Individuals resident in Finland are taxed on their worldwide income. However, salary earned abroad is exempt from tax in Finland if a Finnish resident works abroad continuously for at least six months and satisfies certain other requirements. Nonresident individuals are subject to income tax on income from Finnish sources only.
Domestic law treats an individual as resident if his or her permanent home is in Finland or if he or she stays in Finland a continuous period of more than six months. The stay in Finland may be regarded as continuous even in the event of a temporary absence from the country.
In the case of emigration, foreign citizens become nonresidents for Finnish tax purposes at the time they leave the country and surrender their permanent home in Finland. With respect to a Finnish citizen, he or she is still considered to be resident in Finland until three years have passed from the end of the year when the individual left the country, unless he or she can establish that no essential connections with Finland have been maintained.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Taxable income is calculated separately for earned income and capital income (see Capital gains and losses). Business income is divided between earned and capital income (see Self-employment and business income).
Earned income is subject to national income tax, municipal income tax and church tax. Taxable earned income is generally computed in the same manner for each of these taxes, although the deductions and credits allowed for each tax differ slightly.
Earned income consists of salaries, wages, directors’ fees and benefits in kind. Fringe benefits, including a company car, housing and lunch vouchers, are taxed on values set forth in an official table that are lower than the actual costs incurred. Scholarships from private institutions are exempt, up to approximately EUR20,000 (2016 tax year).
Under a special expatriate tax regime, qualifying expatriates may elect to be taxed on their salary income at a rate of 35% for a period of up to 48 months, instead of at the normal progressive income tax rates.
Self-employment and business income. Self-employment income of residents is considered to be business income. Taxable business in come is apportioned between capital income and earned in come. The amount of capital income is determined using a 10% or 20% rate of return on investment and is taxed at the 30% or 34% rate applicable to capital income (see Capital gains and losses). The remainder of taxable business income is taxed as earned income according to the progressive income tax scale (see Rates).
Taxable business income consists of profits shown in the statutory accounts required for self-employed individuals. Accounting profit and taxable profit are, in principle, the same, although the tax law prescribes a number of adjustments.
Investment income. For Finnish individuals, the taxation of dividend income depends on several factors. If the distributing company is a listed company that is resident in a country with which Finland has entered into a tax treaty, 85% of the dividend is taxable capital income. The remaining 15% is exempt from tax. Dividends from unlisted companies may be exempt from tax, taxed as capital income or taxed as earned income (similar to salary), depending on the net assets of the distributing company and the country of residence.
For residents, interest income on bank deposits and bonds is subject to a 30% final withholding tax. Certain government bonds are exempt from this tax.
In 2016, 55% of the interest on housing loans and 100% of interest on loans related to the deriving of taxable income are deductible from capital income. In general, 30% of the excess of deductible interest expense over capital income is deductible from income taxes on earned income. How ever, this credit is limited to EUR1,400 for a single person and EUR2,800 for a couple. The maximum amount deductible is increas ed by EUR400 for one child and by EUR800 for two or more children.
For nonresidents, dividends and royalties paid from Finland are subject to a 30% final withholding tax, unless a tax treaty provides otherwise. In most cases, interest paid to nonresidents is tax exempt.
Taxation of employer-provided stock options. Stock options provided by an employer are not taxed at the time of grant. At the date of exercise, the difference between the fair market value of the underlying stock and the exercise price of the option is treated as taxable employment income. Employee social security contributions are not payable on the benefits except for the health insurance contribution of 1.3% (plus a surcharge of 0.17%). Similarly, stock options are not usually subject to employer’s social security contributions. The base for the employee contribution is generally the taxable amount.
Any gain derived from the subsequent sale of the stock is taxed as a capital gain under the rules described in Capital gains and losses.
Capital gains and losses. Capital gains on shares and real estate are taxed as capital income at a rate of 30%. If the capital income received during a calendar year exceeds EUR30,000, the excess income is taxed at a rate of 34%. A taxable capital gain is computed by deducting from the disposal proceeds the greater of the acquisition cost plus the sales cost, or 20% of the proceeds (40% for property owned for at least 10 years before disposal). The value used for property received by gift or inheritance is generally the value used for purposes of the gift and in heritance tax (see Other taxes). However, certain exceptions may apply.
A capital gain resulting from the sale of an apartment or house that the seller used as a primary residence for at least two years during the time of ownership is exempt from tax.
Capital losses are deductible from all capital income in the year of the loss or in the five following years.
Deductible expenses. In general, a taxpayer may deduct all expenses directly incurred in generating or maintaining taxable income. However, separate deductions apply for earned income and capital income. See Investment income for deductions applicable to capital income.
The following are the primary deductions applicable to earned income:
- Travel expenses that exceed EUR750 incurred between home and office, up to a maximum of EUR7,000
- Payments to labor unions
- Standard deduction from salary income, up to a maximum of EUR620
- Expenses incurred in connection with earning income, to the extent they exceed EUR620
- Employee contributions for health insurance per diem, unemployment insurance and pension
Contributions paid by individuals to voluntary pension insurance are generally deductible for tax purposes up to certain maximum limits from capital income.
Business deductions. Expenses incurred to create or maintain business income are generally deductible. Exceptions apply to salaries paid to entrepreneurs, their spouses and their children under 14 years of age who work for their business.
Interest expenses relating to business or farming activities are deductible for business or farming income purposes in determining taxable income from these activities.
Rates. Income tax consists of national tax, municipal tax and church tax (payable if the individual is a member of a Finnish congregation).
National income tax. For 2016, national income tax is imposed on individual residents at the following progressive rates.
|Taxable income (EUR)
Exceeding Not exceeding
|Tax on lower
Municipal tax. For 2016, municipal tax is levied at a flat rate that ranges from 16.5% to 22.5% of taxable income, depending on the municipality.
Church tax. For 2016, church tax is payable by members of certain churches at rates ranging from 1% to 2.2%.
Nonresidents. Nonresidents’ Finnish-source pension income is taxed in a similar manner to pension income received by residents; that is, they are subject to tax at the progressive rates.
Salaries, including directors’ fees received by nonresidents, are subject to final withholding tax at a rate of 35%, unless a tax treaty provides otherwise. Nonresidents may deduct EUR510 per month (or EUR17 per day) from salary. This standard deduction may be claimed only if a Finnish tax at source card has been applied. The deduction does not apply to the directors’ fees. In addition, nonresidents can apply for progressive taxation. If a nonresident is entitled to progressive taxation, his or her income is taxed under the Act on Assessment Procedure and he or she is entitled to claim all deductions provided in the Income Tax Act.
Remuneration paid to a nonresident artist or athlete for a personal performance is subject to withholding tax at a rate of 15%, unless a tax treaty provides otherwise. If artists and athletes are subject to the 15% tax, they may not claim the standard deduction of EUR510. However, they can apply for progressive taxation.
Relief for losses. A business loss is deductible from capital in come. Any excess loss from a business may be carried forward for 10 years and offset against business income. Any loss from earned income may be carried forward for 10 years and offset against in come from the same category.
Wealth tax. Finland does not impose wealth tax.
Inheritance and gift taxes. Inheritance and gift taxes are levied on inheritances, testamentary dispositions and gifts. All property owned by a person resident in Finland or received by a person resident in Finland is taxable. If both the owner and recipient are nonresidents, the tax applies only to real property located in Finland and to shares in a corporate body in which more than 50% of the assets consists of Finnish real property. A tax credit is allowed for estate or gift tax paid abroad on the same inheritance or gift if the recipient is resident in Finland at the time of the taxable event.
Beneficiaries are divided into the following two categories:
- Spouses, children, spouses’ children and grandchildren, grandchildren, parents and grandparents (first category)
- Other related and unrelated individuals (second category)
Inheritance tax is imposed in the first category at the following rates for 2016.
|Taxable amount (EUR)
Exceeding Not exceeding
|Tax on lower
The following are inheritance tax rates for the second category.
|Taxable income (EUR)
Exceeding Not exceeding
|Tax on lower
For 2016, the following deductions may be applied against the taxable share for inheritance taxation:
- Widow/widower deduction of EUR60,000
- Minority deduction of EUR40,000 (applies to direct heirs under 18 years old)
For 2016, gift tax is imposed in the first category above at the following rates.
|Taxable amount (EUR)
Exceeding Not exceeding
|Tax on lower
The following are the gift tax rates for the second category.
|Taxable amount (EUR)
Exceeding Not exceeding
|Tax on lower
Inheritance and gifts from one person to the same beneficiary during a three-year period are aggregated to determine the amount of the tax due.
Finland has entered into an inheritance and gift tax treaty with Denmark and Iceland, and inheritance tax treaties with France, the Netherlands, Switzerland and the United States.
The social security tax is imposed on employers, employees and self-employed individuals. For employees and self-employed individuals in 2016, the social security contributions consist of a Medicare contribution and a per diem contribution. The per diem contribution is 0.82% of salary income (excluding certain items, such as employee stock options), and the Medicare contribution is 1.3% of municipal taxable income. Pensioners pay an increased Medicare contribution at a rate of 1.47%. In addition, for employees, a 5.7% compulsory pension insurance premium and a 1.15% unemployment insurance premium apply to earned income subject to withholding tax. The compulsory pension insurance premium is 7.2% for employees over 53 years of age.
For employers, social security taxes are levied as a percentage of gross wages and salaries subject to withholding tax. No ceiling applies to the amount of wages subject to social security taxes. The average total percentage of all contributions for private-sector employers is approximately 24.43%, which consists of 2.12% for sickness premiums (employer’s social security premium), 0.07% for group life insurance premiums, pension premiums that average 18%, 0.8% for average accident insurance premiums and 1.0% for unemployment insurance premiums (3.90% for salaries exceeding EUR2,044,500).
To provide relief from double social security taxes and to assure benefit coverage, Finland has entered into totalization agreements with European Economic Area (EEA) countries and European Union (EU) countries.
Finland has also entered into bilateral totalization agreements with Australia, Canada, Chile, India, Israel, Quebec and the United States. The material scope of the bilateral totalization agreements varies.
Finland has entered into bilateral social security agreements with China and Korea (South), but these agreements are not yet in force.
For assignments to Finland from a country other than an EU/EEA country, Switzerland or a totalization agreement country, employees working in Finland for foreign employers are exempt from the pension insurance contributions for the initial two years of an assignment. Employees can apply for a prolonged exemption.
Tax filing and payment procedures
The tax year in Finland is the calendar year. Married persons are taxed separately on all types of income. Pre-filled tax returns are sent to all individuals in April of the year following the tax year. The individuals must review the pre-filled tax return and submit any corrections to the tax authorities within the specified time limit.
To reduce the amount of the residual tax and interest, a supplementary advance tax payment can be made during the first nine months of the year following the tax year. The interest can be fully avoided by making a sufficient advance payment by the end of January. If no action is taken, residual tax payments must be made in December of the year following the tax year and in February of the following year. Refunds of overpayments are made in December of the year following the tax year.
An employer must withhold tax from an employee’s salary for national, municipal and church tax purposes. In addition, an employer must withhold social security contributions (see Section C). Self-employed individuals must make monthly tax payments, which are calculated and levied separately by the tax authorities.
Self-employed individuals receive their pre-filled tax returns in March of the year following the tax year, and they must submit their corrections to the tax authorities within the specified time limit. The tax authorities assess final tax at the end of October of the year following the tax year.
Nonresidents who are subject only to final withholding taxes do not need to file tax returns. However, if the nonresidents want to apply for progressive taxation, they must file a tax return (see Section A). Nonresidents must always declare all of their immovable property located in Finland.
Double tax relief and tax treaties
Most of Finland’s treaties are based on the Organisation for Economic Co-operation and Development (OECD) model. Most tax treaties eliminate double taxation using the credit method, but some use the exemption method. If no treaty is in force, Finnish law provides, under certain conditions, relief for foreign taxes paid, but only for purposes of national income taxes.
Finland has entered into double tax treaties with the following jurisdictions.
Argentina Guernsey (a) Pakistan
Armenia Hungary Panama (a)
Aruba (a) Iceland Philippines
Australia India Poland
Austria Indonesia Portugal
Azerbaijan Ireland Romania
Barbados Isle of Man (a) Russian
Belarus Israel Federation
Belgium Italy Singapore
Bermuda (a) Jamaica (a) Slovak Republic
Botswana (a) Japan Slovenia
Brazil Jersey (a) South Africa
British Virgin Kazakhstan Spain
Islands (a) Korea (South) Sri Lanka
Brunei Kyrgyzstan Sweden
Darussalam (a) Latvia Switzerland
Bulgaria Lithuania Tajikistan
Canada Luxembourg Tanzania
Cayman Macedonia Thailand
Islands (a) Malaysia Turkey
China Malta Ukraine
Costa Rica (a) Mexico United Arab
Cyprus Moldova Emirates
Czech Republic Morocco United Kingdom
Denmark Netherlands United States
Egypt Netherlands Uruguay
Estonia Antilles (a) Uzbekistan
France New Zealand Vietnam
Georgia Niue (a) Yugoslavia (b)
Germany Norway Zambia
a) This is a convention on exchanging information and a concise tax treaty.
b) Finland applies the Yugoslavia treaty with respect to Bosnia and Herzegovina, Croatia, Montenegro and Serbia.
EU and EEA nationals. EU and EEA nationals are free to stay and work in Finland for up to three months. After the three-month period, an EU/EEA national must register his or her residence with the local police office.
Non-EU and non-EEA nationals. Citizens from non-EU and nonEEA countries usually need a Schengen visa in order to enter Fin land. However, under the Schengen treaty, nationals of approximately 50 countries do not need a Schengen visa to enter and stay in the Schengen zone for a combined maximum period of three months if they have a valid passport or other approved travel document, as well as sufficient funds for living and a return trip.
The Schengen zone consists of the following countries.
Austria Hungary Norway
Belgium Iceland Poland
Czech Republic Italy Portugal
Denmark Latvia Slovak Republic
Estonia Liechtenstein Slovenia
Finland Lithuania Spain
France Luxembourg Sweden
Germany Malta Switzerland
Employees’ residence permits and self-employment
Employees’ residence permits. Under the Aliens’ Act, an individual coming to work in Finland usually needs either a so-called employee’s residence permit or an ordinary residence permit. Exceptions to this requirement may be granted based either on the employee’s nationality or on the type of work performed in Finland.
EU and EEA nationals do not need employees’ residence permits.
Non-EU and non-EEA nationals need either an employee’s residence permit or an ordinary residence permit in order to work in Finland. Usually, an employee’s residence permit is needed. The obtaining of the permit is a two-step process, which includes an opinion from the employment office before the Finnish Immigration Service’s final decision. If an employee performs, for example, expert duties in the middle or top management of the company or duties requiring special expertise, an employee needs only an ordinary residence permit. As a result, the employment office’s opinion is not required.
The application must usually be submitted to the Finnish consulate or embassy in the applicant’s home country before arrival in Finland. The first permit is generally granted for one year, but for no longer than the duration of the employment. Renewal of a residence permit may be obtained at the local police station in Finland.
Self-employment. Private entrepreneurs who are nationals of nonEU and non-EEA countries must apply for a self-employed person’s residence permit, following the same procedures as an em ployee. Self-employed persons must prove that they are entrepreneurs through a trade register excerpt or other proof of professional status.
Students. Students who are non-EU or non-EEA nationals are usually allowed to work part-time (up to a maximum of 25 hours per week on average) without employees’ residence permits.
Ordinary residence permits
Nordic country nationals. Nationals from other Nordic countries do not need residence permits. If they want to take up residence in Finland, they must register with the population register.
EU and EEA nationals. Nationals from EU and EEA countries do not need residence permits. However, EU and EEA nationals who stay in Finland for longer than three months must register their right to reside in Finland at the local police office.
Non-EU and non-EEA nationals. A non-EU and non-EEA national must apply for a residence permit at the Finnish embassy or consulate in the area where he or she was last domiciled or in his or her country of citizenship. The first residence permit is usually valid for one year, and a renewal may be obtained at the local police station. After a person has stayed in Finland for at least four years, he or she may apply for a permanent residence permit.
Students may usually obtain residence permits to study in Finland if the program is arranged by the Ministry of Foreign Affairs, the Ministry of Education or the university itself. An applicant must have grants, student loans or other financial aid.
Family and personal considerations
Family members. Family members of residence permit holders, including the spouse and children, who are dependents or who are under 18 years of age, may apply for residence permits as family members of the primary applicant.
Driver’s permits. EU and EEA nationals may drive legally in Finland with their home country driver’s licenses as long as these licenses are valid in the home country. They may also obtain a Finnish driver’s license after residing in the country for six months without any tests if the home country license is still valid.
Finland has driver’s license reciprocity with certain countries. Nationals of these countries may use their home country driver’s licenses in Finland for the first 24 months of their residence. They may apply for a local Finnish driver’s license after residing in the country for a period of six months. The Finnish driver’s license is then issued without a test. If these foreign nationals do not apply within the first 24 months of their stay, the Finnish driver’s license is not issued automatically. After that time, they must take the Finnish driving test, which consists of written and physical tests and is considered quite demanding.