Foreign Self-Employed Person at a Shipyard
Welcome to Finnish Tax Administration’s web pages for foreigners at shipyards!
On this page there is information for foreign self-employed persons.
A self-employed person is a businessman, whose activity fulfils the signs of business (e.g. profit seeking, independence, method of system, continuance, economic risk). The payment for a self-employed person is nonwage compensation for work (in Finnish: työkorvaus) that means that the payment does not have the usual characteristics of wage payment. Wages or salary is paid for an employee. If you are an employee, read more about Employees: Foreign Employee at a Shipyard.
A foreign self-employed person is taxed on professional income in Finland only if he has a permanent establishment (fixed base) in Finland regularly available to him for the purpose of performing his business activities. Usually this kind of permanent establishment of professional activity is considered to be formed with the similar grounds than for other types of businesses. A foreign self-employed person can have a permanent establishment in Finland even though he hasn’t got an office here.
A permanent establishment is formed when a building or installation project lasts for more than the time limit defined in a tax treaty. Most often the time limit is 12 months. But the time limit defined in the tax treaty may be shorter or longer. For example, a permanent establishment is formed to a self-employed person who comes from Estonia, Latvia or Lithuania and he stays in Finland for longer than 183 days. A self-employed person who comes from some of the Nordic countries can be taxed in Finland though he hasn’t got a permanent establishment but he stays in Finland for more than 183 days.
Although this 12 months time limit is usually evaluated separately for each project, several projects carried out in the same building site may form a period of time that is considered to be one project. If a self-employed person has several projects in Finland and they can be considered to link to one another, all projects are counted in as the duration of the project is evaluated. Also the time that the subcontractor uses in his work is counted together with the main contractors time used in the work. Occasional interruptions of the work do not affect to the counted period of time.
If a project lasts longer than was expected and the period of time exceeds the time limit that constitutes a permanent establishment, the permanent establishment is considered to be formed from the beginning of the project.
If a self-employed person has a permanent establishment in Finland, he has to register his business in Finland. In addition to start-up notification also amendments or termination of business have to be registered. The forms needed are start-up notification (Y3) and notification on amendments or termination of business (Y6). The forms are available in the BIS (Finnish Business Information System, www.ytj.fi/english, Forms and instructions).
A self-employed person is usually registered in Value Added Tax register, prepayment register and possibly employer register.Before registration a self-employed person needs a Finnish personal identity code from Register office (www.maistraatti.fi/en/).
Value Added Tax (VAT)
Value added tax (VAT) is levied on the selling of goods and services in the form of business operations in Finland even if the seller is a foreigner and the selling is not conducted from a permanent establishment in Finland. As a rule, buyers are VAT-liable for goods and services if the seller is foreigner without permanent establishment in Finland (reverse tax liability). Foreigners carrying on business through a permanent establishment in Finland are VAT-liable just like Finnish businesses.
If a self-employed person pursues building or installation activities in Finland, either individual project or several successive ones, which last for longer than 9 months he has to register his business to the VAT-register. If in the beginning it’s known that the project is going to last for over 9 months or if the project due to an unexpected reason continues for over 9 months, the self-employed person is VAT liable from the beginning of the project.
Please note that permanent establishment in the meaning of Value Added Taxation differs from permanent establishment in the meaning of income taxation.
Changes in VAT taxation as of 1 January 2013
Periodic Tax Return
- From the beginning of year 2010 VAT and employer payments are reported in a periodic tax return and paid to the tax account. The payments are made according to the frequency of reporting, which can be either monthly, quarterly or yearly.
- Read more about reporting and paying here:
A self-employed person will be registered in the prepayment register on application.
If a self-employed person is prepayment-registered, the customer does not have to withhold tax before making a payment to him. If a self-employed person is not prepayment-registered, the customer has to withhold tax on the invoices or to withhold tax at source. It is possible for a foreign self-employed person to register for pre-payments, even though his businesses do not form a permanent establishment in Finland. The only precondition is that the native country of the self-employed person has a tax treaty with Finland. If a self-employed person neglects for instance to pay taxes or make withholdings it is removed from the prepayment register.
If a self-employed person stays in Finland max 6 months, a customer has to withhold tax at source 35 %, in case a self-employed person is not prepayment-registered or does not provide a tax-at-source showing a zero rate. If a self-employed person stays in Finland more than six months he is treated as a resident. When making payments to a resident person, the withholding rate is 60 % unless the person presents a tax card showing another withholding rate or is pre-payment registered.
It is easy to check valid prepayment registering in the BIS (The Business Information System, www.ytj.fi/english, BIS-search).
Obligation to withhold tax from an invoice that includes compensation for work
If a subcontractor gives the main contractor an invoice, it is the obligation of the latter to check whether the subcontractor is prepayment-registered or not. In the shipbuilding industry the customer does not have to withhold tax only when the payee is prepayment-registered or has a tax-at-source card showing a zero rate (see Prepayment register). The same rule applies to house building, earth-moving, water engineering, or other building work, assembly or installation project, transporting or cleaning, caring and nurturing work.
If the enterprise is not prepayment registered and does not have a tax-at-source card or a tax card showing a zero rate, it is an obligation of the customer to withhold taxes in the following way:
- 13 % tax-at-source, when the party presenting the invoice of compensation for work, is a foreign enterprise or a business partnership
- 13 % withholding tax, when the party presenting the invoice is a Finnish enterprise or a business partnership, or a foreign enterprise or a business partnership that has a permanent establishment in Finland
- 35 % tax-at-source, when the person getting paid for the compensation for work is other than a Finnish natural person (for example a foreign self-employed person), who stays in Finland max 6 months
- 60 % withholding tax, when the person getting paid for the compensation for work is a natural person (for example an employee or a self-employed person), who stays in Finland for more than 6 months and does not provide a tax card to the enterprise that makes the payment
Furthermore, the main contractor (the payer) is under the obligation to examine whether the subcontractor should be treated as an employee or as an independent contractor. In this way, the main contractor (the payer) is expected to examine the facts known to him and decide whether the payment is wages or another type of payment. If it is wages, the main contractor (the payer) should also take care of all other employer obligations.
If a non-resident has a permanent establishment in Finland, he may be taxed in Finland for all income attributable to the permanent establishment even if the income is not from Finland. If a self-employed person has a permanent establishment in Finland, the taxation of all income attributable to this permanent establishment is based on the net income. All expenses caused by acquiring the income are deductible from the turnover before computing the amount of the taxes.
In a non-treaty situation Finland may tax non-residents for profits from business conducted in Finland even though the activities would not constitute a permanent establishment. Income from conducting of business or a profession in Finland is considered to be Finnish-source income.
For individuals the income from business is divided to the portions of earned income and capital income. Earned income is subject to progressive taxation and capital income to 30 % tax, and capital income over 50 000 euro to 32 % tax. The capital income portion of the business income is deemed to correspond 20 % annual profit on the net assets of the previous tax year. Rest of the business income is taxed as earned income. If a self-employed person has started up the business during the tax year the portion of capital income is based on the net assets of the tax year in question.
If a self-employed person hasn’t got a certificate E 101/A1 or other corresponding certificate he also has to pay health insurance and per diem payments and other subjects relating to social security (for example pension).
Self-initiated advance tax
The taxable income is based on the net income. In statement of starting up a business, a self-employed person estimates the future sales and taxable income and self-initiated advance taxes are based on this estimate. If the outcome differs from the estimate, he can apply for changes or removal to self-initiated advance taxes. By paying taxes in advance a self-employed person can pay taxes in several instalments and also avoid the interest on back tax.
The business tax return of a self-employed person (form 5) has to be declared the year following the finished financial year. Self-employed persons receive also personal pre-completed tax returns. The personal pre-completed tax return will be returned only if there is something to add or correct. The business tax return must always be given. If there is a delay in filing of the tax return, a punitive tax increase is possible.
Information for a foreign self-employed person who will terminate business activities when leaving Finland
A self-employed person must inform termination of business in Finland and request the prepayment tax to be removed or lowered by filling form of business Y6. The balance sheet for last accounting period or some other account or for example income tax return for the tax year, must be attached.
If self-employed person has during the calendar year had other income which affects the prepayment tax he will file a separate application for changing or removal of prepayment tax.
It is recommended that at the same time before leaving Finland a self-employed person would file the income tax return if the activity in Finland will finish totally. (You have to note that on the tax return the right tax year is used.)
Person has an obligation to give a change of address –notice to the Registration office when leaving Finland.
NOTE: The information on this page is for general guidance only. More detailed information can be found on the Finnish Tax Administration’s Finnish and Swedish pages (www.tax.fi) or from a tax office.