Income taxation of foreign businesses in Finland
The income tax rate for limited liability companies and other corporate entities is 20%. The income of partnerships and self-employed individuals is divided into capital income and earned income.
Permanent establishment in income taxation
Your company's operations in Finland may give rise to a permanent establishment for the purposes of income taxation. This means that your company is liable to pay income tax on its Finnish business operations.
A permanent establishment means a fixed place of business through which your company conducts some or all of its operations. Your company is considered to have a permanent establishment in Finland if it has one of the following in Finland:
- management office
- local office
- factory or production plant
- mine, quarry, oil well, natural gas well, or other site for extraction of natural resources
- construction or installation operations that last longer than 6, 12 or 18 months (the time limit depends on the tax treaty between Finland and your country)
- location where a dependent agent works.
In order to be considered a permanent establishment, your company's place of business must have a fixed geographical location and not be temporary in duration.
- The place of business may be located in the premises of another company. For example, your company may occupy a certain space that you use on a regular basis.
- If your company has employees who work from home, the situation may give rise to a permanent establishment.
A company is usually considered to have a permanent establishment in Finland if the company's management and business administration are located in Finland. Your company's place of management is the place where significant decisions are made, such as operative and strategic decisions concerning the company's operations. In taxation, the place of management may also be situated in another company's premises or at the home of a company director.
Sites where construction, installation or assembly operations are conducted may be considered permanent establishments. The site may constitute a permanent establishment if the duration of the operations exceeds the limit stated in the bilateral tax treaty that is applied. The time limits applied are 6, 12 or 18 months. For example, if the tax treaty between Estonia and Finland is applied, construction operations that last longer than 6 months constitute a permanent establishment.
The end date is the date when the work is completed or decisively cancelled. Short-term interruptions are included in the duration of the operation.
If a company has several projects in Finland, each one is considered to have their own time limit. However, if the projects are closely connected geographically and commercially, they may be considered to have a common time limit. If a project is artificially divided into multiple parts, the operations will still be treated as a single project.
Your company may have a permanent establishment in Finland even without a fixed place of business if representatives of your company work in Finland.
A dependent agent may give rise to a permanent establishment if they have been given the authority to enter into contracts and to receive and fulfil orders. However, they must use their authorisation regularly. The dependent agent may be another company or an individual, such as an employee who sells your company's products or services in Finland.
An independent representative does not give rise to a permanent establishment. Your representative is independent if they are both financially and legally unattached to your company. For example, intermediaries, brokers and commission merchants are considered independent representatives.
Preparatory and auxiliary activities do not give rise to a permanent establishment. Preparatory and auxiliary activities include
- data collection
- opening an information service
- scientific research.
For example, if you establish operations in Finland only for the storage, commercial display or delivery of goods that belong to your company, you are not considered to have a permanent establishment in Finland.
However, whether or not your activities can be considered preparatory or auxiliary is considered separately in each case. If company's activities in Finland are part of the core business of the company and in this way form an important part of company's business the company might be treated as having a permanent establishment in Finland.
After-sales services offered to customers are not usually considered preparatory or auxiliary activities. After-sales services can include repair work under warranty or deliveries of spare parts to the customer from a fixed place of business. These services are considered a part of your company's business operations and they therefore cannot be just preparatory or auxiliary activities.
All companies have some filing obligations
Even if your company does not have a permanent establishment in Finland, you are still required to meet certain tax filing obligations.