Finland Tax & Business Guide - Deloitte

/Home/E-F Countries/Finland (Country Code 358)/Finland Tax Resources

Basic facts
Population 5.2m Inflation 1.6% (2006)*
Main languages Finnish, Swedish GDP per head US$40,099*
Currency Euro (ƒ) GDP growth 5.3% (2006)*
Economic communities EU, European Economic Area, OECD, WTO
GDP sources 2.5% agriculture, 32.3% industry, 65.1% services
*Economist Intelligence Unit estimates.
Political environment

Finland is a parliamentary republic. Co-operation among the major parties is traditional; diverse coalition governments are common.

The president is Tarja Halonen.
Foreign trade and investment
Exports US$77.4bn (2006)* Imports US$65.9bn (2006)*
*Economist Intelligence Unit estimates.

Leading export markets: Germany and Sweden (joint largest), the US, the UK and Russia.

Major exports: Electrical and optical equipment, metal and transport equipment, and pulp and paper.

Foreign investors face few restrictions, and the country promotes itself as a base for doing business with the Ïnew Northern EuropeÓ, that is the Nordic countries, the Baltic states and eastern Europe, particularly Russia.
Business and financing
Business forms Limited company; general or limited partnership; branch

A company may choose one of five forms of business organisation in Finland: limited company, limited partnership, general partnership, co-operative or branch. A limited company may be established by one or more persons or organisations resident in countries of the Economic European Area (EEA).
Labour environment
Unemployment rate 7.7% (2006)* Minimum wage None
*Economist Intelligence Unit estimate.

Minimum wages are not set by law, but the law requires employers to uphold minimum wages agreed to in collective-bargaining agreements. The main unions and employersÌ organisations customarily negotiate national collective labour agreements.

Employer contributions to employee pensions vary according to the size of the business, the age of employees and the ratio of investment to payroll.

Non-EEA nationals usually need a work permit.
Taxation
Corporate tax
Main rate 26%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Finnish-source income. A company is considered to be resident in Finland if it is registered in Finland and incorporated under Finnish law. The corporate income tax rate is 26%. Shipping companies may elect to be subject to the tonnage tax. General and limited partnerships are transparent for tax purposes, the relevant share of profits being taxable on the partners.
Individual tax
Progressive rates up to 32%, plus municipal income tax and church tax

Resident individuals pay tax on worldwide income; non-residents pay tax only on Finnish-source income. An individual is resident in Finland if he/she has a main home in Finland or is continuously present in the country for more than six months. Individual income tax is charged at progressive rates from 0% to 32%. A municipal income tax also applies to earned income, and is charged at rates ranging from 16% to 21%, depending on the municipality. In addition, members of certain churches pay a church tax of between 1% and 2.25%, depending on the municipality. Tax on income from capital, including capital gains, is charged at 28%.
Capital gains
Gains are taxed as income

Capital gains of companies are generally taxed as income. A participation exemption applies to substantial shareholdings of 10% or more held for at least one year, subject to certain conditions. Capital gains of individuals are subject to the tax on capital at 28%. Gains on the sale of an individualÌs permanent residence are exempt after two years of ownership.
Indirect tax
VAT standard rate 22% Lower rates 17%, 8%

Value-added tax (VAT) applies to most transactions. The standard rate is 22% and a lower rate of 17% applies to basic foodstuffs and animal feed. The 8% rate applies to passenger transport, books, medicine, hotel services and cultural events. Exports are zero-rated. Exemptions include selling or renting immovable property, financial and bank services, insurance, healthcare and education.

Businesses with annual turnover above ƒ8,500 must register, and voluntary registration is possible.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies must make monthly advance payments of tax. A tax return is due within four months of the end of the accounting period, and a final payment of tax is due with the return. If payment is made later, interest will be charged. Employment income of individuals is taxed by withholding. Other income of individuals is collected in a number of advance payments, depending on the amount due. A personal tax return is due by January 31st following the end of the tax year, and for those persons who receive an indicative tax proposal (prepared by the tax authorities based on information received) the date of return is June 20th following the end of the tax year.
Additional tax information
Withholding taxes Dividends and Royalties 28%; Interest 0%. Rates may be reduced by tax treaty or EU directives.
Tax treaties Finland has concluded more than 70 tax treaties.
Dividends Dividends are taxable at the individual shareholder level, but dividends paid between companies are generally exempt.
Revenue protection There is transfer-pricing and anti-haven (CFC) legislation.
Groups Profit transfer is possible between 90%-owned companies.
Incentives There is accelerated depreciation for qualifying industries in some regions.
Other taxes Excise duties, Import duties, Inheritance and gift tax, Municipal income tax, Real estate tax, Share transfer tax, Stamp duty.