Taxation in Finland
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Taxation in Finland is mainly carried out through the Finnish Tax Administration, an agency of the Ministry of Finance. Finnish Customs and the Finnish Transport and Communications Agency Traficom, also collect taxes. Taxes collected are distributed to the Government, municipalities, church, and the Social Insurance Institution, Kela.[1]
Taxation by type[edit]
Taxes and fees on earned income[edit]
The gross earned income of an employee is subject to the three following, proportional social security contributions:
- pension insurance fee (työeläkemaksu), paid to the state
- unemployment insurance fee (työttömyysvakuutusmaksu), paid to the state
- daily allowance contribution of health insurance (sairausvakuutuksen päivärahamaksu), paid to the state
The net earned income (gross earned income minus deductions) is subject to:
- income tax (tulovero) which is divided into
- a tax, progressively paid to the state (state income tax)
- a tax, proportionally paid to the municipality (municipal tax)
- proportional healthcare contribution fee (sairausvakuutuksen sairaanhoitomaksu), paid to the state
- proportional church tax (kirkollisvero) paid to the parish if the person is a member thereof[2]
- proportional Yle tax (yleisradiovero) paid to the state, collected to fund the public brodcasting company
There is an automatic earned income tax credit (työtulovähennys) for some taxes and fees, making them slightly progressive despite their fixed rate.
Social security contributions[edit]
Every Finnish employee and their employer are required to pay into certain social funds. The taxation is in the form of a flat rate on the income of the employee. Employees with low income might not have to pay into all of the funds, and some contributions have a ceiling on the income that is taxable. The rates are shown in the following table:
| Fee | Employee Rate | Employer Rate |
|---|---|---|
| Pension Insurance Fee | 7.15% | 14.35% |
| Unemployment Insurance Fee | 0.79% | 0.27% or 1.09%** |
| Daily Allowance Contribution of Health Insurance | 1.01%* | 1.16–1.38% |
| Accident Insurance Fee | – | 0.8% |
*on all gross earned income if that is €16,499 or more
**0.27% on all gross earned income up to €2,337,000 and 1.09% on gross earned income above that
The voluntary pension insurance fees or transfers to a personal pension account are credited in earned income taxation up to €5000 per year.
According to Finnwatch 60–70% (€37 billion) of Finnish pension funds are invested in the tax havens.[3] Political parties have different agendas in respect to tax havens.[4]
State income tax[edit]
The following contributions are deducted from the gross income before determining the net income subject to the state income tax:
- trade union membership fees; all fees
- automatic income-production deduction (tulonhankkimisvähennys); €750 in 2024
- expenses for the production of income (tulonhankkimismenot); all costs above the above-mentioned deduction
- pension insurance fee
- unemployment insurance fee
- daily allowance contribution of health insurance
- automatic earned income deduction (ansiotulovähennys); maximum of €3,570 (decreases the more the gross income gets, up to 0%)
- automatic basic deduction (perusvähennys); maximum of €3,980 (decreases the more the gross income gets, up to 0%)
The following progressive rates are levied on the net income:
| Net Income Over | Tax Rate |
| €0 | 12.64% |
| €20,500 | 19% |
| €30,500 | 30.25% |
| €50,400 | 34% |
| €88,200 | 42% |
| €150,000 | 44% |
The gross state income tax is subject to following credits:
- several credits, e.g. household expenses credit (kotitalousvähennys); all costs above €100 (maximum €3,500) in 2024
- automatic earned income tax credit; maximum of €2,140 in 2024 (decreases the more the gross income gets, up to 0%)
The other credits are first deducted from the gross tax before deducting the earned income tax credit. If there is any earned income tax credit left after deducting it from the gross state income tax, the remainder is deducted from gross municipal tax, gross healthcare contribution fee (sairausvakuutuksen sairaanhoitomaksu) and gross church tax, proportionally.
Municipal tax[edit]
The following contributions are deducted from the gross income before determining the net income subject to the municipal tax:
- trade union membership fees; all fees
- automatic income-production deduction
- expenses for the production of income
- pension insurance fee
- unemployment insurance fee
- daily allowance contribution of health insurance
- automatic earned income deduction
- automatic basic deduction
The municipal tax (16.5% – 22.5%, average 19.17%) is levied on the net income. If there is any earned income tax credit left (after deducting it from the state income tax), the remainder is deducted from the gross municipal tax, proportionally to its share in the sum of the gross municipal tax, gross healthcare contribution fee, and gross church tax.
Healthcare contribution fee[edit]
The following contributions are deducted from the gross income before determining the net income subject to the healthcare contribution fee:
- trade union membership fees; all fees
- automatic income-production deduction
- expenses for the production of income
- pension insurance fee
- unemployment insurance fee
- daily allowance contribution of health insurance
- automatic earned income deduction
- automatic basic deduction
The healtcare contribution fee (0.51% in 2024) is levied on the net income. If there is any earned income tax credit left (after deducting it from the state income tax), the remainder is deducted from the gross healtcare contribution fee, proportionally to its share in the sum of the gross municipal tax, gross healthcare contribution fee, and gross church tax.
Church tax[edit]
If the individual is a member of the Evangelical Lutheran or the Orthodox Church, or any of the country-wide Lutheran parishes (the German parish in Finland and Olaus Petri parish for citizens of Sweden living in Finland), their net earned income is subject to the church tax (kirkollisvero). The following contributions are deducted from the gross income before determining the net income subject to the church tax:
- trade union membership fees; all fees
- automatic income-production deduction
- expenses for the production of income
- pension insurance fee
- unemployment insurance fee
- daily allowance contribution of health insurance
- automatic earned income deduction
- automatic basic deduction
The church tax (1–2%, average 1.34%) is levied on the net income. If there is any earned income tax credit left (after deducting it from the state income tax), the remainder is deducted from the gross church tax, proportionally to its share in the sum of the gross municipal tax, gross healthcare contribution fee, and gross church tax.
Yle tax[edit]
The following contributions are deducted from the gross income before determining the net income subject to the Yle tax:
- trade union membership fees; all fees
- automatic income-production deduction
- expenses for the production of income
The Yle tax (2.5%) is levied on the net income above €14,000. However, the maximum tax is €163.
Effect of deductions and credits on state income tax[edit]
Essentially, low-income individuals in practice don't pay state income tax at all, because the tax on their income does not exceed the standard deductions.
Tax withholdings[edit]
The Tax Administration withholds a portion of each paycheck and the portions withheld add up to the total of liability that consists of all the above-mentioned taxes and fees except the pension insurance fee and unemployment insurance fee. The portions withheld from earned income are determined by accuracy of 0.5 percentage points. After the fiscal year (calendar year) has ended, the administration pays the difference between tax liability and withheld taxes as a rebate or collects as tax arrears afterward. The decision is sent to the taxpayer between May and October the following year. Tax rebates, if any, are typically paid approximately two months following. The employer is responsible for choosing the pension insurance company; the employee has no say. The pensions of public sector employers are handled by the dedicated agency Keva.[5]
Total tax burden on labour[edit]
Taxes related to salary are paid both by the employee and the employer. The "gross salary" as reported to the employee conventionally does not include any of the taxes paid by the employer, which is a substantial portion of taxes. The employee personally pays municipal tax, state tax, and various minor taxes including contributions to mandatory insurance. The employer pays mandatory contributions to insurance and pension fees.[6][7] The Finnish system does not require the employee to personally pay pension fees, and does not provide for voluntary contributions or employer matching.
Considering the sum of all mandatory fees on the total employer's salary expense, the marginal tax rate, i.e. the percentage of each additional €100 withheld, increases rapidly from 25% to 48% at €13,000/y, from 48% to 55% at €29,000/y, reaches 67% at €83,000 /year and decreases slightly to 65% at €127,000/year (2018 data). This includes pension. Different sources include different fees: the official calculator on the Tax Administration website at vero.fi includes only the employer contributions to tax, while the Taxpayers Association of Finland includes both employer and employee contributions. These give significantly different results.[8][9]
Corporate income & capital income taxes[edit]
The income from dividends, rents, and capital gains are taxed with capital income tax. In 2017 the capital income is taxed at a fixed rate of 30% for income up to €30,000 and 34% for income above that. Some companies have a different taxation depending on if they are listed or not. Public companies have 15% of their dividends tax-exempt. The effective dividend tax rate is thus 25.5–28.9%.
However, taxation of the dividends from non-listed companies is much lower. As much as 75% of these dividends is tax-exempt up until €150,000. This still includes a condition that the dividend must be under or equal to 8% of the mathematical value of the stock (portion of net assets for a single share). 75% of the part that exceeds the 8% boundary will be taxed instead as earned income. If an individual gets more than €150,000 in dividends from non-listed limited companies, the tax-exempt percentage will only be 15% for the amount that exceeds €150,000. The effective tax rate for a dividend that does not exceed 8% of the value of a stock will be 7.5–8.5%. Due to the effect of net assets, dividends of debted private companies will usually have their dividends taxed as earned income.
The corporate income tax rate is 20.0%. The corporate tax was fully paid as dividend tax before 2004, but because of neutrality requirements of the EU, the tax credits allowed for dividends are now more complex. Corporate tax was lowered from 24.5% to 20.0% in January 2014.[10]
A small percentage, 2.55% as of 2011,[11] of corporate taxes is also distributed to parishes. Corporates pay church tax regardless of corporations' religious affiliations.
Property taxes[edit]
Municipal property taxes are low, since municipalities mostly meet their funding needs via direct income taxes and state subsidies. Tax rates are higher for leisure properties like summer cottages. Property taxes are levied annually on present market value. General rates are 0.60–1.35%, 0.32-0.75% on regular housing and 0.5–1% on leisure properties.
There is a 3% property transfer tax for property, and 1.5% for stock and housing cooperative shares. First-time home buyers were exempt from transfer tax until 31 December 2023, but no longer enjoy exemption. [12]
Consumption taxes[edit]
VAT is levied at a standard rate of 24% (January 2013), and two reduced rates of 14% on food, restaurant services, catering services and animal feed, and 10% on books, pharmaceutical products, services creating opportunities for physical exercise, passenger transportation and accommodation.[13]
Excise taxes are in place for alcohol, tobacco, sweets, lotteries, insurances, transport fuels and automobiles (2011). The motor vehicle tax is substantial. As a rule, permanent residents cannot drive foreign-registered cars in Finland. Persons with permanent residence outside Finland may drive foreign-registered car in Finland for six months, or up to 18 months if residence abroad is separately proven to Customs.[14] As an exception, European Civil Service employees working for the European Union are exempt from the car tax for their personal vehicle.
Pharmacies pay only the excise tax from their yearly income; no VAT is levied on medications. There is a tax credit for pharmacies that keep subsidiary pharmacies (sivuapteekki). The aim of this policy is to support keeping pharmacies in sparsely populated regions.[15]
Publicity of income taxes[edit]
Even when information of earnings and the taxation procedure of individual persons and companies are not public, the amount of taxes carried for each person and company is public information. Tax Administration authority is required to submit information for free if request is targeted. Larger records are submitted for journalistic purposes. Capital income and earned income are both public information, while taxation of dividends from unlisted limited company is not.
Taxation of non-residents[edit]
Anyone who has arrived in Finland and stayed longer than 6 months will become, from Tax Administrator's view, a resident. The residents' worldwide income is subject to Finnish tax, so that no distinction exists between the source country. Non-residents are subjected only to taxation of Finnish-sourced income.[16]
ID number and tax number[edit]
Persons working in Finland for a short period can get their Finnish personal ID at the tax office. The Finnish Tax Administration is entitled to enter information into the Population Register System and distribute identity codes jointly with Local Register Offices if the matter concerns foreigners who arrive for temporary periods, i.e. less than one year to work in Finland. ID requires following information entered to the system: Full name, Date of birth, Sex, Place of birth, Address, Citizenship, Native language and Occupation.[17]
In association of measures against grey economy in the construction industry, A new Act governing the mandatory Tax Numbers and the public Register of Tax Numbers was adopted in 2012. At the moment mandatory Tax Numbers are issued for construction-industry workers only. The Individual Tax Number does not reveal the individual's age, sex or date of birth. The number doesn't change when a worker moves on to work for another employer or to work at another construction site.[18]
Withholding tax for foreign wage earners with special expertise[edit]
Under the Act on Withholding Tax for Foreign Wage Earners with Special Expertise (1995), a withholding tax of 35% is levied instead of State income tax on earned income and communal tax. The withholding tax is applied to foreign employees under the following conditions:
- the individual becomes resident in Finland at the beginning of the period of employment to which the Act applies
- the pecuniary salary for this employment is at least €5,800 a month during the total period of employment to which the Act applies
- his tasks require special expertise
- he is not a Finnish national and he has not been resident in Finland in the five years preceding the year in which this employment began.
A taxpayer is deemed to be a foreign expert for a maximum of 48 months from the beginning of the employment.[1]
Officials of the European Union[edit]
Salaries or grants paid by the European Union bodies, such as European Chemicals Agency in Helsinki, are tax-free in Finland and do not need to be reported to the Finnish Tax Administration or Finnish social security, regardless of residency. Employees of European Union bodies may bring a car to Finland without paying the Finnish car tax.
See also[edit]
References[edit]
- ^ a b "Archived copy". Archived from the original on 2014-06-06. Retrieved 2014-06-03.
{{cite web}}: CS1 maint: archived copy as title (link) - ^ "Finnish Tax Administration > Income taxation of individuals". Archived from the original on 2014-06-06. Retrieved 2014-06-03.
- ^ "404 Ei löytynyt - Finnwatch". Archived from the original on 2017-12-25. Retrieved 2017-12-24.
{{cite web}}: Cite uses generic title (help) - ^ "Finnwatch: Puolueet puuttuisivat eri tavoilla veroparatiiseihin". Yle Uutiset. 5 May 2014. Retrieved 24 December 2017.
- ^ "Julkisaloilla oma lakinsa". Työeläke.fi (in Finnish). Retrieved 2022-01-10.
- ^ {fi} https://www.aamulehti.fi/uutiset/nain-vahan-lisasatasesta-jaa-sinulle-kateen-laskelman-tulos-yllattaa-ja-hatkahdyttaa-myos-keskituloisia-200785052
- ^ {fi} https://www.vero.fi/syventavat-vero-ohjeet/ohje-hakusivu/48846/valtion-tuloveroasteikko-2018/
- ^ {fi} https://www.veronmaksajat.fi/luvut/Laskelmat/Palkansaajan-veroprosentit/
- ^ {fi} https://www.veronmaksajat.fi/luvut/Laskelmat/palkkakuitti/
- ^ "Finland to lower corporate tax rate by 4.5pc". Independent.ie. 22 March 2013. Retrieved 24 December 2017.
- ^ "Vm.fi". Vm.fi. Archived from the original on 19 June 2013. Retrieved 24 December 2017.
- ^ "Transfer tax". www.vero.fi. Tax Administration. Retrieved 26 April 2024.
- ^ "Finnish Tax Administration > Changes in VAT on 1 January 2013". 6 June 2014. Archived from the original on 6 June 2014. Retrieved 24 December 2017.
- ^ "Tulli - Tulli valvoo tarkoin ulkomaille rekisteröityjen ajoneuvojen käyttöä". Archived from the original on 2016-11-29. Retrieved 2016-11-28.
- ^ "Apteekkimaksu - Fimea". Fimea.fi. Retrieved 24 December 2017.
- ^ "Arriving in Finland". Vero.fi. Retrieved 24 December 2017.
- ^ "Finnish Tax Administration > Finnish personal identity codes for short-term use". 6 June 2014. Archived from the original on 6 June 2014. Retrieved 24 December 2017.
- ^ "Individual Tax Numbers — instructions for use". Vero.fi. Retrieved 24 December 2017.
Further reading[edit]
Colliander, Anders (April 2009). Taxation in Finland 2009 (PDF). Ministry of Finance publications. Vol. 7/2009. Ministry of Finance. ISBN 978-951-804-932-9.