Taxation in Finland

Taxation in Finland is carried out by the State of Finland, mainly through Finnish Tax Administration, an agency of Ministry of Finance. Finnish Customs and Finnish Transport Safety Agency Trafi also collect taxes. Taxes collected are distributed to the Government, municipalities, church, and social security institution Kela.[1]

Taxation by type

Earned Income Taxes

Earned gross income is taxed by a progressive state tax[2] (tax brackets 6.5% – 31.75%) and proportional communal taxes paid to municipalities (16.5% – 22.5%, average 19.17%) and parishes (1.00% – 2.00%, average 1.34%). The permanent residents of Finland have also to pay health insurance contributions, medical care fee (1.19%) and daily allowance contribution (0.82%). There is an earned income tax credit for local taxes, making them slightly progressive despite their fixed rate.

The tax-like mandatory insurance fees are withheld from the wages. They are fully credited from the income taxes. The employee's pension and unemployment insurance fees have rates varying according to the person's age but they are usually at 4.7% and 0.6%, respectively. Above rates are as of year 2016.

The total income taxes including the mandatory insurance fees were 29.8% for an average yearly income of 37,400 € in 2010.

The Finnish state income tax brackets for the year 2016.
Taxable earned income (euros) Basic tax amount Rate within brackets
16,700–25,000 8 6.5%
25,000–40,800 547.50 17.5%
40,800–72,300 3,312.50 21.5%
72,200– 10,085 31.75%

The tax authority collects income taxes from each paycheck, and then pays the difference between tax liability and taxes paid as tax rebate or collects as tax arrears afterward.

Indirect Income Taxes

There are also indirect tax-like mandatory social security contributions and insurance fees paid by employer in addition to the gross income. The social security contribution is 2.12% of the gross income. The pension and unemployment insurance fees depend on the age of the employee and the size of the employer, they are usually 18.3% and 3.2% of gross income, respectively.

Dividend and Capital Gain Taxes

The income from dividends, rents, and capital gains are taxed with investment income tax. The investment income is taxed at fixed rate of 30% or 32% for income that exceeds 50 000 euro.

Whether listed or unlisted limited company, at least 30% of dividends received are categorized as tax free income. Rest of the dividends received is categorized as capital income from listed limited companies and as capital income and/or earned income from unlisted limited companies. Theoretically, the effective dividend tax rate from publicly listed companies is 21% - 22.4% because of a tax credit of at 30% for dividends from listed companies. However practically, recipients of dividends in Finland, paid (year 2011) taxes less than 2%(two), due of multiple ways of tax reductions, deductions and arrangements provided by the current Finnish law.

The most simple tax credits for dividends from non-listed companies vary depending on the wealth of the company (earned equity) in the company. Part of the dividends may be taxed as earned income in case the equity in a non-listed company is not sufficient. When equity of the company is big enough, each shareholder may receive dividends 60.000 EUR per year tax free, on top of the 30% tax free from the dividends received from dividends in excess of 60.000 EUR per year (Finnish Income Tax Law, Art 33).

Corporate Taxes

The corporate income tax rate is 20.0%. The corporate tax was fully credited in dividend tax before 2004, but because the neutrality requirements by EU, the tax credits allowed for dividends are now more complex. The corporate tax was lowered from 24.5% to 20.0% in January 2014.[3]

Property Tax

Municipal property taxes are low, since municipalities mostly meet their funding needs via direct income taxes and state subsidies. Tax rates are higher for leisure properties like summer cottages. Property taxes are levied annually on present market value. General rates are 0.60–1.35%, 0.32-0.75% on regular housing and 0.50-1.00% on leisure properties.

There is a 4% property transfer tax for property, and 1.6% for stock and housing cooperative shares. First-time home buyers home are exempt.

VAT and Excise Taxes

VAT is levied at a standard rate of 24%[4] (January 2013), and two reduced rates of 14% on food, restaurant services, catering services and animal feed, and 10% on books, pharmaceutical products, services creating opportunities for physical exercise, passenger transportation and accommodation.[5]

Excise taxes are in place for alcohol, tobacco, sweets, lotteries, insurances, transport fuels and automobiles (2011). The motor vehicle tax is substantial. As a rule, permanent residents cannot drive foreign-registered cars in Finland. Persons with permanent residence outside Finland may drive foreign-registered car in Finland for six months, or up to 18 months if residence abroad is separately proven to Customs.[6]

Pharmacies pay only the excise tax from their yearly income; no VAT is levied on medications. There is a tax credit for pharmacies that keep subsidiary pharmacies (sivuapteekki). The aim of this policy is to support keeping pharmacies in sparsely populated regions.[7]

Pension Fees

The mandatory pension fees are paid directly to the pension insurance company selected by the employer or entrepreneur. The pension fees total 23% of the gross income (2011), usually 4.7% is deducted from gross income and the rest of the 23% is paid by the employer in addition to the gross income.

The voluntary pension insurance fees or transfers to a personal pension account are credited in earned income taxation up to 5000 € per year.

According to Finnwatch 60–70 % (€37 billion) of Finnish pension funds are invested in the tax havens.[8] Political parties have different agendas in respect to tax havens.[9]

Church Tax

Taxes are collected from members of the two official churches, Evangelical Lutheran Church of Finland and Finnish Orthodox Church, and two country-wide Lutheran parishes; the German parish in Finland and Olaus Petri parish for citizens of Sweden living in Finland. The tax rates vary from 1 to 2% of earned income. Persons that are not members of these churches are exempted from paying. A small percentage, 2.55% as of 2011,[10] of corporate taxes is also distributed to parishes. Corporates pay church tax regardless of corporations' religious status.

Publicity of income taxes

Even when information of earnings and the taxation procedure of individual persons and companies are not public, the amount of taxes carried for each person and company is public information. Tax Administration authority is required to submit information for free if request is targeted. Larger records are submitted for journalistic purposes. Capital income and earned income, are both public information, while taxation of divideds from unlisted limited company is not.

Taxation of non-residents

Anyone who has arrived in Finland and stayed longer than 6 months will become, from Tax Administrator's view, a resident. The residents' worldwide income is subject to Finnish tax, so that no distinction exists between the source country. Non-residents are subjected only to taxation of Finnish-sourced income.[11]

ID number and Tax number

Persons working in Finland for a short period can get their Finnish personal ID at the tax office. The Finnish Tax Administration is entitled to enter information into the Population Register System and distribute identity codes jointly with Local Register Offices if the matter concerns foreigners who arrive for temporary periods, i.e. less than one year to work in Finland. ID requires following information entered to the system: Full name, Date of birth, Sex, Place of birth, Address, Citizenship, Native language and Occupation.[12]

In association of measures against grey economy in the construction industry, A new Act governing the mandatory Tax Numbers and the public Register of Tax Numbers was adopted in 2012. At the moment mandatory Tax Numbers are issued for construction-industry workers only. The Individual Tax Number does not reveal the individual's age, sex or date of birth. The number doesn't change when a worker moves on to work for another employer or to work at another construction site.[13]

Withholding tax for foreign wage earners with special expertise

Under the Act on Withholding Tax for Foreign Wage Earners with Special Expertise (1995), a withholding tax of 35% is levied instead of State income tax on earned income and communal tax. The withholding tax is applied to foreign employees under the following conditions:

A taxpayer is deemed to be a foreign expert for a maximum of 48 months from the beginning of the employment.[14]

Officials of the European Union

Salaries or grants paid by the European Union bodies, such as European Chemicals Agency in Helsinki, are tax-free in Finland and do not need to be reported to the Finnish Tax Administration or Finnish social security. Employees of European Union bodies may bring a car to Finland without paying the Finnish car tax.

See also

References

  1. ↑ Taxation in Finland. Ministry of Finance publications 04.05.2009 Referenced 3.6.2014.
  2. ↑ Income taxation of individuals. Web page, Finnish tax authority Referenced 3.6.2014.
  3. ↑ Finland to lower corporate tax rate by 4.5pc Independent.ie, 22 March 2013.
  4. ↑ "VATGlobal".
  5. ↑ Changes in VAT on 1 January 2013. Web page, Finnish tax authority Referenced 3.6.2014.
  6. ↑ http://www.tulli.fi/fi/tiedotteet/lehdistotiedotteet/0000_tiedotteet/tiedote_20130422_3/index.html
  7. ↑ Fimea.fi
  8. ↑ Eläkevaroja muiden maiden verorahoilla? Finnwatch 13.05.2014
  9. ↑ Finnwatch: Puolueet puuttuisivat eri tavoilla veroparatiiseihin? Finnwatch 5.5.2014
  10. ↑ Vm.fi
  11. ↑ Arriving in Finland from overseas. Web page, finnish tax authority Referenced 3.6.2014.
  12. ↑ Finnish personal identity codes for short-term use. Web page, Finnish tax authority Referenced 3.6.2014.
  13. ↑ Individual Tax Numbers. Web page, Finnish tax authority Referenced 3.6.2014.
  14. ↑ Taxation in Finland. Ministry of Finance publications 04.05.2009 Referenced 3.6.2014.

Further reading

Colliander, Anders (April 2009). Taxation in Finland 2009 (PDF). Ministry of Finance publications. 7/2009. Ministry of Finance. ISBN 978-951-804-932-9. 

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