net result (profit or loss) shown by the accounts. The annual book profit or loss is nevertheless adjusted with certain supplements and depreciations, since the regulations of the Accounting Act and the Companies' Income Tax Act differ somewhat. For example, while all entertainment costs are entered in the accounts, only 50% is deductible in taxation. Direct taxes payable by an enterprise are not deductible.
When determining the tax burdens falling on the different company types, attention must also be paid to the tax burden of the owner. The joint effect only determines which company form is the most profitable in terms of taxation.
Double taxation treaties signed by the state of Finland with more than 75 countries and territories may limit the liability to pay in Finland of parties with general or limited tax liability.
Limited liability companies are treated as independent taxpayers in income taxation.
The profits of a limited liability company's operations are regarded as corporate income and, as such, have no impact on a shareholder's personal taxation. In exceptional circumstances, certain income can be regarded as a shareholder's wages, rather than corporate income.

State Income Tax

The state income tax can be either progressive or proportional.
If the tax is determined in accordance with the progressive income tax scale, this means that an increase an income causes a proportionately greater increase in tax. Earned income (such as wages or pension and fringe benefits) is taxed in accordance with a progressive tax scale.
Proportional tax means that a flat tax rate will be applied throughout, irrespective of the amount of the income. The tax rate on capital income (for example capital gains) of individuals is 28 %.
Limited liability companies are subject to a tax rate of 24.5 %.

Municipal and Church Tax

The municipal income tax makes a part of the state income tax and is determined according to a proportional tax base. The municipal income tax rates vary from 16.25 to 21.5 per cent.
Limited liability companies tacitly pay the church tax since part of the corporate income tax (tax rate 24.5%) is paid to the Evangelic Lutheran and Orthodox congregations.

Assessment of Tax

An income tax is to be paid in advance. An exact amount of the corporate tax is determined gradually within ten months of the completion of the accounting period of the respective limited liability company.
Taxes are assessed by the regional tax office in the taxable person's place of residence or registered office. Once the assessment has been completed, taxpayers receive a tax notice, which shows the amount of the final tax.

Dividends to Individual Shareholders

Limited liability companies that have distributed dividends must notify the Tax Administration annually. Taxation of individual shareholders’ dividends depends on whether paid by non-listed or listed limited liability company. At present, 70 % of dividends to a resident individual shareholder paid by a listed company are taxable as a capital income of the recipient at the rate of 30% or 32 %. The rate depends on the amount of income received annually. The rest of 30% is tax exempt.
Dividends to a resident individual shareholder paid by a non-listed company are tax exempt provided that the dividends do not exceed 9% of the annual return to be calculated on the company net asset value. EUR 60,000 per recipient is the maximum amount exempted from taxation. In case the dividends within the 9% exceed the amount of EUR 60,000, 70% of the exceeding amount will be taxed as capital income.

Dividends to Corporate Shareholders

Dividends paid to a Finland registered company by a non-listed or listed Finnish or EU resident company are generally tax exempt.
The dividends are fully taxable in Finland in case a company distributing dividends is not a Finish or EU resident company and if there is no tax treaty between Finland and the country of the company registration.

Annual Notification on Dividend Distribution

The Finnish law does not establish any limitation relating to the Board of Directors’ decisions on distribution or additional distribution of dividends of the previous tax year period by. When doing this, the company must notify the Tax Authority thereof annually.

Voucher to Recipient of Dividends

A voucher for dividends received must be given to the recipient of dividend. The voucher must include at least the following information:
  • name and personal identity number or business ID of the recipient;
  • accounting period from which dividend is being paid;
  • number and type of shares;
  • name of the company paying dividend;
  • amount of the dividend; and
  • tax withheld from the dividend.

Annual Notification on the Shareholder Loans Granted by a Limited Liability Company

Limited liability companies must notify the Tax administration of shareholder loans granted during the previous year. The loans are regarded as the recipient's capital income. The annual notification is to be submitted to the Tax Administration by the end of February.

Registration as a Regular Employer

When a Finnish company starts paying wages to resident employees regularly, the company must conclude a contract with an accounting or auditing firm. The firm will subsequently notify the Board of Patents and Registration or a Tax Administration to have the company included to the register of employers. If wages are not being paid regularly, or they are being paid on a temporary basis, the employer has the status of a casual employer.
If a foreign company is a holder of a permanent establishment in Finland for income-tax purposes, then it will be viewed as a Finnish payer of wages. Thus, the obligation exists for entry in the register of employers, if wage payment in Finland is regularly taking place to two or more wage earners, or simultaneously taking place to at least six wage earners with temporary, short-term employment contracts.

Personal Tax

Taxation of residents includes:
progressive state income tax on earned income (0-60%); the tax is to be payable on income earned in Finland and overseas; in regard to income from a salary, an employer is obligated to deduct the amount of tax demanded each month;
flat 28 per cent tax on capital (investment) income;
municipal tax on earned income; this tax fluctuates between 16.25% - 21.75% depending on the municipal authority;
net wealth tax;
church tax of 1%- 2.15%.
Finland Individual income tax rates (national tax) 2012:
  • 0% - EUR 1-16,100;
  • 6.5% - EUR 16,101-23,900;
  • 17.5% - 23,901-39,100;
  • 21.5% - 39,101-70,300;
  • 29.75% - 70,301 and over.

Individuals are deemed to be residents of Finland, irrespective of their nationality, if they have their permanent home in Finland or stay in Finland for a continuous period of more than six months.
Non-residents do not have to file an income tax return. However, non-residents usually have to report on their income earned in Finland when they file their income tax return in their home country.
Non-resident individuals pay 28% income tax on capital income (i.e. investment income) paid to State.
Foreign residents generally pay 35% on salary income and 30% on dividend, interest and royalties income.

Real Estate Tax

For any real property located in Finland, real estate tax will be paid to the local town, city or rural area. Residents and nonresidents alike are liable to pay real estate tax. The actual rates are established by the municipalities, which are the recipients of the revenue from this tax. For residential buildings (but not summer cottages), the rate may vary from 0.32% to 0.75% of the value of the property.

Capital Gains

In 2012 the rate of tax payable on capital gains is 24.5% for companies and 30% for individuals, 32% for income exceeding EUR 50,000.
The sale of an apartment / house that has been used as a main residence for at least two years, is exempt from capital gains tax.
A capital loss may be offset against a capital gain in the current year or against capital gains in the following years for a maximum of up to three years.
Income of individuals from an investment, in respect of a rental or interest, is taxable at the rate of 30% for income under EUR 50,000 and 32% for income exceeding this amount.

Value Added Tax

All physical or legal persons who sell goods or services in the form of business operations in Finland are liable to pay VAT. Before these operations are started, the Tax Administration should be notified. The physical or legal person operating the trade or business should file a written notice, which will result in VAT registration.
If a foreigner has a fixed establishment in Finland (for VAT purposes), entry in the Finnish VAT register is mandatory.
VAT rates are fixed as follows:
Standard rate – 23%;
Reduced tax rate of 13% is applied to the following goods and services:
  • foodstuffs;
  • restaurant and catering services;
  • animal feed.

The reduced tax rate is not applied alcoholic beverages and tobacco products.
Reduced tax rate of 9% is applied to the following goods and services:
  • passenger transport services;
  • transfer of the right of use of an accommodation facility;
  • admissions to theatres, concerts, circus and dance performances, cinemas, exhibitions, sports events, amusement parks, zoos, museums and other comparable cultural and entertainment performances, events and facilities;
  • services enabling sporting activities;
  • medicines;
  • books;
  • barber and hairdressing services, as well as small repair services (include bicycle, shoe, leather product, clothes and linen repairs).

Right to deduct VAT and its Restrictions

According to the main rule, a taxpayer may deduct the tax payable on goods or services purchased from another person liable to tax. A purchaser liable to tax may also deduct the tax the purchaser is liable to pay on goods or services purchased from a foreign person or company not liable to tax. In addition, the taxpayer may deduct the value-added tax payable on goods imported by the taxpayer himself/herself, on intra-Community acquisitions made by himself/herself, and the value-added tax paid on a car by virtue of the Car Tax Act. The precondition for the right to deduct is that the goods or services are used by the taxpayer in his/her taxable business.
The deductible tax corresponds to the tax payable by the seller according to law. The seller must indicate the tax payable on the receipt given to the purchaser liable for the tax.
A precondition for the right to deduct is that the person liable for the tax holds a receipt, which indicates the tax payable on the sale, for the goods or services purchased from another person liable for the tax. A precondition for the right to deduct tax payable on imported goods is that the importer holds import documents that indicate the tax payable on the imports.
With certain exceptions (see below), the taxpayer is entitled to deduct the tax paid for all goods and taxable services that have been acquired as taxable current or fixed assets, or to be otherwise used or consumed in taxable business.
Tax paid on the following goods and services is not deductible:
  • any property the taxpayer or his/her staff uses as a residence, a nursery or a recreational or leisure facility, as well as goods and services connected with it or its use (for example, furniture acquired for a day-care centre maintained by the employer);
  • goods and services related to the transportation of the person liable to tax or his/her staff between their place of residence and the place of work (for example, bus pass paid by the employer);
  • goods and services used for business entertainment purposes (for example, entertaining clients at a restaurant);
  • postage stamps or other comparable rights, if the sale of the transport service is not subject to tax on the basis that the service takes place abroad;
  • passenger cars, motorcycles, caravans or vessels which, by their structure, are mainly intended for recreational or sports purposes, and aircraft, as well as goods and services related to their use.

The right to deduct is nevertheless applied to vehicles or vessels that have been acquired for the purposes of sale or hiring out, or for use for commercial passenger transport or for driving instruction, and passenger cars that are acquired exclusively for a use that is entitled to deduction.

Registering as a VAT-liable Taxpayer

A limited liability company that starts a taxable activity referred to in the Valued-Added Tax Act must notify the tax administration before starting the activity by submitting the start-up notification Y1.
The tax office will enter the enterprise in the VAT register if it considers the entrepreneur's activities to be taxable or falling under the zero tax rate. The tax office will notify the enterprise of whether or not it has been entered in the register. An enterprise is usually entered in the register as of the starting date of its taxable business. In connection with the registration, the tax office will assign a business ID for the enterprise, unless the enterprise already has a business ID.

Notification and Payment Deadlines

VAT must be notified and paid to the Tax Administration monthly, quarterly or annually. A notification to the Tax Administration is submitted by means of submitting a periodic tax return.
Value-added taxation requires accounting to be carried out within one month and 15 days of the end of the calendar month in order to provide the required information for paying the tax. Before making the entries, the vouchers must be arranged and numbered in sequence.
If the company’s turnover is a maximum of EUR 25,000 per calendar year, VAT can be paid annually. If the company’s turnover is EUR 25,001–50,000 per calendar year, VAT can be paid quarterly, i.e., every three months. In such a case, the due dates for tax returns are: 12 May (January to March), 12 August (April to June), 12 November (July to September) and 12 February (October to December).
The periodic tax returns must be submitted for each period, even if the business activity of the company liable to pay VAT has been temporarily interrupted or the VAT payable for a given month is negative.

Reporting Dates and Payment

Advance payments of tax are made on the following basis:
  • An individual whose only income is from a salary is not obligated to file an annual tax return; the employer deducts tax from the employee and transfers the payment immediately to the tax authorities on a monthly basis;
  • Limited liability companies must file a tax return within 4 months of the end of their accounting period; during the year, the company is obligated to make 12 monthly advance payments of tax; tax returns are processed within 10 months of the end of the accounting period.

After receipt of the assessment, it is possible to appeal to a Board of Adjustment if need be; this body has regional divisions in a number of geographical areas; a further appeal may be made against a decision of this body to the Administrative Court within 5 years of the year in respect of which the assessment was made; an appeal may be made to the Supreme Court against a decision of this Court.

Deduction of Tax at Source

Finland Taxation of Employees
As regards employed persons, the employer is obligated to deduct tax at source from an employee and to make additional contributions to social security.
Social Security
An employed person - The employer's average contribution is 17.35% of the salary for pension, and 2.12% for social security.
The employee's contribution is usually 2.04% for sickness insurance and 5.75%-7.1% for pension and unemployment insurance.
Other Deductions
Deductions must be made from the following payments to non-residents according to this table:
dividend - 24.5%;
Royalties - 24.5%;
interest – 0%.

ACCOUTANCY

Accounting

All persons and entities engaged in business are obliged to keep books. The management of an enterprise is responsible for arranging its accounting. The obligation to keep books starts when founding the enterprise.
The period of an enterprise’s existence is divided into accounting periods, and financial statements are prepared for each accounting period.
The financial statements document the result of the operations, based on which taxes are paid and profits are distributed to the owners, or losses are noted. On the other hand, the financial statements document the financial position of the enterprise: property, assets and debts.
With certain exceptions, financial statements are public documents. Enterprises are obliged to submit their financial statements to the Trade Register administered by the National Board of Patents and Registration.
According to the Auditing Act, companies with a legal obligation to keep accounts as stipulated in the Accounting Act must elect an auditor and carry out an audit of the accounts. The audit is part of the enterprise’s supervision system and is obligatory for limited liability companies.

Accounting Period

The accounting period is specified in the Memorandum of Association. The normal accounting period is 12 months and is indicated by stating the day and month when the accounting period begins and ends.
For example: the company’s accounting period is 1 January to 31 December. The first accounting period can be longer or shorter than 12 months but not longer than 18 months. The first accounting period begins as soon as the Memorandum of Association has been signed and must end on the same day of the month as the normal accounting period.
The period between the signing of the Memorandum of Association and the end of the first accounting period does not exceed 18 months.

Double-Entry Accounting

Double-entry accounting must be used for keeping books. Each business transaction shall be entered in at least two accounts. The accounts are named, and the transactions to be entered are defined in permanent instructions, the account framework. The number of accounts (статья бухгалтерской отчетности) depends on the level of detail required by the management for itemizations of different income, expenses, financing transactions, assets and liabilities. The minimum requirement for the selection of accounts is that they must provide the information required by the income statement and balance sheet templates in the Accounting Decree.

Storage of Accounting Materials

The accounting books, the balance book, balance sheet itemizations and notes to the financial statements, as well as a list of accounts must be kept for at least 10 years, and vouchers must be kept in paper or electronic form at least 6 years after the end of the accounting period in Finland in any place deemed convenient for this purpose by the company.

Financial Statements

A limited liabilities company must prepare the financial statements within 3–4 months of closing the accounts.
The financial statements include the income statement and the balance sheet (also comparison data for the previous accounting period), as well as balance sheet itemizations and notes to the financial statements.
A limited liability company must always include the annual report information required by the Companies Act in the notes to the financial statements if no separate annual report is prepared.
The financial statements must be dated and the party obliged to keep books must sign them. If the party obliged to keep books is a corporation, the financial statements shall be signed by the Board of Directors, as well as the Managing Director or any person in a similar position.

Balance Book

The financial statements and a list of the accounting books and voucher types, as well as information on the methods of storing them, must be written in a bound balance book or one that will be bound immediately after its completion, and the pages or double pages must be numbered.

Auditing

The Auditing Act specifies the circumstances when an auditor must be used.
If the Articles of Association allow, companies that meet no more than one of the following conditions in both the closing accounting period and in the accounting period preceding it may neglect the appointment of an auditor:
  • the balance sheet total exceeds EUR 100,000;
  • net sales or corresponding earning exceed EUR 200,000; or
  • there are more than three employees on average.

With the new Auditing Act lay auditors are no longer used. The auditors and deputy auditors must be registered in the Trade Register.
If one or more natural persons have been appointed as auditors, at least one of them must have a residence within the EEA.

TAX TREATIES OF FINLAND

Double Tax Agreements

Finland has double tax agreements with the following states and state formations (more than 119 agreements):
71 DTS: Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Egypt, Estonia, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kosovo, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Montenegro, Morocco, Netherlands, New Zealand, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Switzerland, Tajikistan, Tanzania, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet nam, Zambia.
49 TEIA: Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, Brunei Darussalam, Cayman Islands, Cook Islands, Costa Rica, Curaçao, Denmark, Dominica, Faroe Islands, Gibraltar, Greenland, Grenada, Guatemala, Guernsey, Iceland, Isle of Man, Jamaica, Jersey, Liberia, Liechtenstein, Macao (China), Marshall Islands, Mauritius, Monaco, Montserrat, Niue, Norway, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Seychelles, Sint Maarten, Sweden, Turks and Caicos Islands, United Arab Emirates, Vanuatu, Virgin Islands (British).

    Taxes of Finland

    Min. rate for corporate tax 20%
    Capital gains tax Regular rate
    VAT 24%
    Withholding tax 20%/0%/20%
    Exchange control No
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