Finland

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Tax Policy

TAX POLICY

Income Tax Rate 51%

Corporate Tax Rate 26%

Sales Tax / VAT Rate 23%

Tax Rates

The national income tax rates in Finland in 2010 for the earned income are progressive up to 30% as follows. An additional municipal income tax varies between 16.5% to 21%.

Taxable income (EUR)

Tax on lower amount (EUR)

Rate on excess (%)

15,200 – 22,600

8

8.5

22,601 – 36,800

489

17.5

36,801 – 66,400

2,974

21.5

66,401 and over

9,338

30.0

National tax on investment income is a proportional tax of 28%. Municipal income tax varies among municipalities from 16.5% to 21%. The church tax on income is between 1% and 2%.

The tax year for individuals is the calendar year. Married persons are taxed separately both on earned income and investment income. Interest and insurance deductions are dependent, in certain circumstances, on the marital status of the taxpayer. In general, married persons will have their own deductions.

Individuals are entitled to deduct from their investment income and earned income all expenses incurred in acquiring and maintaining such income. Individuals have a right to deduct interest expenses from investment income.

Interest expenses are deductible if the debt is related to the acquisition of taxable income or the acquisition or repair of the taxpayer's or his family's permanent dwelling.

An individual is deemed to be a resident in Finland if he has his main place of abode in Finland or if he is continuously present in Finland for a period of more than six months. A presence is deemed continuous irrespective of temporary absence.

Finnish nationals are, in addition, subject to the three-year rule. According to this rule, a Finnish national is considered to remain resident in Finland for three years after the end of the year in which he left the country, unless he shows that he has not maintained essential ties in Finland during the tax years concerned. However, under the terms of tax treaties, the three-year rule may be negated if the individual is deemed resident in another country.

An individual is taxed separately on earned income and on investment income.

Earned income is subject to national income tax, municipal income tax and church tax. Earned income includes salaries, wages and benefits in kind. Investment income includes dividend income, capital gains, certain interest income and income from rental activities.

Finland imposes both inheritance and gift tax.. The minimum taxable amount for inheritance taxation is EUR 20,000 and for gift tax EUR 4,000. Tax rates for both inheritance and gift tax will vary from 10% to 32%, depending on who is the receiver of the inheritance or gift.

Wages and salaries paid by an employer are subject to a withholding tax. The amount withheld is based on the amount of wages or salary as well as on the individual circumstances of the employee.

Corporate income tax

Finnish corporate income tax rate is 26% of the taxable income.

Finnish resident companies are liable to corporate income tax on their worldwide income. Non-resident companies are taxed on their Finnish-sourced income only. Corporate residence is not defined in the tax legislation but residency is usually associated with registration.

The tax year consists of the financial period (or periods) that end during the calendar year. The final tax assessment for the tax year is determined based on the tax return. Corporate bodies must file the tax return within four months of the end of their accounting period. Tax returns are processed within ten months of the end of the accounting period.

Capital gains tax

Capital gains are normally taxed as ordinary income. Where shares or land have been held for business purposes, the disposal is subject to normal income tax. In specific circumstances, capital gains from the disposal of shares of a subsidiary are tax exempt.

The shares need to be owned for at least one year prior to disposal and the seller has to have owned at least 10% of the company whose shares are being disposed of.

Local taxes

Basically, there are no local taxes imposed on companies. However, municipal real estate tax is levied on properties owned by companies. It is normally 0.22% to 0.5% of the taxation value of the immovable property, depending on the municipality where the property is situated, and is deductible, up to certain limits, for income tax purposes.

Other taxes

Employers must make social security contributions to cover the costs of health insurance and, up to 31 December 2009, the national old-age pension. From 1 January to 31 March 2009, the total contributions were 2.801%, 5.001% or 5.901% of gross remuneration paid to employees. The rate is dependent on the amount of depreciation deduction taken and the amount of salaries paid during the last year for which the income tax assessment is final. From 1 April to 31 December 2009, the rates were reduced to 2%, 4.2% and 5.1%.

In 2009 employers paid employment pension insurance contributions of 16.8% (on average), and unemployment insurance contribution of 0.65% on the first EUR 1,788,000 and 2.7% on the excess. They also pay an accidental injury insurance contribution (including group life insurance) of approximately 1% of the employee's annual gross wages and salaries.

Withholding tax

Withholding tax is not imposed on dividends paid to resident companies. Dividends paid to non-resident companies are generally subject to a final withholding tax of 28% which may be reduced or eliminated under tax treaties. Non-resident shareholders are not entitled to an imputation credit unless a tax treaty provides otherwise. Interest paid to resident companies is not subject to withholding tax. Interest paid to non-residents is generally exempt from tax.

Withholding tax is not imposed on royalties paid to resident companies. Royalties paid to non-resident companies are generally subject to a final withholding tax of 28% which may be reduced or eliminated under a tax treaty. Royalties are, in certain cases, exempted from withholding tax when paid to a company resident in a European Union country. In certain circumstances, tax must be withheld on payments for work carried on by non-residents. 

Value-added tax

The general VAT rate in Finland is 23%. Other applicable rates are as follows:

- 13% for individuals' food and animal feed

- 9% for medicines, books, cultural events, passenger transportation, hotel accommodation and other services

- exports outside the European Union are zero rated.

VAT is paid on the sale of goods and services, on the importation of goods, on intracommunity acquisitions, and on the removal of the goods from a fiscal warehousing arrangement when the removal takes place in Finland. In principle, all sales of goods and services are subject to VAT. However, there are some supplies of goods and services which are exempt under the conditions defined in the VAT Act.