Filing Finnish income tax returns – foreign corporate entity
In force until further notice
Liability to income tax
Foreign corporate entities have limited liability to tax, in other words – nonresident status. Nonresidents are liable to pay Finnish tax on income derived from Finland-related sources. Examples of such income are incomes from a trade/business operated, or a profession pursued, income derived from a real property unit or a flat/apartment in a housing company, receipts of dividends from a Finnish company, receipts of royalties from a Finnish payor, and an income distribution share from a Finnish consortium.
If the foreign corporate entity has a permanent establishment, liability to tax will apply to all the income attributable to the permanent establishment, including any income sourced in another country.
For more information, see Web article .
Income tax return vs. tax withheld at source
Depending on income type, the procedure of taxation will either involve taxpayer-submitted tax returns, or mandatory withholding of source tax carried out by payors of income. The latter is applicable to any payments made by a Finnish company to a foreign corporate entity of dividends, royalties, and nonwage compensation for labour or personal services. For receipts of other types of income, the foreign corporate entity will be expected to file an income tax return to the tax office. This is applicable to business income and income derived from a real property unit or a flat/apartment in a housing company. Tax Return Form 6B should be used for the purpose.
Corporate entities should file their tax returns within 4 months of the closing of their accounting year. Tax forms, including mandatory enclosure forms, are available at local tax offices and at www.tax.fi.
Most foreign corporate entities should send their tax returns to Corporate Tax Office of Uusimaa. However, if the source of income has been Åland Islands instead of mainland Finland, an income tax return to declare the Åland-sourced income should be filed to the local tax office of Åland. Some foreign corporate entities should send their tax returns to Large Taxpayers’ Office (the official list of these entities: Verohallinnon päätös verotusta koskevasta toimivallan siirrosta ja toimivaltaisesta verovirastosta, dnro 1135/09/2009, 17.12.2009).
It is within Finland’s taxing rights to levy tax on the business income of a foreign corporate entity, if this income is derived from operations in Finland, and if, for purposes of income taxation, there is a permanent establishment in existence in Finland. The foreign corporate entity is expected file an income tax return to declare revenues, costs, assets and liabilities of the permanent establishment. If any income is attributable to the permanent establishment that is taxable as a source-tax item, this income should also be declared in the tax return form. If any tax at source has been paid, precise information on the income and relevant tax should be enclosed.
The foreign corporate entity will also be expected to file an income tax return to give a report on the Finland-based operations even if, in the opinion of the foreign corporate entity itself, no permanent establishment is created, but the Finnish Tax Administration has not confirmed that this is so. Confirmation that no permanent establishment exists can be given in the form of an advance ruling, or in connection with previous year’s tax assessment. Such an income tax return filing should include the Business ID of the corporate entity, its address, the address of the local place of business, and a list of owners as instructed in the instructions for completing the tax return form. Furthermore, information should also be enclosed as itemized below under Explanation of business.
Pursuant to Finnish Accounting Act (30.12.1997/1336, www.finlex.fi), the foreign corporate entity has the obligation to make accounting records to cover the operations based in Finland. The tax return should include a photocopy of the profit and loss account and balance sheet of the company, drawn up, as appropriate, as provided in Accounting Act.
Income from real property and apartments/flats
Usually, foreign corporate entities are liable to pay income tax on any (rental / capital gains) income derived from real property located in Finland, even if no permanent establishment is in existence. Thus, foreign corporate entities are expected to file income tax returns to declare the revenues and costs attributable to their real property.
Consequences of not fulfilling the reporting requirement
The foreign corporate entity has the obligation to file income tax returns, and if this obligation is neglected, the applicable consequences include punitive tax increases, assessment by estimation, and cancellation of the validity of registration in the Finnish tax-prepayment register.
How to fill out tax return forms
For precise information, see the complete guide for Form 6B.
Write name and address of the foreign corporate entity (permanent establishment) in the top section (including its Finnish Business ID, address, accounting period, line of business, and bank account number) and report any changes on previously registered information. Tick the boxes of the form as appropriate.
Write shareholders’ names in Section I (this means shareholders of the Principal i.e. the foreign corporate entity itself), and list any payments made to them that affect the profits of the permanent establishment in Finland.
In Section II, write a list of any residential property owned by the permanent establishment that has been used as a residence during the tax year by a shareholder-director or family.
Because foreign corporate entities are not required to fill out Section III (Approval of financial statements) and Section IV (Changes in subscribed share capital), please leave them blank.
Taxable income attributable to the permanent establishment will include the income and profits, which would have accrued to it if it were an independent company, operating a similar trade or business in similar circumstances. The Finnish tax authorities will assess the year’s taxes by estimation, if no separate accounting has been made, or if the accounting is deemed unreliable.
Write business revenues and business costs in the Calculation of taxable income section (Section V) of the form. This calculation should concern the permanent establishment, and be drawn up as instructed in Business Tax Act (24.6.1968/360, www.finlex.fi). Thus, you can arrive at the taxable income attributable to the permanent establishment if you subtract the total of lines under B-Business costs from the total of lines under A-Business income. If the result shows a profit, enter it in line 500, and if it shows a loss, enter it in line 505.
If there is no permanent establishment, rental / capital gains income is reported as follows
Please enclose Form 7A if income has been derived from a real property unit or a flat/apartment in a housing company. Please transfer the sum totals of Form 7A to line 355 and line 398 of the Calculation of taxable income section (Section V). If the result shows a profit, enter it in line 501, and if it shows a loss, enter it in line 506.
Calculation of net worth (Section VI) is designed for showing all the assets, liabilities, and invested capital attributable to the permanent establishment. Nevertheless, foreign corporate entities are not required to fill in lines 573 and 574 to show positive or negative net worth, and similarly, foreign corporate entities are not required to draft valuation reports of real property units and housing-company shares to arrive at domestic comparison values (vertailuarvot; jämförelsevärden).
The foreign corporate entity is expected to declare whether the statutory audit has been performed at the Principal company in Section VII (Auditor’s report). Please note that only the first two boxes are relevant for foreign corporate entities; box 3 and box 178 do not apply to permanent establishments.
Furthermore, the foreign corporate entity is expected to give details on any major ownership changes of the Principal company in Section VIII (Deduction of losses). Please tick box 1 for Yes, if more than half of the shares have been transferred to a new owner during the tax year of the loss reported by the permanent establishment, or during the tax year when an unused imputation tax credit became available, or afterwards, for any reason other than inheritance or testament. If a similar change has occurred in a company holding at least 20% of the Principal’s shares, please also tick box 1 for Yes. Write the relevant tax year in line 531. However, if no changes regarding ownership have occurred, tick box 2 for No.
If there is no permanent establishment, rental income is reported as follows
Please enumerate any real property units in Finland or flats/apartments in Finnish housing companies in Calculation of net worth (Section VI).
Electronic filing is available. It is necessary to have a Katso ID to sign in to the e-service interface. For more information, go to https://yritys.tunnistus.fi.
If filed on paper, it is mandatory to include date and signature in the tax return form. The tax return can be signed by a representative authorised by the customer, if necessary. If the tax return is filed electronically, the identification will substitute the signature.
Explanation of business
1. In home country, what trade or business does the foreign entity operate?
2. Explanation of business in Finland:
2.1. What trade or business does the foreign entity operate?
2.2. How are the operations in Finland different from the operations in home country?
2.3. Please describe place of business in Finland (office, site, plant etc.) and the purpose(s) of this place of business?
2.4. How many employees work in Finland and what are their jobs?
2.5. Is an employee in Finland entitled to receive orders or to send orders for further processing
to the main office?
2.5.1. If order fulfillment takes place in Finland, please describe the ways in which local employees participate in order preparation and fulfillment?
2.6. Does a company employee or other (physical or legal) person in Finland have the authority to make binding agreements on behalf of the foreign corporate entity?
2.6.1. If so, please give details (name, personal ID number, Business ID)
3. Explanation of each building, installation or assembly job in Finland:
3.1. Investor or customer of the job (name and Business ID)
3.2. Site or Object of construction (address)
3.3. Duration (Start date, End date)
3.4. Interruptions of the job (reasons, Start and End dates)
3.5. If there is a subcontractor, how long is the duration of the subcontracted job in Finland?
3.6. Other related jobs (name of customer of associated job, site, name of Object, duration).