Finland payroll and tax overview.

Your guide to doing business in Finland

Doing Business in Finland

Finland is located in Northern Europe, bordered to the west by Sweden, to the north by Russia, and to the east by Russia. Finland also meets the Baltic Sea, with the Gulf of Bothnia and the Gulf of Finland running along its western and southern coastlines respectively. Finland’s historic isolation from Europe and its abundance of natural resources led to a reliance on its agriculture and forestry industries but after industrializing rapidly in the 20th century the country was able to diversify economically. Like its Nordic neighbours, modern Finland has adopted a liberal approach to economic regulation and performs well in numerous social metrics including standards of education, healthcare, civil liberties, quality of life, and competitiveness. Key industries in Finland include electronics, automobile, and chemical manufacturing, mining, and energy production. As a member of the EU, Finland enjoys tariff-free trade with the rest of the bloc and exports around $67.73 billion of goods annually. Finland is a wealthy, progressive country with a GDP of around $269.65 billion and a 2019 growth rate of around 1.0%. Finland is also a member of NATO, the OECD, and the WTO, and was ranked 20 on the World Bank’s Ease of Doing Business Survey 2019.

Foreign Direct Investment in Finland

The Finnish operating environment is stable and predictable. Finland is a member of the European Union and is the only Nordic country with the Euro and has a low corporate tax rate, only 20%. Therefore, many foreign companies have established operations in Finland for the long-term and enjoy high return on investment. With access to top high-tech talent and a Silicon Valley inspired business culture, Finland is an R&D hotspot and a testing ground for companies looking for business transformation. Engineering and high technology industries are the leading branches of manufacturing.

International companies are warmly welcomed to Finland. They can access the same benefits and grants as Finnish companies. Finns themselves are highly internationally oriented and English is the common second language of the business community. Over 90% of Finns under thirty speak English.

Innovation driven and economically successful, Finland has already brought to the world the SMS, the Wearable Heart Rate Monitor, the Linux operative system, Clash of Clans and Angry Birds.

Registering a Company and Establishing an Entity in Finland

There are five forms of business organizations in Finland: limited liability company, limited partnership, general partnership, cooperative or branch of a foreign company. All organizations must be registered in the Trade Register and, depending on the type of business, also to the respective registers kept by the Tax Administration. These registers are VAT Register, Prepayment Register, the Employer Register and the register of bodies liable for tax on insurance premiums. The Trade Register is a register for public use. All registration matters are handled by the Finnish Patent and Registration Office which is responsible for the Trade Register and works together with the Finnish Tax Administration.

As most of the Finnish authorities have digitalized their services and it is not possible to give filings or for example tax returns on paper, all entities need to either apply a KATSO ID or give authorization electronically to an accounting company to do the filings electronically. The online identification works through your online banking credentials.

Business Banking in Finland

It is not mandatory to make payments to employees or the authorities from an in-country bank account. Salary and 3rd party payments can be made on the clients behalf provided that the client has their own bank account in Finland. Payments can only be made using bank transfers to both the employee’s and the authorities, cash is not accepted. Usually bank transfers will only take a day to complete but international transfers will take 3-4 working days.

Working Week and Working Hours in Finland

The working week in Finland is from Monday to Friday. The normal opening hours of for example a governmental office is usually eight hours, typically from 8:00AM to 4:00PM.

Basic Facts about Finland

General Information

Full name: Republic of Finland

Population: 5.513 million (Eurostat, 2018)

Capital: Helsinki

Major languages: Finnish, Swedish

Major religion: Christianity

Monetary unit: 1 euro = 100 cents

Main exports: Machinery and electronics, paper and paper products, chemicals

GNI per capita: US $47,820 (World Bank, 2018)

Internet domain: .fi

International dialling code: +358

 

Hello Hei

Good morning hyvää huomenta

Good evening hyvää iltaa

Do you speak English? Puhutko Englantia?

Good bye Näkemiin

Thank you Kiitos

See you later Nähdään myöhemmin

Income Tax & Social Security in Finland

In Finland the tax year runs from January 1st until December 31st.

Income Tax in Finland

Personal income tax returns in Finland are due in May. The exact date that the tax return is due will be printed on the pre-completed tax return form, which each taxpayer will receive from the tax authorities. There are no joint assessments available.

Residents in Finland are taxed on their worldwide income, while non-residents are liable to pay tax at source on the income received from Finnish sources. An individual will be resident if he/she has a principal place of abode in Finland or he/she spends more than 6 months in Finland. Any temporary absence will not break the continuity of the 6 months period.

Finland has a dual income tax system for individuals, under which income is divided into earned income and capital income. Any earned income is subject to national income tax, municipal income tax, church tax and social security contributions. Employers are obliged to pay tax withheld at the source from all wages paid to employees. The national income tax rate is progressive up to 31,25% and the municipal tax rate is 16,5%-23,5%. Capital income is taxed with a flat rate of 30% (up to EUR 30,000) or 34% (over EUR 30,000).

Social Security in Finland

Kela is Finland’s Social Security Institution and they provide a number of benefits such as home and family, unemployment benefits, pension and retirement, studying benefits and health and rehabilitation.

The statutory social insurance contributions payable by private employers comprise of the earnings, related pension contribution, employment accident insurance contribution, unemployment insurance contribution and employees’ group life insurance contribution plus the social security contribution. The employer will withhold such contributions from an employee’s salary.

Employees will only contribute to the pension fund and the unemployment insurance. Employees will pay a pension contribution of 7,15% of their monthly salary if the employee is under 53. If the employee is over 53 the contribution rate increases to 8,65% and if the employee is over 63 contribution rate is 7,15% again.

Unemployment insurance is collected from employees between the ages of 17 and 67 by the Unemployment Insurance Fund at the rate of 1,25% of an employee’s monthly salary.

The Finnish pension (TyEL) rates amounts to about 25% of the employee´s salary (gross) and this is taken care of by the employer. Employer rates amounts about 25%, which consist of pension insurance rate 18,15%, unemployment insurance premium 0,45%, health 0,77% group life insurance 0,07% and accident insurance about 2% - 7%. According to Finnish Law, the employer is obliged to insure all employees working in Finland.

Reporting Tax in Finland

Incomes Register

The Incomes Register Project is one of the key initiatives of the current government in the area of digital public services. The Incomes Register is a national online database. It contains comprehensive information on individuals' wages, pensions and benefits. Data providers report individuals' earnings to the Incomes Register in real time, whenever a payment is made.

As of 2019, the Incomes Register will contain information on wages and earnings. The obligation to report information to the Incomes Register will apply to all wage payers as of 1 January 2019.

Monthly/Quarterly

There are two separate reports to be made to the Incomes Register. First, all wages and earnings must be reported to the Incomes Register within 5 days of the payment to the employee. If the salaries are paid twice a month, this report needs to be filed twice as well. Secondly the employer makes another report called the employer’s separate report. This has to be filed even if there weren’t any wages paid during the reporting period.

Data can be submitted via an interface, by uploading files in the Incomes Register's e-service or by entering the information in an online form. Information can only be submitted on paper in special circumstances. The Finnish Tax Administration's Incomes Register Unit will maintain the register and serve as the responsible authority.

Yearly

As the Incomes Register includes real time and more detailed data about wages, there aren’t any annual reports to be filed after tax year 2018.

Late Penalty

Late penalty charges consist of two parts: one part is based on the number of days, and the other part is dependent on the size of the tax owed.

1 – 45 days late - The first tax return filed for the tax period is subject to a day-based charge amounting to three euros per day, max. €135.00.

More than 45 days late - If the first tax return for the tax period is filed late by more than 45 days, the day-based part equals €135.00 in total. Two percent of the tax to be paid and filed late is added to it. However, the maximum charge is €15,000 for each tax.

New Employees in Finland

Except from the construction field, only foreign employees in Finland must register themselves with the local tax office.

Depending on how long the employee stays in Finland and whether he/she works for a Finnish employee or for a foreign employee, he/she needs to apply for a tax card from the local tax office by visiting it personally. The employee will also get a Finnish ID, which is a unique code to identify people and always needed when dealing with the Finnish authorities. All foreign employees should be registered with the authorities before they start working. There are certain extra requirements if the employee works in the construction sector or as a leased employee.

Leavers in Finland

In Finland, the local register should be informed if an employee leaves the company.

Payroll in Finland

The information required from each employee for Finnish payroll purposes includes; full employee information (including an address), employment contract, tax card information and an A1 form if the employee is a foreign national. This process can take between one and five days. If the employer is already set up in the payroll system, processes payroll only the employee information, employment contract information and amount of gross salary. Net based salaries are not typical in Finland and due to the progressive taxation nearly impossible to handle in payroll.

Payroll reports must be kept for at least 10 years.

It is legally acceptable in Finland to provide employees with online payslips that the employees can access using their online banking credentials.