Tax advisory services

Your Tax Advisor in Finland

Effektiivi Oy, established in 2013, is a law firm and a trusted tax and legal service provider for companies and entrepreneurs, as well as for Finnish or foreign private individuals. We also provide highly effective, professional tax services for foreign companies establishing subsidiaries or branch offices in Finland, and for owners and private individuals who need assistance with cross-border tax issues. Whilst our advice is limited to Finnish taxes, we have associates through our international network that enable us to present global solutions for your tax issues.

Anu Nikkanen, a tax lawyer and Managing Partner at Effektiivi, has over 25 years of domestic and international tax experience with a "Big Four" accounting firm, and with the Finnish Tax Administration and the Tax Payer's Association in Finland. Anu Nikkanen has also been a frequent lecturer on issues such as international taxation and foreign assignments. She holds LL.M and M.A. degrees from the University of Helsinki.

Tax services for foreign companies

Effektiivi Oy offers a variety of expert international tax advisory services for foreign companies that are planning to either start permanent business operations in Finland or carry out short-term or one-time projects in Finland.

If a non-Finnish company posts even one employee to work in Finland, or hires a local employee or engages a self-employed person in Finland, this may involve tax and legal obligations for both the non-Finnish company and for the individual working in Finland. Since sanctions for not fully complying with Finnish tax legislation may be imposed on both these individuals and the non-Finnish company, it is advisable to appoint a tax law professional to ensure that all tax, social security and other legal obligations are fully reviewed in Finland before the work commences.

We provide professional tax advisory, tax compliance and legal services in connection with the following:

Optimisation of structures for business operations in Finland
Reviewing the non-Finnish company's income tax and value added tax obligations in Finland
Entity selection and formation
Assistance with tax registrations and de-registrations
Preparation and filing of annual corporate income tax returns
Reviewing the employees' or assignees' tax residence status in Finland and advice on potential tax exemptions
Reviewing the tax and legal obligations of subcontractors and self-employed individuals in Finland
Special reporting requirements in the construction sector
Representation in tax audits and tax proceedings
Tax and financial due diligence in co-operation with a partner audit firm

NEWS

September 2023
Extension proposed for the Expert Tax Regime in Finland
In Finland, a tax resident individual's income from employment is subject to a progressive state tax, municipal tax, church tax and so-called YLE (public broadcasting) tax. The municipal tax depends on the municipality where the employee resides. Church tax is applicable only if the employee is a member of the Finnish Church. The highest marginal tax rate on salary income is approximately 50 %.

Under the Act on Foreign Experts’ Income, a non-Finnish employee may, however, be eligible for a flat tax-at-source rate of 32 % instead of progressive taxation. The Expert Tax Regime applies only to income from employment, and its application is subject to strict requirements which should always be reviewed before the employment in Finland commences. Currently, tax relief is available only for the first 48 months of work in Finland. However, in its draft budget proposal, the government of Prime Minister Petteri Orpo has proposed the extension of the Expert Tax Regime from four years to seven years. This would provide notable tax relief for foreign experts working in Finland.

March 2023
Ruling on tax fraud and unreported foreign investment income: new precedent set by the Supreme Court of Finland
Administrative penalties, in the form of either fixed late fees or sanctions calculated on a schematic formula (percentages), are most often imposed on taxpayers who fail to comply with their tax obligations in Finland. However, in more severe cases, criminal sanctions may be imposed.

Under the Criminal Tax Code, Chapter 29, Section 1, a person who
1) gives a taxation authority false information on a fact that influences the assessment of tax,
2) files a tax return concealing a fact that influences the assessment of tax,
3) fails, for the purpose of avoiding tax, to observe a statutory duty pertaining to taxation that is of significance in the assessment of tax, or
4) otherwise acts fraudulently,
and thereby causes or attempts to cause a tax not to be assessed, a tax to be assessed too low or a tax to be unduly refunded, shall be sentenced for tax fraud (veropetos) to a fine or to imprisonment for at most two years.

If considerable financial benefit is sought by way of the tax fraud, or if the offence is committed in a particularly methodical manner, and the tax fraud is also aggravated when assessed as a whole, a prison sentence of at least four months and at most four years may be imposed. In the Finnish tax practice, when the tax avoided is roughly 20,000 euros, the offence may be deemed as an aggravated tax fraud. Thus, the threshold for sentencing for an aggravated tax fraud is rather low.

On February 27, 2023, the Supreme Court of Finland set a new precedent (KKO:2023:15) in their ruling concerning the application of penalties for tax evasion (tax fraud), when private individuals fail to report investment income from foreign sources in their Finnish income tax returns.

In the case, married individuals A and B, who were tax residents of Finland, had not reported, in their tax returns, capital income received from foreign investment assets for the tax years 2013-2015. A and B were clients in a US asset management company and the profits were paid into their US personal accounts. The income consisted of dividends from quoted shares, capital gain distributions, interest income and sales profits. Neither A nor B had reported the incomes received from the United States in their respective Finnish tax returns – although A had filed a tax return to claim a household deduction. B had not filed any tax return to report income or deductions. The total income tax that would have been due from A and B for the tax years 2013-2015 was 18,221 euros.

Sentencing for a tax fraud presupposes intentionality and the Helsinki District Court announced that no evidence of intentional efforts to avoid tax liability could be proved. The Supreme Court, in turn, overruled the District Court’s decision and concluded that A and B should have deemed it at least probable that income had accrued in the US accounts of the asset management company, and that it should have been declared in the tax return in Finland. Since A and B did not comply with the declaration liability, this resulted in no tax being assessed. As a mitigating factor, the sentencing took into account e.g. that A and B had filed a claim for corrective adjustment and had voluntarily paid the taxes due. Thus, A and B were sentenced to fines – instead to a prison sentence – for tax fraud.

The Supreme Court decision (KKO:2023:15) seems to lower the threshold for tax fraud charges in cases where taxpayers have failed to report in their tax returns – either by mistake or by passivity – investment income from non-Finnish sources. The decision also imposes on taxpayers an elevated obligation to actively search for professional advice related to their Finnish tax obligations. The Supreme Court stated that the erroneous conclusions made by A and B concerning any income received, or the taxability of such income, did not release them from criminal responsibility.

In its arguments, the Supreme Court concluded that an individual’s obligation to report foreign-sourced income in their Finnish tax return is self-evident, since the Finnish tax return includes a section specifically for declaring capital income from abroad. The Supreme Court’s ruling may go too far in deducing an individual taxpayer’s ability to fully comprehend and accurately comply with the Finnish tax consequences of various non-Finnish investment vehicles and the often rather complex brokerage reports prepared only in compliance with local filing requirements. Further, if any tax on cross-border investments has already been held at source, or if an individual is a so-called dual tax resident, it is often more likely than not that the taxpayer may fail to report the income in the correct country and in the correct manner. Nevertheless, the recent decision (KKO:2023:15) sets a precedent, which means that it will likely direct the future legal practice with respect to tax fraud. For more details, please do not hesitate to contact us.

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.

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.

January 2023
An A1 certificate is now mandatory – even for short business trips
The Finnish Centre for Pensions has recently clarified its instructions regarding applications for the so-called A1 certificate. The new guidelines were published on the Finnish Centre for Pensions’ website on 20 January, 2023.

Regulation (EC) No 883/2004 governing the coordination of social security systems stipulates which country’s mandatory social security legislation is to be applied when people work abroad in the EU/EEA countries or in Switzerland. In addition, Finland has concluded similar bilateral social security agreements (often called “totalization agreements”) with Australia, Canada, Quebec, Chile, China, India, Israel, Japan, South Korea and the United States.

Thus, employers and employees may not freely choose where workers are to be insured and social security contributions are to be paid. Instead, the A1 certificate specifies which country’s social security laws must be applied and where workers are to be insured and social security contributions are to be paid.

All applications for an A1 certificate in Finland should be sent to the Finnish Centre for Pensions. It should be noted that the earlier practice of The Finnish Centre for Pensions – that no A1 certificate is needed for business trips lasting for less than one month – is no longer valid. Employers must now apply for an A1 certificate for as little as one day of work in another EU/EEA country, or in Switzerland, or in any other country with which Finland has a social security agreement.

Accordingly, if an individual works – even briefly – for a non-Finnish employer in Finland, and does not have an A1 certificate proving that the host country’s social security legislation is being applied, the non-Finnish employer must insure the employee in the Finnish social security scheme and the ensuing social security contributions must be paid in Finland from day one. Moreover, an A1 certificate is also mandatory for short-term remote work carried out for a non-Finnish employer in Finland.

August 2022
Draft bill published in Finland concerning the introduction of an exit tax
A draft bill concerning the introduction of an exit tax on natural persons emigrating from Finland was published by the Ministry of Finance on 12 August, and will be circulated for comments until 12 September, 2022. The intention is that the proposed amendments to the Income Tax Act will enter into force from the beginning of 2023 and will be applied to 2023 taxation. Introduction of the exit tax is an objective set out in the Government Programme of Prime Minister Sanna Marin. The bill is published in spite of the “Report on an Exit Tax on Natural Persons” published by the Ministry of Finance in February 2020, which did not support the introduction of an exit tax in Finland since, in the words of the Ministry, “it may have detrimental effects on Finland’s competitiveness, attractiveness as an investment target, immigration and emigration, and economic efficiency”.

The draft bill in a nutshell:

If an individual becomes either non-resident for Finnish tax purposes, or a “treaty resident” of another country under an applicable double taxation treaty, that individual may become subject to an exit tax in Finland.
Unrealized gains of the “exit tax assets” accrued while the individual was a tax resident of Finland may be taxed as capital gains, with the taxable moment being deemed as the date preceding the date of the actual move from Finland. The Finnish tax on capital gains is 30%, except in cases of capital income annually exceeding EUR 30,000, when the tax will be 34%. Although the exit taxation may be postponed, at the taxpayer’s request, until the assets are actually sold or donated, the bill also allows the Tax Administration to demand a warranty to secure payment of the tax.
No exit tax will be applied in cases where the asset is to be realized only on the 8th year of moving abroad from Finland, or later.
Only movable property will be subject to the exit tax rules. Thus, real estate located in Finland or abroad, as well as the shares of Finnish housing companies, will be excluded. Otherwise, “movable property” is interpreted rather broadly and includes, for example, the shares of listed and unlisted Finnish and non-Finnish companies, funds, options, various insurance-based investments and pension products, as well as virtual currencies.
The exit tax rules will not be applied if the market value of the taxpayer’s total assets that would otherwise be subject to an exit tax is less than EUR 500,000, and if the estimated unrealized profit from these same assets is less than EUR 100,000.
The exit tax will be applied to natural persons who have been tax residents of Finland and treaty residents of Finland for at least 4 years during the 10 years prior to their emigration from Finland.
The exit tax rules will also apply to non-Finnish citizens.

The draft bill takes no account of the already complex Finnish tax environment for non-Finnish workers and other non-Finnish individuals coming to Finland. For example, unlike in many other countries, Finland does not specify the exact number of days that will trigger Finnish tax residency. In addition, it’s not unusual for an individual’s treaty residence status to be transferred abroad, even if the individual does not actually move abroad. This may take place, for example, if the taxpayer’s spouse moves away from Finland. In addition, the draft bill would unfairly extend the exit taxation and capital income tax consequences to donations made after a move from Finland, whereas donations are normally subject to gift taxation in Finland. Furthermore, based on the draft proposal, no capital losses on the disposal of “non-exit tax assets”, including losses on the sale of real estate in Finland, would be deductible from the income tax imposed on exit capital. The draft bill prepared by the Ministry of Finance also addresses many practical and administrative complexities regarding, for example, the elimination of double taxation.

This draft bill is not final, and changes may be introduced after the period for feedback is over. However, no matter whether you are planning to move to Finland for employment, business or retirement, or whether you currently live in Finland, the impact of an exit tax on your total tax burden should be carefully reviewed.

(Update on 17 November 2022: the Government abandoned the proposal for an exit tax. Thus, no bill of an exit tax will be submitted for parliamentary consideration.)

Tax services for foreign employees and executives

We provide a wide array of tax and social security planning and compliance services for foreign employees and executives on assignment in Finland, including:

Planning the assignment or employment structure to minimize worldwide income tax and social security tax burdens
Tax relief applications for highly skilled specialists and other expatriate taxation services
Preparation of Finnish income tax returns and other required filings for foreign individuals with cross-border tax issues
Assistance with the calculation of gross-ups of assignment allowances and tax equalization computations
Resident and non-resident tax card applications
Personal investment income tax advisory and planning services during foreign assignments

Tax disputes and civil tax litigation

Domestic tax legislation and the tax treaties related especially to private individuals and entities with dual or multiple residence are often very complex. Therefore, tax decisions may occasionally be based on incorrect or incomplete facts, or unclear tax regulations may be interpreted to the taxpayer’s disadvantage. If the Tax Administration believes that the taxpayer has made erroneous deductions or tax credit claims, or if the taxpayer has mistakenly failed to file a tax return or to report any foreign-sourced income or assets in Finland, this could substantially increase the tax bill while also incurring penalties and interest. In the most serious cases, it could even lead to criminal charges.
We represent all types of taxpayers in tax disputes and civil tax litigation. We advise on how to become compliant, if tax filings have mistakenly not been fully completed for prior years, or if any disputes have arisen with the Tax Administration concerning the amount of tax you should pay in Finland. We also assist clients in civil matters by providing expertise regarding substantive tax laws, by dealing directly with the Tax Administration on the taxpayer's behalf, and by pursuing administrative appeals before the administrative courts.

We may also help with the application of so-called “advance rulings” to achieve tax certainty in more complex tax matters.

July 2022
A new decision from Finland’s Supreme Administrative Court regarding per diem and kilometre allowances as part of an employee’s total compensation package
Finland’s Supreme Administrative Court (hereinafter the SAC) issued a decision on 16 June, 2022, related to the tax treatment of per diem and kilometre allowances in cases where an employee is bound by a so-called ‘total compensation agreement’. In the SAC case, a sales representative’s salary was calculated by supplementing the base salary with commissions on sales and bonuses. The per diem and kilometre allowances that were paid to the sales representative as compensation for business travel were consequently deducted from this gross salary. The allowances were paid in accordance with the employment agreement and the Official Decision of the Tax Administration on Allowances for Travel Expenses.

In Finland, employers may pay daily allowances (per diems) to employees in order to cover reasonable increases in meal expenses and other living expenses incurred by the employees during temporary business trips to temporary places of employment. The reimbursement for these expenses is exempted from salary income tax, provided that the expenses claimed are exactly the same as what was actually spent, or provided that they are as defined in the Official Decision that is annually published by the Tax Administration. In addition, employers may pay tax-exempt kilometre allowances for travel to temporary places of employment. The rules regarding the tax exemption of travel cost reimbursements may also be applied in cases of international business travel.

The SAC issued a decision as to whether per diem and kilometre allowances may be deemed as tax exempt, even if they were not paid in addition to the salary agreed in the employment contract. Contrary to the decisions already made by the Adjustment Board and the Administrative Court at earlier stages of the appeal process, the SAC’s decision was that per diem and kilometre allowances were not to be regarded as taxable income for the sales representative. According to the Tax Administration’s written guidelines and tax practice prior to this decision of 16 June, 2022, the prerequisite for the tax exemption of per diem and kilometre allowances was that they must be paid in addition to the salary. The SAC pointed out that, on the contrary, the Income Tax Act does not impose any such conditions with respect to the tax exemption, assuming that these reimbursements are otherwise paid in accordance with the Income Tax Act and the Official Decision.

The SAC decision was not unanimous, but made by a simple majority, three judges in favour, and two against.

November 2021
Proposals to amend the Accounting Act – new liabilities for foreign companies
On 18 November, 2021, the Finnish Government proposed amendments (HE 221/2021 vp) to the Accounting Act which, when passed into law, will extend the liabilities of foreign companies. Such companies will be liable to keep accounts either in accordance with the home country legislation or the Finnish Accounting Act (depending on the home country of the foreign entity), if they carry out business activities in Finland, or if they perform the business activities elsewhere but their effective management of such activities is located in Finland.

The proposed new liabilities will enable the Finnish tax authorities to determine each foreign company’s tax obligations, based on its financial statements and other accounting material, if the foreign company has a permanent establishment in Finland or if the effective management of its activities is located in Finland. Any failure to comply with these requirements may lead to charges of accounting offences under Chapter 30 of the Criminal Code.

These amendments will come into force immediately after approval by the Finnish Parliament. The new rules will apply to accounting periods that start on or after the effective date of the new legislation.

September 2021
Inheritance from the United States – new tax practice on the calculation of sales profit
On 6 September 2021, Finland’s Supreme Administrative Court (“SAC”) issued a judgement (KHO:2021:120) that provided long-awaited clarity to the calculation of sales profit when property inherited in the United States is sold by a Finnish tax resident individual. In the case, the Finnish tax resident beneficiary had received US listed shares as an inheritance from a decedent who, at the time of death, was a citizen of the United States and a resident of California. The beneficiary was entitled to a credit that reduced the Federal Estate (Inheritance) Tax and, thus, no Federal Estate Tax was due and no tax return was filed. Neither was the estate subject to a Californian State Tax.

In accordance with the bilateral inheritance tax treaty concluded between Finland and the United States, Finland exempts some assets, including the shares of publicly listed US companies located in the United States, from Finnish inheritance tax. The beneficiary had filed with the Finnish Tax Administration an inheritance tax declaration in which, among others, the US shares were declared. The Tax Administration confirmed that no inheritance tax would be imposed on the beneficiary of the shares since, based on the tax treaty, they were exempt from tax in Finland.

The beneficiary intended to sell the shares and applied for an advance ruling from the Central Tax Board in order to receive certainty on the tax consequences of the sales in Finland.

In Finland, sales profit is calculated by deducting from the sales price both the acquisition price and the costs related to the acquisition and sales. When a private individual receives property as an inheritance, the “acquisition cost” is the value confirmed in the inheritance taxation. Alternatively, the sales profit may be calculated by using the so-called “deemed acquisition price” which is 40% of the sales price if the property has been owned for at least 10 years and 20% of the sales price if the property has been owned for less than 10 years.

The Central Tax Board issued a decision where the acquisition value of the shares in this case was EUR 0 and, consequently, only the deemed acquisition price could be applied. The beneficiary appealed this decision to the SAC and filed a claim that the actual market value of the shares on the acquisition date should be applied when calculating the sales profit. The SAC accepted the claim. In its reasoning the SAC concluded that the beneficiary had filed an inheritance tax declaration and, even though the Tax Administration had not imposed any inheritance tax, this did not imply that the shares were void of any value on the date of receipt.

Specific tax rules apply to the proceeds received from the sales of assets gained, e.g., as an inheritance, or as a gift, or based on the distribution of property after a divorce. If these cases also include cross-border aspects, the tax implications should always be carefully reviewed.

April 2021
Filing due date for corporate income tax returns extended by one month
The Tax Administration has announced that it extends the deadline for filing the corporate income tax returns. The decision applies only to corporate entities whose accounting period ended on December 31, 2020. The tax returns can be filed by May 31, 2021. Normally, the tax returns must be filed within four months. The new deadline applies to all corporate entities, such as associations, housing companies, real estate companies, foreign corporations, cooperatives and investment funds.

February 2021
New tax requirements to be introduced for shipyards
Currently, anyone who has been engaged to work at a construction site or on an installation project in Finland must apply to the Tax Administration for a tax number (veronumero) before commencing employment. In addition, before the tax number can be issued, the worker must have obtained a Finnish personal identity code. When actually working at the site, workers must wear a name tag with their photo and tax number. Each individual’s tax number will also have been entered in the Tax Administration’s tax number register.

On February 4, 2021, the Finnish Government proposed (HE 2/2021 vp) that all employees and self-employed persons working in shipyards must also apply for the tax number. The tax number registration is valid for a fixed-term of three years, after which time the worker should renew the registration. When passed into law, this new requirement would apply only to bigger shipyards where vessels longer than 24 meters are built or repaired. The requirement would enter into force on July 1, 2022.

January 2021
Economic employer concept was introduced in Sweden from January 1, 2021
Economic employer
According to the Special Income Tax Act for Non-Residents (SINK), a foreign employee employed by a foreign employer will no longer be exempt from tax in Sweden, if the employee’s work in Sweden is deemed to be part of a staffing arrangement entered into with a Swedish company. In such a case, the Swedish company will be regarded as the employee's economic employer and the employee will be taxed in Sweden from the first workday. The decisive factor determining taxation will be for whom the employee works, and not who pays the salary.

Only work carried out in Sweden for a very limited period – defined as a maximum of 15 consecutive working days, or a maximum of 45 working days per calendar year – will be exempted from the new rules.

Foreign employers will be required to withhold tax in Sweden for employees who are covered by the economic employer concept. As a consequence, foreign employers will also be obligated to register for PAYE purposes in Sweden.

Withholding of tax in no-employment situations
Swedish companies must withhold preliminary tax of 30% on payments to foreign companies for work carried out in Sweden unless such companies are registered for F-tax at the Swedish Tax Agency.
Also foreign companies must withhold preliminary tax of 30% on payments for work performed in Sweden unless the recipient of the payments is registered for F-tax at the Swedish Tax Agency.

Specific information required by the Swedish Tax Agency
The Swedish Tax Agency requires certain information from foreign self-employed individuals and from companies without a permanent establishment in Sweden in order to assess whether there is a tax liability in Sweden or not. Information regarding the time spent in Sweden and the nature of the work performed in Sweden must therefore be submitted to the Swedish Tax Agency.

The Swedish Tax Agency is preparing guidelines regarding the precise nature of the information to be submitted to the Swedish Tax Agency. These guidelines are not yet available. The information must be filed annually and the due date will be the same as the due date for income tax returns.

Actions
The rules above represent a significant change for the Finnish companies that do business in Sweden. The transition to an economic employer concept will require Finnish companies to identify and analyze those employees that may be taxable in Sweden from the first workday. Finnish companies and subcontractors will also need to assess whether they must be registered for F-tax in Sweden and what will be required in order to comply with the new rules.

October 2020
Government proposal issued: non-Finnish corporations whose place of effective management is in Finland will be treated as tax residents of Finland
In Finland, taxpayers are subject to either limited tax liability or unlimited tax liability. A non-Finnish corporation is a non-resident of Finland and is subject to limited tax liability. It is liable to pay income tax only on its Finnish-sourced income, including trade and business. Assuming a non-Finnish corporation has a permanent establishment in Finland, Finland has the right to tax only the income attributed to this permanent establishment. By contrast, a Finnish corporation is a tax resident of Finland and is subject to unlimited tax liability. In the current tax practice, a corporation is deemed as a Finnish tax resident only when it is established or incorporated in accordance with Finnish legislation.

In the Government proposal (HE 136/2020), issued on 1 October 2020, amendments are being proposed to the Finnish Income Tax Act. According to the proposal, corporations subject to unlimited tax liability will include not only Finnish corporations, but also non-Finnish corporations, if their “place of effective management” is in Finland. The bill defines the place of effective management as the location where the corporation’s significant daily management decisions are made.

The proposal aims to expand and secure Finland’s right of taxation in cases where a corporation is established abroad while the owners, management and activities are based in Finland. Thus, e.g. non-Finnish companies whose effective management is in Finland would also become tax residents of Finland. Tax residency would lead to an obligation to file an income tax return and declare worldwide income in Finland.

If the proposal is passed and becomes law, these amendments to the legislation will be effective as of January 1, 2021.

September 2020
New precedent from the Supreme Administrative Court on the taxation of foreign athletes in Finland
Signing bonuses are commonly paid to athletes in connection with signing a letter of intent or a team player contract. The signing bonus is usually considered as compensation for entering into a contract and as a reward for not playing for any other league during the term of the contract. It is paid in addition to the athlete’s base salary and performance bonuses, which in return are paid to the player in exchange for specific services rendered.

Foreign non-resident individuals are subject to tax in Finland only with respect to so-called Finnish-sourced income. Under Section 10 (4b) of the Finnish Income Tax Act, income received for personal performance as an athlete or artist in Finland is deemed as Finnish-sourced income and is therefore subject to taxation in Finland. The tax treaties Finland has concluded with other countries rarely prevent Finland from taxing this income. Usually, a salary paid to an athlete who is a non-resident of Finland at the moment of making the payment is taxed in accordance with the provisions of the Act on the Taxation of Non-Residents' Income. Thus, a non-resident tax at source of 15% is deducted from the compensation. However, in its precedent KHO:2020:96, issued on 17 September 2020, the Supreme Administrative Court ended up with a different outcome.

In the case at hand, a Finnish employer, whom we can call “Employer Ltd”, had concluded preliminary player contracts for periods of two or three seasons with a number of non-Finnish ice hockey players for playing in the team of Employer Ltd in Finland. The players were obligated to refund the signing bonus if they subsequently chose to play for another league instead. It was also agreed in the contract that Employer Ltd, and not the players, would pay the income taxes due on the players’ salaries in Finland; i.e. net salary agreements were concluded. At the time the contracts were signed and the signing bonuses were paid, the players were non-residents of Finland. But the players became Finnish tax residents when they started performing services for the team of Employer Ltd in Finland.

A tax audit was then performed on Employer Ltd. It was argued by the tax auditors that the signing bonuses had been paid in lieu of salaries only in order to avoid the higher progressive income taxation levied on resident individuals in Finland. As a result, based on the audit report, unpaid withholding taxes were imposed on Employer Ltd. According to the Supreme Administrative Court (SAC), the signing bonuses were actually related to the sporting activities the players had performed while they were tax residents of Finland. Based on the background information, the total amount of each athlete’s signing bonus and base salary during the first season was roughly the same as the total base salary paid during the second season. For example, for one player the net salary for the first season was EUR 20,000, while for the second season it was EUR 140,000. His signing bonus had amounted to EUR 120,000 net. The SAC therefore deemed that, in these circumstances, the signing bonuses should have been considered as a part of the net salaries received for the first season, and that they should have been subject to progressive withholding tax, rather than a non-resident tax at source of 15%. It was also explicitly stated in the decision that the 15% tax at source card granted by the Tax Administration did not give the employer any “protection of legitimate expectations”.

The decision KHO:2020:96 does not imply that signing bonuses paid to non-resident athletes before they move to Finland should always be considered as salary income for their playing services performed in Finland, or that the signing bonuses should be subject to the withholding tax levied on resident individuals. The tax treatment depends on the contents of each contract and on the definition of the signing bonus, as well as the structure of the athlete’s entire compensation package. In Finland, it is the employer that primarily carries the tax consequences of not deducting the correct taxes, and the Tax Administration may recover the owed amounts from the employer later. In addition, punitive tax increases and charges for negligence are often imposed. Thus, the tax consequences should be carefully reviewed beforehand in all such cases.

May 2020
The Estonian tax system in a nutshell
Estonia is known for its corporate tax system which does not tax retained earnings, instead the distribution of corporate profits, including hidden profit distributions (e.g. fringe benefits, non-business related expenses), are subject to income tax. The company is required to submit the tax return and pay tax by the 10th day of the calendar month following the month the payment was made.

The profit distribution is subject to the income tax of 20% of the gross amount (distributable amount + income tax). This corresponds to 25% (20/80) of the net amount of the distribution. Since the dividends are subject to tax on the level of the company, received dividends are tax exempt in the hands of the shareholder. Nevertheless, the received dividends are included in the calculation of personal annual allowance of the shareholder.

If the company distributes profits regularly, the tax rate could be reduced up to 14% (net tax rate 14/86, i.e. 16.28%). The lower rate applies to the amount which is smaller than or equal to the average distributed profit of the previous three calendar years on which the company has paid income tax. If dividends subject to 14% are distributed to a resident or non-resident individual, the recipient is subject to an additional 7% withholding tax, unless the tax treaty provides lower tax rate. In case the recipient of the dividends is a company, there is no withholding tax and the final tax on dividends in Estonia would be 14%.

Estonian resident individuals are subject to tax on their worldwide income. The tax rate is 20% and the taxpayer is entitled to deduct annual allowance (EUR 6,000 per year), housing loan interests, educational expenses, certain gifts and donations, unemployment insurance contributions and pension contributions. The deductions are limited to EUR 1,200, including housing loan interest deduction up to EUR 300. Furthermore, the taxpayer is allowed to deduct 20% of its rental income received from the rental of a dwelling.
The taxable period for individuals is the calendar year. The tax return must be submitted by 30th April of the year following the tax year and the income tax is due by 1 October.

April 2020
Filing due date for corporate income tax returns extended by one month
The Tax Administration has announced on April 9 that it extends the deadline for filing the corporate income tax return due to the current exceptional circumstances. The tax return can now be filed within five months from the end of the accounting period. Normally, the tax return must be filed within four months. The decision applies to corporate entities whose accounting period ended between December 2019 and February 2020. The new deadline applies to all corporate entities, such as associations, housing companies, real estate companies, foreign corporations, cooperatives and investment funds.

Individual income tax planning

We offer tax consulting services for high net worth and other private individuals and families either intending to move to Finland or already residing there.
Our services include both cross-border and domestic tax advisory:

Analysis of your current and future tax situations, based on the domestic tax legislation and tax treaties
Review of the income tax and declaration liabilities in Finland
Tax exemption or tax credit claims
Preparation of income tax returns and tax computations
Communication with the Finnish tax authorities on your behalf
Investment and pension tax planning
Inheritance and gift tax planning
Tax planning for entertainers and sports professionals
Business structuring
Cross-border social security advisory and applications
Tax advisory related to a move away from Finland

Effektiivi is a Corporate Supporter of the World Land Trust.

January 2020
Personal income tax return for 2019 – due dates and administrative tax penalties
Finland’s Tax Administration will send a pre-completed tax return form for 2019 to individual taxpayers in March-April 2020. The due dates for filing the tax return are 5 May, or 12 May, or 19 May 2020. The due date that applies to you is marked in the tax return form. If a taxpayer does not receive any tax return form, but is nevertheless liable to file a tax return, the due date will be 19 May 2020. Self-employed individuals will need to file their personal tax return by 2 April 2020. If a tax return is filed after the due date, but before the end of the tax assessment period, the fee for late return will be 50 euros for individual taxpayers. The end date for tax assessment is also marked in the pre-completed tax return form.

While the fee for late return (but before the end of the tax assessment period) is low, the tax increases imposed for other errors or oversights may be substantial and are mostly percentage-based in Finland. A tax increase will be imposed if, for example, a tax return is filed after the tax assessment period has ended, or if the tax return or information in the tax return is incomplete, or if the form has been incorrectly filled in. If, for example, an individual claims, by mistake, that a foreign tax credit is deductible in Finland (whereas it should have been claimed as deductible in the other country), a tax increase will be imposed.

The tax increase is usually between 2 and 10 per cent of an increase in taxable income. Such increase in taxable income may result from the taxpayer’s failure to report certain income, or from the taxpayer mistakenly claiming that non-deductible expenses are deductible in the tax return form. A tax increase may also be imposed even if, for example, the taxpayer paid taxes in some other country, but failed to declare in the Finnish tax return the income that would have been entitled to a full tax credit in Finland. In some cases, a tax increase is imposed based on an increase in the amount of taxes normally liable to be paid. In these cases, the tax increase may be between 2 and 50 per cent of the increase in the amount of taxes. Furthermore, if the taxpayer has erroneously declared non-Finnish earned income in the tax return form as capital income, instead of earned income (as a result of which the tax will be lower), a tax increase will be imposed on the basis of the amount of taxes. In some cases, however, the tax increase may be lowered or dismissed. It should also be noted that, in addition to the tax increases, late payment interest will also be imposed.

The imposition of a tax increase does not require any willful or negligent conduct by the taxpayer. In Finnish tax practice, tax increases may also be imposed even if an individual fails to understand the instructions for completing the tax return forms. Therefore, it is advisable to seek professional advice with respect to more complex tax affairs when filing your annual tax return.

October 2019
Non-Finnish key employees’ salary income tax will decrease to 32%
The Government has proposed amendments to the Act governing the tax-at-source of so-called key employees working temporarily in Finland. As of 1996, certain key employees have been eligible for a tax-at-source of 35% on income from employment instead of the progressive taxation. The regime is applicable for a maximum period of four years.
The Government has proposed in its Bill that the tax-at-source will decrease to 32%. The new tax rate would be applied to salary income paid as from 1st of January 2020. Currently the Act is provisional, but in the Government Bill it is also proposed that the Act will be permanent.

July 2019
New reporting obligations related to beneficial owners
As of 1st of July, 2019 most companies, including all non-listed limited liability companies and co-operatives, must file a notification of their actual beneficial owners with the Finnish Trade Register. This requirement is based on the Finnish Act on Money Laundering and the underlying EU directive. The Act on Money Laundering defines the beneficial owner as a person who either owns a company or otherwise exercises control over the company. The notification of beneficial owners should be submitted during the period from 1st of July 2019 to 1st of July 2020, and thereafter whenever the details change or a new company is set up.

The notification should be filed online at ytj.fi. The online service is available in Finnish and Swedish. Only in exceptional cases may a paper notification be filed. A company may authorize a representative to file the notification on behalf of the company. The details on beneficial owners are not published in the Trade Register. Only parties with a purpose of use in accordance with the Act on Money Laundering can obtain the details from the Trade Register.

July 2019
Taxing rights of Finland: new tax practice from the Administrative Court
In the recent case heard by the Administrative Court of Helsinki (11.7.2019 19/0508/3), a limited liability company established in the Hong Kong Special Administrative Region of the People's Republic of China had received income related to a temporary work project in Finland. The company was a Finnish non-resident and had no permanent establishment for income tax purposes in Finland. The company had applied for a so-called 0% withholding tax card from the Finnish Tax Administration.

Finland and Hong Kong had no double tax treaty in place at the time since the treaty did not enter into force until 1st of January 2019. Therefore, only the domestic tax legislation was applied when reviewing the company’s tax liability in Finland. According to the Administrative Court, the Tax Administration should not have granted the 0% tax-at-source card. The Administrative Court argued that Finland had the right to tax so-called Finnish source income in the absence of a double tax treaty even though no permanent establishment has been created in Finland. Thus, the Finnish payer should have been liable to withhold a tax of 13% from any compensation paid to the company. This decision is not final and may be appealed to the Supreme Administrative Court.

March 2019
The sale of virtual currencies should be taxed as capital gains and losses on sales also become tax deductible
The Finnish Supreme Administrative Court (SAC) issued a decision on 29th of March 2019 according to which provisions on the taxation of profits from the sales of assets are applied to the trading virtual currencies with official currencies (e.g. with euros).

The SAC decision changes the current tax practice that was also outlined in the Tax Administration's guidelines and, according to which, trading in virtual currencies is based on an agreement between the seller and the buyer. Thus, the Finnish Income Tax Act's provisions regulating the taxation of profits from the sales of assets have not been applied to the realized increase in the value of virtual currencies. As a result of this, the so-called deemed acquisition cost, which is 20% for assets held for less than 10 years and 40% for assets held for 10 years or longer, has not been applied in the tax practice to trading in virtual currencies. Any decreases in value in connection of trading virtual currencies have either not been treated as a tax deductible loss.

In the SAC case a private individual planned to sell ether virtual currency in exchange for euros or US dollars. The Central Tax Board initially stipulated in its ruling, valid for the period 1st of January 2017 - 31st of December 2017, that the profit should be deemed as other capital income, not profit from the sale of property. However, the SAC overruled the Central Tax Board's decision and found that virtual currency is the kind of property that would have been classified as taxable property under the interpretation of the Property Tax Act. Therefore, it should not be excluded from the concept of property as determined in the Income Tax Act. Likewise, any profit received for trading ether virtual currency in exchange for euros or US dollars should be regulated by the Income Tax Act's provisions on the taxation of profits from the sales of assets.

November 2018
Minimum share capital requirements to be eliminated
On 22nd of November 2018, a Government Bill (HE 238/2018) was issued proposing elimination of the minimum share capital requirement (EUR 2,500) for Finnish private limited liability companies (osakeyhtiöt). This change would also apply to limited liability housing companies. The purpose of the Bill is to ease the operations of micro and small undertakings, and generally to improve the conditions for corporate activity. The change would be effective as of 1st of July 2019.

February 2018
US citizens residing in Finland
US citizens and US tax residents ("US Persons") are taxed in the United States on their worldwide income no matter where in the world they reside. The US taxes based on citizenship, which is different than almost all other countries in the world that tax based on residence. This often catches US Persons who have never lived in the US or have lived abroad for a number years by surprise. Any US Person living abroad with income for tax year 2017 above specific income thresholds must file a US tax return. E.g. for a single person under 65 years of age the income threshold is only USD 10,400.

A US Person has a US tax filing obligation even if the US Person has never lived in the US or left several years ago and their income is from foreign (non-US) sources. The US Person has a US tax filing obligation even if some or all of the income was taxed at source or is going to be taxed by the resident foreign country, e.g. by Finland.

The IRS also wants to know about money US Persons have in foreign bank accounts. There are now two different reporting requirements for foreign bank accounts, the Foreign Bank Account Report (“FBAR”) and the individual reporting requirement under the Foreign Account Tax Compliance Act (“FATCA”). The penalties for not filing are significant.

The due date for a US personal income tax return (Form 1040) is April 15 of each year. US Persons living in Finland receive an automatic extension of time to file the tax return and pay any taxes due without penalty until June 15. However, if there are taxes due, interest will be calculated starting on April 15. A US Person can receive an automatic extension of time allowing until October 15 to file their US tax return. This extension does not extend the time to pay the tax due, so penalties and interest will be added for payments received after the tax filing deadline. US Persons who are outside the US can request a discretionary 2-month additional extension of time to file their US tax return allowing until December 15 to file. The failure to file an informational filing carries significant penalties.

US tax filings for US Persons residing abroad are often complex and require numerous informational filings. Since US Persons living in Finland are tax resident both in Finland and in the US, mitigation of double taxation should also be carefully reviewed.

Please contact us if you need further information or help with the tax return filings in Finland or in the US.

January 2018
Economic employer in Finland - new tax practise
Many countries have been applying a so-called economic employer approach in the taxation of assignees and business travellers. The Finnish Tax Administration has instead generally applied a concept of a legal employer in the context of assignees' taxation. As the result, the employee’s salary paid for the work in Finland is not subject to tax here under the so-called 183-day principle provided the employee continues to have an employment agreement with the home country employer that also pays his/her salary during the temporary work in Finland. In practise, this has meant that Finland does not usually tax employees working in Finland for a short period of time if the employer does not have any presence (a permanent establishment) in Finland. The exception is hired-out employees. Several tax treaties that Finland has concluded, e.g. with the Baltic and Nordic countries, allow Finland to tax hired-out personnel from the first day of employment in Finland.

In the recently published decision by the Administrative Court of Helsinki a so called economic employer concept was however applied for the first time. The decision was issued on January 16, 2018.

In the decision of the Administrative Court, a country manager had an employment agreement with a UK limited company which also had paid the employee’s salary. The salary costs had been charged to a branch of a Danish A/S located in Finland. The Administrative Court referred to the economic employer concept when determining which entity is the employer under Article 16.2 of the tax treaty between Finland and the UK. It seems that the Administrative Court made the decision based on cost allocation to the branch and the fact that the work would have been performed mainly on the account of the branch. Therefore, Finland would have had the right to tax the salary income. In practise no tax was imposed for the applicable tax years since the tax payer had relied on the tax authorities’ guidelines and former tax practise.

It should be noted that this decision was by a 2-1 vote. It was also applied in specific circumstances and, therefore, its application to other inbound assignments should be reviewed an a case-by-case basis. However, the decision indicates that in future the companies should more carefully investigate the potential tax liabilities of assignees and business travellers to avoid unplanned tax consequences in Finland.

January 2018
New residence permit type for startups
Legislative changes will be introduced to facilitate the immigration of startup entrepreneurs and expert employees to Finland as from April 1, 2018. A new residence permit type will be introduced for startup entrepreneurs. The permit would be granted by the Finnish Immigration Service after the Business Finland innovation funding agency has made a business assessment. The estimated handling time for the application would be a few weeks and the first permit would be issued for two years. It has also been proposed that expert employees' first residence permit would be issued for 2 years instead of the current 1 year.

Extensions of all residence permits may in future be filed online, without personally visiting the Finnish Immigration Service.

November 2017
Education in the “interest of the employer” will be tax exempt as from 2018
The Finnish Parliament has approved the Government Bill for the amendment of the Finnish Income Tax Act. Until now, there has not been any specific stipulation concerning the taxation of employer-provided education. The costs of basic or higher education reimbursed by the employer have been generally deemed as a taxable benefit for the employee. There are, however, various tax practises on this matter.

Under the new Article 69b of the Finnish Income Tax Act, the employer may reimburse the employee for the costs of the education tax-free if this takes place “in the interest of the employer”. As a result of this amendment to the law, an employer may more often provide tax-free educational assistance to the employee. This would also comprise e.g. reimbursement of fees for tuition, leading to a degree.

July 2017
Posting employees to Finland? - a notification duty enters into force as from September 1, 2017
A foreign company posting employees to Finland should notify the Occupational Safety and Health Administration (OSH) in Finland. The reporting duty enters into force on the 1st of September 2017. The notification should be filed before the work in Finland commences. The reporting requirement applies if employees are posted by the same company to Finland for more than 5 days during the previous four months. In the construction sector the notification should always be filed. The notification should be filed electronically. The information required in the notification includes e.g. identifying details of the company (e.g. tax ID), contractor details, estimated number of the posted employees, identifying details of the representative in Finland, starting date and work location.

The failure to comply with the legislation (a reporting liability or an obligation to appoint a representative) may lead to sanctions, amounting to EUR 1,000-10,000. We would be happy to provide further information.

January 2017
The period for appealing taxation has been amended
Individuals and companies may seek a change to their taxation decision by filing a written claim to the Taxation Adjustment Board. The decision of the Taxation Adjustment Board can be appealed to the Administrative Court. Further, the decision of Administrative court can be appealed to the Supreme Administrative court provided it grants leave to appeal. Also previously, the appeals should have been filed within a specific period. As from 2017, the period for appealing taxation was shortened, and the appeal should be filed significantly earlier. For the tax period beginning 1 January 2017 3-year time period will be applied. The period for appealing taxation to the Administrative Court dramatically changed as well since, according to the amended legislation, the appeal shall be filed in 60 days.

November 2016
Totalization agreement between Finland and China
Totalization agreement between Finland and China will enter into force on 1 February 2017. The agreement would cover pension and unemployment benefits. As of result of the agreement, Finnish employees posted temporarily to work in China may remain covered by the Finnish pension and unemployment scheme for five years.

October 2016
Since 1 January 2016 royalties paid from Finland to Estonia have been exempted from tax at source
In accordance with a tax treaty between Finland and Estonia, Finland has had the right to tax royalties arising in Finland and paid to a resident in Estonia. The tax at source has been 5%-10%.

However, due to new developments no tax at source can be levied on royalties paid from Finland to Estonia. This change was introduced when Estonia agreed with another tax treaty country that royalties should be taxable only in the recipient’s home state. Based on the so called most-favoured nation clause this same principle applies retroactively also to the Finnish-Estonian tax treaty and royalties covered by this agreement.

June 2016
Law on posted employees amended
The new legislation on posted employees entered into force on 18 of June 2016. The amended new law is applied to foreign companies and it imposes new obligations to the companies posting employees temporarily to work in Finland. The law does not as such introduce new changes to the employment conditions of the posted employees. The major new requirement is that the foreign employer is obliged to report to the occupational safety and health authorities that the company is posting employees to Finland. Earlier, companies did not have such reporting liabilities. The notification requirement will enter into force during 2017. The law introduced also new penalty payments.

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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.

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