February 2023
The Finnish Tax Administration’s recent guidelines on remote working from a home office and on the creation of a Permanent Establishment (PE)
The Covid-19 pandemic normalized remote work and caused a permanent shift towards working from home or hybrid working. However, an employee based in one country and working remotely from a home office for an employer located in another country may trigger complex cross-border tax, social security and labour law obligations for the employing company. A major concern for any company is the creation of a so-called “Permanent Establishment” (PE) in the country where the remote work is performed. If a non-resident foreign company has a PE in Finland, the Finnish tax authorities have the right to impose income tax on the income attributable to the PE.
The Finnish Tax Administration recently (on 27 January 2023) issued updated guidelines (“The income taxation of non-resident foreign corporate entities”) that clarify the conditions under which remote working shall be deemed to constitute a PE in Finland. Below we have summarized the Tax Administration’s recent views on the PE risk related to work performed from a home office.
Even if a non-Finnish company has no PE in Finland, it may still have other obligations, such as those related to payroll reporting, social security or labour law, related to its employees working in Finnish territory, and these obligations should be reviewed case-by-case. Such obligations cannot be “delegated” from the foreign employer to the employee by mutual agreement. Foreign companies that have employees doing remote work in Finland are, therefore, advised to carefully review these obligations before the remote work in Finland commences.
The Finnish Tax Administration recently (on 27 January 2023) issued updated guidelines (“The income taxation of non-resident foreign corporate entities”) that clarify the conditions under which remote working shall be deemed to constitute a PE in Finland. Below we have summarized the Tax Administration’s recent views on the PE risk related to work performed from a home office.
- According to the Tax Administration, if an employee or a director of an enterprise works from a home office located in Finland, this may be deemed to constitute a PE. This will require that the employee or director has a space at home through which they work on a permanent basis. Working from home non-recurrently or randomly is not considered permanent.
- Any work of so-called auxiliary or preparatory character will not, however, create a PE. For example, advertising, the collection or supply of information, or scientific research may be deemed to be activities of preparatory or auxiliary nature. However, activities cannot be considered preparatory or auxiliary if they constitute an essential and significant part of the activity of the foreign company as a whole, or if they make up a business unit of their own.
- Remote work will always be deemed to constitute a PE if an enterprise has business-related interests to carry out the work in Finland. Such interests shall include the provision of services for customers in Finland, and any connections between the work done and the sales targeted at Finland or Finland’s neighbouring areas, including the Nordic and Baltic countries. Working remotely from a home office exclusively at an employee’s own request, without any business-related connection, shall not constitute a PE in Finland.
- If an enterprise provides an employee with an office space, but the employee works from a home office located in Finland at their own request, the employer cannot be considered to have demanded the use of the home office to pursue the enterprise’s business activities, provided that the business connection described above and the need to work specifically from Finland do not exist.
- If an employer provides no opportunity to use the enterprise’s facilities, even if the proper fulfilment of tasks requires an appropriate office space, the enterprise can be considered to have demanded the use of a home office in which to pursue the enterprise’s business activities. In this case, the question of whether the enterprise’s activities are targeted at Finland shall be considered irrelevant, as the home office shall be deemed to constitute a PE for the foreign enterprise in Finland, except in those cases where the activities pursued from the home office are deemed to be of an auxiliary or preparatory nature only. The employer shall also be considered to have demanded the use of a home office if – despite the fact that the employee would be willing and able to work in the enterprise’s office space from time to time – the employer demands that certain employees must work from home on certain days because the enterprise’s office space is not sufficient for all employees at the same time. Furthermore, the employer shall also be considered to have required the use of a home office in situations where the employer reimburses an employee for the use of a home office by, for example, paying rent or other accrued costs.
Even if a non-Finnish company has no PE in Finland, it may still have other obligations, such as those related to payroll reporting, social security or labour law, related to its employees working in Finnish territory, and these obligations should be reviewed case-by-case. Such obligations cannot be “delegated” from the foreign employer to the employee by mutual agreement. Foreign companies that have employees doing remote work in Finland are, therefore, advised to carefully review these obligations before the remote work in Finland commences.
Legal Disclaimer
The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
The information in this site has been prepared for general informational purposes only and it should not be used as a substitute for consultation with a professional tax, legal or other competent advisor. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, Effektiivi Oy is not responsible for any errors or omissions, or for the results obtained from the use of this information.
