Income Tax in Finland

Personal Income Tax

Tax Year and Compliance

The tax year ends on 31st December and the return shall be filed upto 9th May or 16th May. The date will be printed on the pre-completed tax return form. If a taxpayer has not received a pre-completed tax return form, he/she has to file a tax return by 16 May (2017).


All individual taxpayers will receive a pre-completed tax return form in April. They have to check the tax return and, if necessary, send it back with corrections to their local tax office.
The tax office may extend the time for filing pre-completed tax returns. An extension for a couple of weeks may be granted. The application must be filed prior to the tax return filing due date and must contain justification for granting the extension.
The final tax assessment will be made by the end of October following the tax year. If an insufficient amount has been withheld/advance tax paid, additional installments are due in December and February. If the tax withheld/advance tax paid exceeds the final total taxes and levies, a tax refund will take place in December. Interest charges are levied if the final tax liability exceeds preliminary tax paid. For the tax year of 2017 the rate is 0.5 percent, if the amount of additional tax payment exceeds approximately EUR4,788. If the amount of unpaid taxes exceeds EUR10,000, the interest rate is 2 percent on the excess amount. If the final amount of tax is less than the taxpayer has paid in advance, he/she will receive an interest of 0.5 percent on the refund.

The employer is required to withhold tax on all salaries paid to the employee. The amount of the withholding is determined on a progressive basis by the amount of the salary including fringe benefits. However, a foreign employer without a permanent establishment in Finland paying salaries from abroad is not liable to withhold Finnish payroll tax from salaries.

The penalty for failing to pay the taxes on time is a surtax of 7 percent. The penalty for late filing of the tax return or filing an incorrect statement ranges from EUR100 to EUR 5,000 depending on the amount of unreported income. The law also makes higher penalties in the form of a certain percentage of the unreported income possible and this can be up to 30 percent on added income, depending on the length of time the return has been overdue and the purpose of not filing the total amount of income.


Non-residents, who have not been residents during the tax year, do not need to file a tax return on their wage income.

Tax Rates

Finland taxes residents on their worldwide income. Earned income received by residents is taxed at progressive tax rates for national tax purposes and at a flat tax rate for municipal (and church and social security) tax purposes.

National tax rates

National tax rates for 2018 applicable to earned income are as follows:

Taxable Income
Tax on Column 1
Tax on Excess (%)
From EUR
Above 74,200

Capital (investment) income is taxed at rates of 30% and 34% (the latter percentage is applicable when the annual taxable capital income exceeds EUR 30,000).

Local income taxes

Municipal tax is levied at flat rates on taxable income determined for municipal taxation. The rate varies between 16.50% and 22.50%, depending on the municipality.

Church tax

Church tax is payable by members of the Evangelic Lutheran, Orthodox, and Finnish German church in Finland at flat rates on the taxable income determined for municipal taxation. Rates vary between 1% and 2.2%, depending on the parish concerned.

Public broadcasting tax

Public broadcasting tax is levied on taxable income. The rate of public broadcasting tax is 2.5% on annual income exceeding EUR 14,000, however, the maximum amount is EUR 163. Individuals are not liable to pay the tax if the their annual income is EUR 14,000 or less, if the individual is under 18 years old or if the individual lives in the Province of Ă…land.

Foreign expert tax regime

The foreign expert tax regime provides a flat tax rate of 35% on Finnish-source salary income for those foreign employees whose work requires special knowledge and who would be otherwise taxed at the normal tax rates applicable to resident individuals. Other conditions are that the cash salary is at least EUR 5,800 in each month during the validity period of the regime. The regime cannot be applied if the person has been resident in Finland within the last five calendar years preceding the commencement of working in Finland or is a Finnish national.

The foreign expert tax regime is applicable for a maximum of 48 months from the commencement of working in Finland; after that period, the salary is taxed according to the normal rules. The application for the regime must be filed within 90 days from starting to work in Finland.

Personal income tax rates for non-resident individuals

A non-resident individual (e.g. occasionally working in Finland) is taxed on Finnish-source income only. Unless lower rates are provided in a tax treaty, tax rates are 35% on employment income and 30% on dividends, interest (however, interest income is normally not taxable for a non-resident) and royalties. In principle, no itemised deductions are allowed against the aforementioned income. However, a standard deduction of EUR 510 per month or, if the income is accrued from a time period of less than one month, EUR 17 per day is deducted from the income subject to the 35% tax at source (not applicable to director's fees). Finnish-source pension income is taxed at the progressive tax rate (if a tax treaty does not prevent Finland to tax the pension).

A non-resident may also request to be taxed on one's income earned in Finland through tax assessment (i.e. progressive taxation) instead of fixed tax at source. The regulations apply to non-residents who live in the European Economic Area (EEA) or in a country with which Finland has concluded an agreement on execution assistance and information exchange in tax matters, or those who hold a residence permit with a researcher status.

The provisions on tax at source on earned income remain to be valid for those non-residents who do not apply for a non-resident tax withholding card or express in any other way their will that taxation shall be carried out through assessment. In general, non-residents subject to tax at source do not have reporting liabilities in Finland as the entity paying the income takes care of the tax-at-source withholding as well as the reporting liabilities in Finland.

In progressive taxation of a non-resident's earned income, the non-resident's worldwide earned income (i.e. salary income, pension income, and social security benefits) is taken into account when calculating the tax on income earned in Finland (exemption with progression). However, the income received abroad or income received from Finland that is not taxable in Finland in accordance with provisions of an applicable tax treaty is not taken into account in the progression if the taxable earned income received from Finland is at least 75% of the individual's total earned income.

Remuneration to artists and sportsmen is subject to 15% tax at source (no deductions available). Tax is collected at source by withholding.

Finnish-source income other than mentioned above is subject to income tax at normal tax rates (earned income is taxed at a progressive tax rate and capital income at rates of 30% or 34%) unless a tax treaty provides otherwise. For example, rental income from property located in Finland is subject to assessment and the net rental income is taxed at 30% or 34%.

Residency Rule

An individual is treated as resident if he/she has a permanent home or habitual abode in Finland or otherwise has stayed in the country for a period of more than six months. When moving abroad a Finnish citizen is still considered as a Finnish tax resident for the year he/she moves abroad and the following three full calendar years, unless he/she produces evidence that he/she has not maintained substantial ties to Finland during the tax year in question.

There is no de minimus number of days rule as such when it comes to residency start and end date and the residency status is based on the arrival date.

Taxable Income

Employment income

Taxable personal income includes, inter alia, wages and salaries in money and in kind, director fees, employee stock option benefits, employer provided housing, pensions and annuities, living and housing allowances, car benefits, and unemployment benefits. Reimbursements for travelling expenses due to business trips (including per diems) are tax exempt in accordance with the conditions and limits set forth in the tax authorities' annual decision. The tax authorities also provide annually a decision of the taxable values of fringe benefits. Certain fringe benefits have deemed taxable values (e.g. company car, company provided housing, lunch benefit). Otherwise, fringe benefits are valued at the fair market value. Certain benefits provided to the whole staff are tax exempt if they can be regarded as reasonable and usual (e.g. health care, discounts on products and services produced by the employer, certain non-cash gifts, leisure activities).

According to the Income Tax Act, Finland may tax a leased employee's salary income paid for work performed in Finland even though the employee would remain non-resident in Finland (normally Finland cannot tax salary income paid abroad to a non-resident even though the individual would work in Finland, provided that the employee does not work for a foreign employer's permanent establishment [PE] located in Finland). The leased non-resident employee has an obligation to apply for an advance tax by the end of a calendar month following the commencement of working in Finland. Furthermore, the foreign entity that leases the employee or its representative in Finland and the Finnish ordering entity have certain reporting obligations towards the tax authorities. However, the aforementioned rules are applicable only if Finland has concluded with the home country a tax treaty that includes a specific provision regarding the leased employees or Finland has no double tax treaty (DTT) in force with the home country.

Capital income

Capital gains

Capital gains are basically fully taxable and included in the taxable capital income subject to 30% tax rate up to taxable capital income of EUR 30,000 and 34% tax rate on the excess.
A gain from sale of a home is tax exempt if the house or apartment has been used as the individual’s or their family's permanent home for a continuous period of at least two years during the individual's period of ownership. Capital gains are tax exempt if the total amount of sales prices in all taxable asset transfers during a tax year does not exceed EUR 1,000.
As a basic rule, repayments of capital are treated as dividends. However, repayments of capital from non-quoted companies may be subject to capital gains taxation, under certain conditions.

Dividend income

85% of dividends from publicly quoted shares are taxed as capital income (at 30% tax rate up to taxable capital income of EUR 30,000 and 34% tax rate on the excess). 15% of the aforementioned dividends are tax-exempt.

As concern dividends from non-quoted shares, 25% of the dividend corresponding to an annual return of 8% calculated on the mathematical value of the share is regarded as taxable capital income up to a maximum limit of EUR 150,000. Within the aforementioned 8% cap, 85% of the dividend exceeding EUR 150,000 is considered as taxable capital income. With respect to the portion exceeding the 8% calculated on the mathematical value of the share, 75% of the dividend is considered as taxable earned income.

The aforementioned rules also apply to foreign dividends (except that the aforementioned 8% is calculated from the market value of the shares if the mathematical value of the shares is not available) if the company distributing the dividends is a company mentioned in article 2 of the Directive 2011/96/EU (as amended 2013/13/EU) on the common system of taxation applicable in case of parent companies and subsidiaries of different member states or the following conditions are met: the company pays at least 10% tax in its country of residence and the country of residence is within the European Economic Area or Finland and the company's country of residence has concluded a DTT that is applicable to the dividends. Otherwise, foreign dividends received by a resident individual are taxed as earned income without any exceptions.

If the distribution of dividends is based on work input or performance of the shareholders, not on their share ownership, the dividends are regarded as salary (or other remuneration for work) for tax purposes and are fully taxed as earned income.

As concern dividends received from Finland, an individual residing in an EU/EEA country may claim taxation under the rules applicable to individuals resident in Finland if the individual can show that the Finnish tax at source (30% or a lower percentage provided by a tax treaty) cannot be fully credited in the individual's home country. A certificate from the home country tax authorities is needed.

Interest income

Interest income is fully taxable at capital income tax rates. Gross interest income received by resident individuals from deposits in Finnish bank accounts and Finnish bonds is subject to final tax at source at a flat rate of 30%.

Rental income

Net rental income is fully taxable at capital income tax rates.

Exempt Income

All employment income is taxable except for certain pensions and social security benefits. In addition, income attributable to continuous work abroad by a Finnish resident for a period of at least six months may under certain preconditions be exempt from Finnish income tax.

Deductions from Income

In general, the taxpayer is allowed to deduct for income tax purposes all expenses incurred in acquiring and maintaining chargeable income in the computation of the taxable income in each category. No deduction is allowed for expenses related to exempt income and domestic expenses (except expenses of certain domestic work).

The following items are considered as allowed:
· A work-related standard expense deduction of EUR 750.
· Union membership fees and unemployment fund payments.
· Commuting costs from the place of residence to the place of employment using the cheapest means of transportation (only costs between EUR 750 and EUR 7,000).
· Interest expense on loan for educational purposes or for the purposes of deriving taxable income and 45 percent (55 percent in 2016) of the interest expenses on loans taken to purchase a home are deductible from investment income. If investment income is negative after these deductions, one can get a tax credit for capital loss from taxes on earned income. The deduction is 30 or 34 percent, but the maximum amount of this deduction is EUR 1,400 for each person. This amount is increased by EUR 400 for one child and by EUR 800 for two or more minor children, supported by the taxpayer or a married couple during the tax year.
· Voluntary pension insurance payments paid to a Finnish insurance company or to a Finnish branch of a foreign insurance company are deductible from investment income, but certain ceilings apply. Also foreign voluntary pension payments are deductible if certain conditions are met.
· The medical treatment premiums are not deductible from taxable income. However, the employee’s statutory pension and unemployment insurance payments as well as daily allowance premiums are deductible items.
· Deduction for work related secondary apartment

Corporate Income Tax

Finnish resident companies are subject to Finnish corporate income tax (CIT) on their worldwide income (i.e. unlimited tax liability). Also, Finnish permanent establishments (PEs) of non-resident companies are subject to Finnish CIT on their worldwide income attributable to the PE.
The CIT rate is 20%.

Public service broadcasting tax

Public service broadcasting tax (Yleisradio or YLE tax) for companies and organisations is based on the taxable income for a fiscal year. The tax amounts to 140 euros (EUR) per year if the taxable income of the organisation is at least EUR 50,000. For organisations with taxable income exceeding EUR 50,000, the tax is levied at EUR 140 plus 0.35% of the taxable income exceeding EUR 50,000. The maximum of the annual tax is EUR 3,000, which will be payable by organisations with taxable income of EUR 868,000 or more.
YLE tax is deductible in the taxation of income of a company.

Residency Rule

A company is deemed to be resident on the basis of incorporation. Consequently, a company is deemed to be resident in Finland if it is incorporated (registered) in Finland.

Permanent establishment (PE)

A PE is, in general, formed in line with the Organisation for Economic Co-operation and Development (OECD) Model Convention.

Taxable Income

Companies and other legal entities may have income from three different sources: income from business activities, agricultural income, and personal source income. The net taxable income is calculated separately for each source. The expenses of one source of income cannot be deducted from the taxable income of another source, and a loss from one source of income cannot offset taxable income from another source. All taxable income received by a company is taxed at the CIT rate of 20%, irrespective of the source to which it is attributable.

Income from business and professional activities falls into 'business source' income (taxed in accordance with the Business Income Tax Act or BITA), while income from non-business activity is 'personal income'. Typically, personal income is passive income derived, for example, from investments. As an example, rental income from real estate let to non-related companies is usually regarded as 'personal source' income. The same can apply to a dividend received from stock exchange quoted companies, where the recipient of the dividend is a passive holding company. Farming and forestry income are, as a main rule, treated as agricultural source income.

In general, Finland has a very broad income concept, and taxable income includes all income derived from a company’s activities, though there are some significant exceptions, including (among others):
· Capital contributions by shareholders.
· In most cases, dividends from unlisted companies.
· Liquidation gains and capital gains qualifying for the participation exemption.
· Proceeds from disposal of company’s own shares.
· Merger gain.

There is no general distinction between capital gains and other income; capital gains of a company are taxed as part of its general income either in the ‘business income’ basket or the ‘other income’ basket. No rates other than the general CIT rate of 20% are applied to any part of taxable income of a company.

Taxable income of a company generally is computed on an accrual basis (i.e. income is taxable in the year it is earned). However, exemptions to this main rule do exist, including unrealised exchange gains and losses, which are taxable/deductible in the year of the rate change.

Inventory valuation

Inventories may be written down to the lower of direct first in first out (FIFO) cost, replacement cost, or net realisable value. Conformity between book and tax reporting is required.

Capital gains

Capital gains and losses are generally included in the taxable business income (i.e. sales proceeds are included in the taxable income, and the undepreciated balance of the asset sold is deducted in the sales year) and treated as ordinary income. However, the entire stock of machinery and equipment is treated as a single item, and the capital gain on machinery and equipment is entered as income indirectly by deducting the selling price from the remaining value of the stock of machinery and equipment.

Capital gains arising from the sale of shares are tax exempt via a participation exemption, under certain circumstances. Specifically, capital gains arising from the sale of shares are tax exempt if:
· the seller is not a company carrying out private equity activities (as defined by the BITA)
· the seller has owned continuously, for a period of at least one year, at least 10% of the share capital of the target company, and
· the shares are part of the seller’s fixed assets and the shareholding is included in the seller’s business income source for tax purposes.

For the participation exemption to apply, the target company cannot be a real estate company, a housing company, or a company the activities of which mainly include owning of real estates. The target company must also be a Finnish company, a company referred to in the European Commission (EC) Parent-Subsidiary Directive, or a company resident in a country with which Finland has concluded a tax treaty that applies to the target company’s dividend distribution.

Note that a capital gain is taxable to the extent that the gain corresponds with a previous tax-deductible write-down or provision made in connection with the acquisition cost of shares, subsidies received for acquiring shares, or previous capital losses deducted for Finnish tax purposes from intra-group transfer of the shares.
Capital losses are non-deductible in situations where capital gains are exempt from tax.

Dividend income

Dividends received by a Finnish company are tax exempt in most cases.
However, dividends received by a Finnish company are fully taxable (100%) if:
· the dividend is received from a publicly quoted company, the receiving company is not a publicly quoted company, and the shareholding is less than 10% of the equity of the distributing company
· the dividend is distributed by a non-resident company that is not such as mentioned in the EC Parent-Subsidiary Directive or other company resident in an EU or EEA country that is not liable to pay at least 10% tax for its income, or
· the dividend is distributed by a company resident outside the European Union or European Economic Area.

Note that most of the Finnish tax treaties include provisions enabling tax-exempt dividends from the tax treaty country in case of at least a 10% shareholding.

Furthermore, dividends received are partly (75%) taxable if the dividend is received on shares belonging to 'investment assets' and the receiving company does not own at least 10% of the equity of the distributing company that is resident in another EU member state and covered by the EC Parent-Subsidiary Directive or the dividend is received on shares belonging to 'investment assets' and the distributing company is resident in Finland or an EEA country but not a company covered by the EC Parent-Subsidiary Directive (note that only financial, pension, and insurance institutions may have assets that are considered as 'investment assets').
Finland has implemented into domestic tax legislation the changes in the Parent-Subsidiary Directive (concerning mismatches in tax treatment of profit distribution to avoid situations of double non-taxation and general anti-abuse rules, directives 2014/86/EU and 2015/121/EU) by limiting Finnish companies' right to receive tax-exempt dividends. Due to these changes, dividends received by a Finnish company are always considered fully taxable in case:
· the dividend is tax deductible for the distributing company, or
· the dividend distribution relates to an arrangement or series of arrangements mainly aimed at achieving a tax benefit that is not meant to be the purpose of the dividend article and is not genuine, taking into account all the facts and circumstances related to the case (i.e. the arrangement or series of arrangements is not based on solid business reasons).

Stock dividends

Stock dividends (bonus shares) may be distributed to stockholders, which are corporations and other legal entities with some exceptions, free of tax on the shareholder.

Distributions from reserves for invested unrestricted equity

Distributions from reserves for invested unrestricted equity are, in general, deemed as dividends. However, distributions from non-listed companies can be deemed as capital gain if they are:

· a return of capital investment made by the same taxpayer
· distributed within ten years of the investment, and
· clarified by the taxpayer that the above-mentioned conditions are met.

Distributions cannot be deemed as a capital gain if the reserves for invested unrestricted equity have been formed in conjunction with company restructurings (merger and acquisition [M&A] processes).

Interest income

Interest income of a company is taxed as part of its general income, thus the regular CIT rate of 20% is applied.

Royalty income

Royalty income of a company is taxed as part of its general income, thus the regular CIT rate of 20% is applied.

Foreign income

A Finnish corporation is taxed on foreign dividends when the decision to distribute dividends is made and on foreign branch income and other foreign income (e.g. interest and royalties) as earned. The principal method of avoiding double taxation is the credit method, although the exemption method is still applied in a few older treaties

Deductions from Income

As with taxable income, the concept of deductible costs is wide and covers, in general, all costs incurred in the pursuance of taxable income. Significant exceptions to this rule include (among others):

· Income taxes, tax late payment interests, and punitive tax increases.
· Fines and other punitive payments.
· 50% of entertainment costs.
· Capital losses and liquidation losses if capital gains from the sale of shares of a target company would qualify for the participation exemption.
· Losses from the disposal of a company’s own shares.
· Merger losses.
· Net interest expenses exceeding 25% of taxable profit as increased with interest expenses, depreciation, and received group contribution, and as decreased with given group contribution (EBITDA).

As the accrual method is applied to the calculation of taxable income, expenses are usually deductible in the year they are realised (i.e. the year the obligation to pay has arisen).

Depreciation, amortisation, and depletion

The maximum annual rates of depreciation calculated on the remaining acquisition cost for tax purposes (declining-balance method) are 25% for machinery and equipment and from 4% to 20% for buildings and other constructions, depending on the type and estimated life of the asset. The remaining acquisition cost for tax purposes is defined as cost less accumulated tax depreciation and, in the case of machinery and equipment, proceeds on disposal of the assets. The straight-line method is applied to certain intangible assets and capitalised expenditures and to assets with long economic use, such as dams. Tax depreciation is limited to the cumulative charges made in the books.

Costs related to qualifying intangible property are usually amortisable over a period of ten years or a shorter period if the economic life is proven to be less than ten years.
The capital cost of mines, sandpits, quarries, and peat bogs is written off in proportion to the quantities extracted. Short-lived items (the economic life of which is three years or less) may be written off immediately.

Land is not a depreciable asset.


Acquired goodwill is amortisable for tax purposes over its economic life, up to a maximum of ten years.

Start-up expenses

Start-up expenses are generally deductible expenses when determining taxable income.

Interest expenses

As a general rule, interest expenses are fully deductible. However, deductibility of interest expenses for intra-group loans is restricted to 25% of fiscal EBITDA.

Bad debt

In general, bad debts incurred from sales receivables, etc. are tax deductible. The bad debts must also be deducted for accounting purposes.

Charitable contributions

Donations are deductible for CIT purposes in certain cases.
In order for a donation to be tax deductible, the amount of the donation should be at least:
· EUR 850, but not more than EUR 250,000, if made to an EEA member state or to a publicly financed university or other higher educational institution in the EEA to benefit the sciences, the arts, or the Finnish cultural heritage, or
· EUR 850, but not more than EUR 50,000, if made to an association, foundation, or other institution in the EEA nominated by the Tax Administration and to benefit the sciences, the arts, or the Finnish cultural heritage.

Donations of not more than EUR 850 (e.g. to charitable purposes) are, in general, tax deductible.


No income taxes are deductible when determining taxable income. However, the real estate tax and YLE tax are deductible.

Education costs of employees

Employers are allowed to make an additional tax deduction for certain education costs of their employees. It is required that the employer has made a qualifying education plan and the education relates to the current or future tasks of the employee. The deduction entails both internal and external courses. The amount of the deduction is the average daily salary of all employees working for the employer multiplied by the amount of all qualifying educational days of all employees. This amount is subsequently divided by two. The maximum amount of qualifying education days is three days per employee within the fiscal year in question. The deduction has no tax consequences for the employees.

Net operating losses

Losses may be carried forward for ten subsequent years. However, the right to carry forward losses may be forfeited in certain instances, such as in cases where there is a direct or indirect change in the ownership of the company operating at a loss. However, a special permit can be applied in certain situations from the Finnish tax authorities to retain the tax losses despite the change in ownership. Loss carrybacks are not allowed.

Payments to foreign affiliates

A Finnish corporation may claim a deduction for royalties, service fees, and interest charges paid to foreign affiliates, provided the underlying transaction is beneficial to it and the amounts paid are at arm’s length.

Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.

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