Finland - Tax Guide for Freelance Contractors
Welcome to our guide to Finnish Taxation. You will find a wealth of information which will be useful if you plan to work in, or place consultants in, Finland.
Our tax guides give a general overview of the actual taxation rates and rules at the time of writing. There are of course many ways to legally reduce tax or social security burdens in Finland. Please contact us for more information or an actual breakdown of your situation, and to find out more about our range of payroll and contact management services in Finland.
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Finnish Income Tax
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Tax Residents in Finland: are liable to pay Finnish tax on their worldwide income,
Non tax residents in Finland: are liable to pay tax on Finnish-source income in Finland.
Individuals will be regarded as tax residents:
- if they have their main abode in Finland,
- if they are continuously present in Finland for a period of more than 6 months.
A temporary absence up to two months does not break the period.
Finnish Nationals: are, in addition, subject to the 3-year rule. After a Finnish citizen’s residency has been established elsewhere, 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 the individual can establish that no essential connections with Finland have been maintained.
Spouses are taxed separately on their own income.
There is no positive definition of the term income although in principle this consists of all income received by the taxpayer in money or money's worth (such as salaries, wages, directors’ fees and benefits in kind).
Taxable income is divided into two categories: income from capital and earned income
Both categories are subject to national income tax. In the case of income from capital, it is levied at a flat rate; on earned income, it is imposed at progressive rates and also subject to municipal income and church tax, both imposed at proportional rates. Since the tax burden on earned income is remarkably heavier (aggregate marginal
rate of income taxes and social security contributions up to almost 60%, in Helsinki area approximately 56% to 57%) than on income from capital (flat rate of 28%), the distinction between the two types of income has become crucial; in borderline cases, the income is presumed earned income.
Certain deductions are permissible on earned income including:
- standard deduction for business expenses (capped at EUR 620),
- unemployment insurance premiums,
- mandatory pension insurance contributions,
- voluntary contributions to pension and other savings in long-term investments (under certain conditions),
- commuting costs to and from work (capped at EUR 7'000),
- interest charges from certain loans
- household reparations
- donations to certain universities in the EEA
Allowances for 2012:
- basic allowance for low-income taxpayers is EUR 2'850,
- municipal earned income allowance is granted up to a maximum of EUR 3’570,
- National earned income allowance is granted up to EUR 945.
Income tax rates for 2012:
- 30.00% flat tax rate.
Earned income is subject to national and municipal tax.
- 0.00% from EUR 0.00 up to EUR 16’100,
- 6.50% from EUR 16’100 up to EUR 23’900,
- 17.50% from EUR 23’900 up to EUR 39’100,
- 21.50% from EUR 39’100 up to EUR 70’300,
- 29.75% in excess of EUR 70’300.
Municipal: varies depending on municipality between 16.25% and 21.75%.
Church: varies depending on municipality between 1% and 2%.
Expatriate: Under a special expatriate tax regime, qualifying expatriates may apply to be taxed on their salary income at a rate of 35%, instead of the normal income tax rates.
Generally in April or May of the following income tax year.