International tax situations, Beneficiaries of pension income – Frequently Asked Questions
1. I will soon receive pension income from a Swedish payer. What do I have to do?
You should first contact your local tax office. If necessary, a new withholding rate for Finnish-sourced pension income will be given to you, or alternatively, an official calculation for tax prepayments will be made for you so you can make regular prepayments yourself. The calculations at the tax office take account of the Swedish-sourced pension income and its impact on your taxes and on your health insurance contributions in Finland. For this reason, please bring along your Swedish pension documents that show the amounts to be paid to you.
2. I am a resident of Finland. I have pension income from a Swedish source. What is the tax on such income? Must I report it on my tax return in Finland?
The Swedish payer will withhold 25% (as a tax called SINK) on the pension payments going to you. This tax is usually withheld on amounts above the basic pension level (SEK 2,746/month in 2011). If your pension income does not reach this level there will be no withholding of tax in Sweden.
Yes, you must report your Swedish-sourced pension income because it affects your taxes Finland. Because Finland is your country of tax residence, you will receive relief from double taxation as determined by the tax treaty between the countries. The intra-Nordic tax treaty has defined the method of treatment of the Swedish-sourced pension in such a way that it depends on the start date of the pension benefits and the date of arrival in Finland.
If pension start date and the date of arrival in Finland are prior to 4 April 2008: Pension income from Swedish sources has a direct impact on the beneficiary's taxes in Finland. This means that your total income will determine the tax rate when you pay tax on your Finnish-sourced pension income, and the portion that reflects your Swedish-sourced pension is credited (the exemption method). You may additionally be entitled to a tax relief connected with the maximum rule if the sum of your Finnish and Swedish taxes exceeds the amount of Finnish tax that would be collected for the same income in Finland. The authorities will automatically grant you relief for the excess amount.
If pension start date and/or the date of arrival in Finland are 4 April 2008 or a later date: In the Finnish tax assessment, the taxes you have paid in Sweden will be set off i.e. the amount withheld in Sweden will be subtracted from the total of your Finnish taxes (the credit method). However, the maximum credit cannot exceed the amount of tax that relates to the Swedish-sourced pension income.
3. If my Swedish-sourced pension arrives in my bank account in a Swedish bank must I report it on my Finnish tax returns?
Yes, you must report and declare your pension incomes. For tax purposes, no importance is attached to what bank account they pay your pension or where the money is deposited.
4. I receive a package of ”kontrolluppgift” papers from Sweden every year. What should I do to it?
You should check your Finnish Pre-completed tax return form to see whether the information and amounts of your Swedish-sourced pension are shown correctly. If it turns out that the ”Foreign pension income/Ulkomaan eläketulot” line of your Pre-completed tax return does not show your Swedish-sourced pension you must fill in that line and also the ”Foreign taxes paid on foreign income/Ulkomaan tuloista maksetut ulkomaiset verot” line as appropriate. There is no need to enclose the "kontrolluppgift" document with your Finnish tax return. Instead, you should keep it in order to have it available if any additional checks must be made.
5. What does 'TIN' mean and why do I need it?
The TIN (Tax Identification Number) is a code number that identifies the taxpayer. The Finnish tax authorities use personal identity codes for the purpose. Thus, when we report information to Sweden the taxpayers are identified with the 'FI' country code and their personal identity codes in the following format: FI 123456-789A.
6. Why must I pay the Finnish health insurance contribution out of my Swedish-sourced pension income?
This tax-like contribution (called sairaanhoitomaksu in Finnish; sjukvårdsavgift in Swedish) is collected from Finnish residents. If one part of your pension income is sourced in Finland and the other part in Sweden, they are both added up to determine the amount of your contribution. Because Sweden does not collect health insurance or social security contributions on the pension income that you receive, you are not at risk of having to pay the same contribution twice. The maximum amount of your contribution cannot be higher than the total amount of your Finnish-sourced pension income.
7. The Finnish tax authorities have sent me a tax card for the current year in spite of the fact that I have left Finland and lived overseas for many years. My only Finnish-sourced income is a small pension. Why must I pay Finnish municipal tax to the Finnish tax authorities?
An information package is sent every year to beneficiaries of Finnish-sourced pension income displaying their current tax rate and the reasons for it.
Previously, nonresidents had to pay a 35-percent tax at source on their Finnish-sourced pension income. Changes were made in 2006 to the system of tax assessment of pension income paid to foreign countries. At the present time, Finnish-sourced pension in the hands of nonresidents is taxed in the same way as the pension income received by Finnish tax residents. The progressive schedule applies to the earned income that is subject to state tax, and an average municipal tax rate applies to the income subject to municipal tax. However, all taxpayer-paid amounts from nonresidents are fully remitted to the State of Finland, and thus there is no Finnish municipality that would receive the portion of the nonresidents' taxes that represents municipal tax.