Finnish Income Tax
Our tax guide for freelance contractors working in Finland
Individuals are deemed to be resident in Finland if they have their main abode in Finland or if they are continuously present in Finland for a period of more than 6 months. A presence is deemed continuous irrespective of a temporary absence.
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.
Resident individuals are subject to tax on their worldwide 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).
The income of individuals 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, tax is levied at a flat rate of 28%; on earned income, it is imposed at progressive rates (the first EUR 12’600 is exempt, and then it increases progressively to a maximum rate of 31.5% for earned income above EUR 62’000). Earned income is also subject to two more taxes: municipal income tax which is levied at proportional rates from 16% to 21% (Helsinki 17.5%) and church tax (ranges from 1% to 2.25%; Helsinki 1%). Since the tax burden on earned income is remarkably heavier (aggregate marginal rate of income taxes and social security charges up to almost 60%, in Helsinki area approximately 56% to 57%) than on income from capital, the distinction between the two types of income has become crucial; in borderline cases, the income is presumed earned income. In general, a taxpayer may deduct all expenses directly incurred in maintaining taxable income.
Under a special expatriate tax regime, qualifying expatriates may apply to be taxed on their salary income at a rate of 35% for a period up to 48 months, instead of the normal income tax rates.